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Last
week, the markets rallied sharply on news that banks were willing to take a
50% haircut on their Greek Bond holdings.
It
was a hell of a party, as many asset classes were joining "Oktoberfest": Gold,
Copper, Silver, Oil, Stocks,...
The
party was organized by Merkel and Co:
These
kind of
stimulus packages are like alcohol for the stock markets . They are fun and
they make everything look better than it really is... The only problem is
that if you get too much of it (alcohol) in a short time, the next day you
will probably have a very bad hangover. The same is true with stock markets:
when they rally too much over a too short time frame, the hangover will soon
follow.
In an article I posted
on September 11th,
I wrote the following:
Let's start off with a chart
of the German DAX index. While price makes lower lows, the RSI sets higher
lows on a daily basis.
This causes Positive
Divergence. If the DAX would rally above the red resistance line, we could
easily see 6000+ points on the DAX pretty soon. Most people are expecting a
double dip scenario right now. And although we can't rule out a double dip,
it often pays to be a contrarian. We all know by now what happens when everybody
expects something to happen. Usually, it doesn't happen. Combine this
potential falling wedge with the positive Divergence, and we have a good
cocktail for higher prices. (Click herefor the entire article and
more charts)
 
Chart: Prorealtime.com
On August 12th, I posted the following
chart of the dutch AEX index (for subscribers only) with the blue line being
my expectations:
An updated
version of this chart was posted on October 24th (for subsribers only):
We can see
that price (and thus also the Moving Averages) acted almost EXACTLY as
forecasted.
Following
this sharp rise in stock markets over the past few weeks, prices are looking
overbought in the short term, and price has now reached the 200EMA. When we
look at the following chart, we can see that this 200EMA has often been an
important level during both Bull AND Bear markets. Price was very stretched
below the 200EMA a couple of weeks ago, and has tested this level last week.
It might rise slightly above this 200EMA in order to attract as many bulls as
possible, but so far, it looks like this is just a massive bear market rally
(which we forecasted). Potential targets would be 320-335 points for the AEX.
Chart: Prorealtime.com
Bespoke Investment Group notes:
The dark red shading in the
table below represents between two and three standard deviations above the
sector's 50-day moving average, and moves into this range are considered
extremely overbought. As shown, not only are all ten S&P 500 sectors
overbought (at least one standard deviation above the 50-day), but 8 out of
10 are in extreme territory. The Financial sector is the most overbought of
them all at three standard deviations above its 50-day. The Materials sector
is the least overbought at just under two standard deviations above its
50-day.
Bespoke also
shows that 100% of the stocks in the Financial sector are trading above their
respective 50-day moving averages...
The
financial stocks rallied big time, so everything is good now? I don't think
so. When we look at the Ted spread (which is the difference between the
interest rates on interbank loans and on short-term U.S. Government Debt), we
can see that the tensions between the banks are growing, as the TED spread is
reaching a 16-month high:
Source: Bloomberg
Gold rallied
sharply as well last week, moving away from the green support line in the
chart below:
Chart: Prorealtime.com
As a result,
the HUI index also rallied substantially.
Although the
RSI is not overbought at all, the MACD is very stretched, as shown by the
MACD histogram, which shows the distance between the MACD signal lines.
Everytime the MACD Histogram was at current levels or higher, the HUI reached
an interim top:
Chart courtesy stockcharts.com
Based on the
chart above, we think the Mining stocks need to correct a bit along with the
equity markets. However, gold looks set to test the all-time highs, so
when/if we get a correction in gold mining stocks, it wil likely be a mild
one...
Conclusion: A couple of weeks ago,
when everybody was looking for Financial Armageddon, we turned very bullish.
Today, everybody is in a party mood, but we are leaving the party. When the
music stops playing, everybody will rush for the exits, sometimes causing
accidents. It's better to leave a bit too early and maybe miss the last song
of the night (rally), than to leave too late and rush for the exits. There
will be plenty of parties over the next couple of years.
One
of the biggest parties you have ever seen will last much longer, and we make
our way to the (Gold)bars when nobody is ordering... There's no use to stand
in line when everybody wants to have their piece.
We
tell our subscribers when they have to make their ways to the (gold)bar. When
they are getting too drunk, we tell them to stop drinking and get a sober
view and ask themselves what they are doing...
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