Will emerging markets also lead the major bourses and gold lower?
Posted on 22 January 2011 with 4 comments from readers
This is a very awkward moment for analysts who sense a market turn in progress. Get the timing out by even a few months and your reputation is mud. Yet something is clearly up right now.
Chinese financial markets and economic data have been in disconnect for three years now. Those who bought into the Shanghai stock market back then have not had a good time. There was a rally last autumn, but the downtrend is now clearly visible again:
The same story is now emerging in Mumbai, with Indian stocks taking a tumble and showing a nasty double-top:
Indeed, a long list of emerging markets have been trending lower so far this year: Indonesia, Bangladesh, Dubai, Abu Dhabi. The real question is whether this is saying anything about the outlook for developed markets. Is this Nasdaq downturn the end of a long uptrend?
The S&P 500 chart shows a similar, if smaller down blip. Zeal Intelligence reckons a correction is looming. Its analysis points to extreme complacency among traders as a classic market top signal, and this is evidenced by a low volatility index, a high bullish-per-cent index, and the call/punt ratio below (just look at the divergence and what usually follows next):
Complacent traders will tell you that falling emerging markets will heighten the attraction of developed markets for investors, and that is true up until a tipping point, when the fundamentals no longer support stock valuations.
Some of the disappointing quarterly financial results of the past few weeks ought to be viewed in that light. Emerging market sell-offs are far more likely an indicator of a widespread over-valuation of stocks than a signal to jump the other way.
Even gold and silver are not immune in a sell-off, as ArabianMoney has explained many times before (click here), and the recent weakness in precious metal prices might also be seen as a shift into the dollar as a safe haven as another financial crisis looms.
4 Comments posted by readers:
Zeal (i.e. Hamilton) is always a good read.
While all countries manipulate their markets and their currency to some degree, no where is this more apparent and more outrageous than in the US. Traders here know that the main reason for the market action (i.e. prices melting up for most trading days on low volume; prices closing near even on down days, or prices moving up at the closing bell and after the closing bell, on very, very low volume; etc.).
Shakespeare: “Something Wicked This Way Comes”
I am reminded of the fact that gold and silver are the arch-enemy of banks, especially big banks, because they deal in fiat paper, that that’s where they earn big money. With the big banks hammering gold and silver almost every trading day (i.e. there’s obviously massive collusion going on here, as Ted Butler has stated; the big banks coordinate their moves between one another beforehand), the big banks must be absolutely scared of something, and methinks something big is about to happen after the Chinese New Year. Ted Butler believes that silver will rise dramatically at that time, and others think that gold will, also.
As this website has said, “dollar haven” as “another financial crisis looms”. And Shakespeare would have said this:
The landscape turns to ashen crumbs, when something wicked this way comes.”
Only “something wicked this way comes” is from Shakespeare (Macbeth). The rest is from a Lexus ad (!), origin unclear, possibly Ray Bradbury.
Short term both Gold and Silver are going down until after Chinese New Years. Will have to wait and see what happens after until after Chinese New Years. This Friday ended up with the Taiwan Dollar and South Korean WON becoming weaker against the USD. The TWD dropped from 29.02 to about 29.46 which could mean one of two things:
1) High demand for USD for travelers before Chinese New Years as locals buy USD for
their vacations causing higher demand for USD.
or
2) The end of the Dollar run meaning market direction where stocks plunge next.
@philcu:
Correct, on both (and that old Lexus ad was rather cool!).
That phrase seemed to be quite appropriate to the present global financial situation, as the US FED once again lurks in the background, and secretly attempts to “plug all the holes” in Ireland’s dike.
Most ppl are unaware of the fact that, in 2009, the FED bailed out DeutscheBank with over $290 billion and CreditSuisse $287 billion. In 2013, we’ll probably find out that, back in January/February of 2011, the FED bailed out the big Irish banks.
Meanwhile, Geithner and “the Bernank” have recently changed the “reporting rules” for the Fed’s balance sheet so the general public won’t know the extent of the damage, and the fraud-corruption-cover-up schemes continue unabated. As Lenin once said:
“The best way to destroy the capitalist system is to debauch the currency.”
Go here for more info:
http://www.hussmanfunds.com/wmc/wmc100104.htm