From Martin Armstrong's buddies at PEI. James Smith
As impressive as yesterday's short-cover rally was, it may already be
over. Bonds (mar)
failed to close above 94-20. Bonds cannot rally on a more sustainable
basis until they
close at least above 94-20 basis the March contract. So don't be too
quick to believe bonds are headed nowhere but higher.
GOLD is starting an impressive rally today--Why? Placer Dome said they
would no longer sell borrowed gold as a hedge against lower prices in
the gold market. But is this the only reason gold spiked? No! I
believe gold has rallied strongly and will continue its move higher on
toward $330 area because the Treasury is denying Greenspan an important
tool to slow down the economy.
Even though the FED just raised rates, it is not having the desired
effect of slowing the economy. As the FED raises rates on the
short-end, the Treasury buys in off the run bonds on the long end.
Greenspan would like long rates to move higher to help slow the economy,
but the Treasury's actions to buy old bonds squeezed bonds higher,
causing rates to move from 6 3/4 to 6 1/4---just the opposite of what
Greenspan intended.
Greenspan will be forced to raise rates aggressively if he is to have
any chance of slowing this already overheated economy. Will he raise
rates 50 basis points in March? Probably not. He has so far resisted
the urge to go with a 1/2 point hike, probably because he doesn't want
to be accused causing a stock market correction and of ruining the
democrats chances in an election year. All this can only spell one
thing: INFLATION!!!
Are you beginning to see why GOLD is going to continue to rally?
Granted, this may be only a premature rally for gold. When stocks
slide, as they must do when bonds sell off, gold will have one more move
down. Whether gold establishes New Lows or just forms higher lows will
depend on how high it gets in this rally that began today. Only a
monthly close over 334.7 NY Spot would confirm a secular low is in, and
the beginning of a bull mkt. This rally in gold will most likekly stop
short of 334.7. But let's see what happens. Even if gold fails at
334.7, a more legitimate sustainable rally for gold may not be that far
off. There may be time for gold to rally short-term and still sell off
into an 8yr cycle low into Mar/May timeframe.
STOCKS: My worry is that if the S&P (march) moves to New Highs above
1499.2, it would cause a bubble. Closing above 1499.2 (mar) will signal
a move towards 1880.00 area. This move could be very fast and very
dangerous.
Its not that we're perpetually bearish on stocks, we just don't want to
see a bubble. A stock market correction now would be healthy for the
markets. It would be much preferred to a manic move into May that sets
up a much more serious correction. New Highs above 1499.2 (S&P March)
beyond the month of February will signal a sharp move higher into May
with a strong bear market thereafter extending out to the end of 2002.
NYMEX CRUDE broke out of a triangle formation today and more importantly
it closed above 28.10, electing a key wkly bullish reversal--which
signals a move to at least 32.35, but more likely 35.85. This weekly
signal reinforces the 3 monthly bullish reversals that were just elected
at the end of January. If a move to 35.85 sounds crazy, think again!
For you technicians out there, pretend you are looking at a stock. If
it breaks below a significant bottom, and in the process creates a New
Low that you haven't seen since 1976, would you be a buyer?? No way,
you say! Well that's exactly what Crude Inventories have done.
Inventories are now lower than they were when they set a Major Multi
Year Low in January 1997. Inventories are now at 282 Million Barrels.
If this were a stock, most technicians would say its headed for 250 or
lower. As inventories make new record lows with each weekly annoucemnt
from the DOE, guess where the price of oil is going? Given the recent
rate of decline in inventories, don't be surprised if you see Crude over
$30 a barrel as soon as next week.
Also, if the FED can't slow the economy because the Treasury dept is
buying in the long end, why shouldn't GOLD go to $330 or higher still???
Why shouldn't OIL go to 35.85??? It won't last though. Bonds will
tumble & stocks will go with them. BONDS: Only a close above 94-20
(USH0) will suggest a further rally. S&P (march): Only a weekly close
above 1470.00 will undo the damage done to stocks in the recent selloff.
I'll believe it when I see it.
Til then, I am more inclined to believe that the bond market will
finally begin to focus on the rally in commodities. The CRB staged an
impressive rally today and may be beginning that move to 231-235 area
that I warned of in a previous message.
In conclusion, I still believe its more likely that a stock market
correction will take place sooner rather than later. Keep in mind that
the S&P has not yet moved to New Highs. It is forming a series of Lower
Highs. Normally any real panic selloff comes after a seres of lower
highs have been established.
A correction here in February would leave open the prospect of a
recovery later this year leading to Major New Highs going into November
2002. On the other hand, New Highs in the S&P beyond the month of
February would confirm a manic move higher towards 1880 (mar) into the
month of May.
Seppo |
