Blogs

UNEMPLOYMENT RATE DECLINE ENDING

The unemployment data at 5.9% released on Friday is given the credit for the rally in equities which looks like continuing today. But how much lower can the rate drop? After peaking at 10.1% in October 2009 it has fallen 42 percent to 5.9% in one month short of 5 years. From the monthly chart below, which shows history back to 1968, you can see that the unemployment rate's RSI is down at 15.9...it made a low of 14.0 in June which means that it is making a small divergence but the important thing is that it has never been this low before.

BULL MARKET IN BONDS

The bull market in US bonds began in September 1981 when the 10 year yield made a monthend peak at 15.32%...the low was made monthend July 2012 at 1.48%...this resulted in a ten fold increase in bond prices. The monthly chart of yield below shows that the downtrend is still inatct and that a month end close above 3.03% would be required to reverse direction and pronounce that the bull market in bonds was officially over.

RUSSEL 2000 TO FALL FASTER THAN DOW 30

In my blog of September 2 (http://investrac.com/blog/dow-30-at-the-long-term-apex ) I wrote "Something big is about to happen...expect a major move from this point! The InvesTRAC long term OB/OS indicator is overbought 99.9 (scale 0-100) with monthly RSI divergence and the forecaster shows top for either August or September then down until November 2016. Let's wait and see." But we have had to wait for a month for something to happen, for the first cracks to appear.

WTI CRUDE COULD REVERSE ITS DOWNTREND SOON

Since June we have been watching the price of WTI crude oil decline as the US dollar has strenghtened. But it does seem now that the US dollar is ripe for a reversal which could be good for a recovery in the price of oil. InvesTRAC's short term model shows that WTI crude is lifting off the oversold level and is rising at 1.6 (scale 0-100) which would suggest that there could soon be a reversal of the downtrend.

DOW 30 AT THE LONG TERM APEX

The Dow 30 Industrial Average is at a point of huge resolve. On the one hand we hear the bulls declaring that there is going to be a sustained rise over the next year or so, then on the other hand the bears are calling for a massive drop. What's it going to do?

IS VIX GOING TO JUMP TODAY?

The appetite for risk is still on. And I keep reading about why the stock market is going to really soar from here. InvestRAC is not taking issue with the bulls but we thought it a good idea to show you an interesting situation in the daily chart below...it shows VIX on top and beneath it the S&P500 index...notice how VIX is sitting on a support line from its early July low and that it has moved into the apex of the convergence of this support line and the down trend...it is about to stage a breakout today or tomorrow at the latest.

OIL AND THE DOLLAR ARE TELLING US SOMETHING

Despite massive Quantative Easing there is no evidence of inflationary pressure let alone hyper inflation as some would have. So what is this telling us. We are not economists here at InvesTRAC but if we pursue a logical path of reasoning regarding why all this excess liquidity can't fire up the economy but instead finds it way into non productive equities. And our answer is that it means a slide into deflation.

GOLD SHARES ARE EXPENSIVE RELATIVE TO THE GOLD PRICE

Gold shares are not cheap. In fact relative to the price of the metal, gold shares are historically expensive. This view is based on the ratio of the XAU index relative to the gold price. Have a look at the weekly chart of this ratio below...it shows data from from January 2008. The downtrend is drawn in from the peak at 0.2389 made in October 2007(not shown) and now the ratio is at 0.07798 which is just a third of where it was back then. This has caused some analysts to suggest that the shares are therefore cheap.

IS IT TIME TO SWITCH OUT OF US EQUITIES INTO CHINESE?

Since January 2008 US equities have totally outperformed Chinese equities. Have a look at the weekly chart and you can see that the Chinese Shanghai All Share index (SSE) has fallen from a high of 0.4566 in January 2008 to the current low of 0.1203 which is a massive 74 percent under performance from the Chinese index. As you can see the ratio is now testing its 6 and a half year long downtrend and should it move any higher and get through we could see a burst into mid September. InvesTRAC's medium term model is positive for the ratio and suggests that it could rise strongly.

GOLD AND SILVER SHARES COULD DROP

There is a huge amount of hype regarding why investors should be buying gold and silver stocks right now. However, the InvesTRAC short term model warns that caution should be exercised because the XAU (PHLX gold/silver index) has given a sell signal. Have a look at the daily chart below ...you can see that the sharp uptrend was reversed July 14twhich has been followed by a setback.