Commodity, Currency, Gold, and Equity Market Analysis by Dr. Christian Normann  
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Weekly Market Analysis Based on Closing Prices, Friday October 2nd 2009

Introductory Summary:
  • U.S. and World equity markets are presumably still in multi-year downtrends.  However, the S&P 500 has validly broken the 300 day (65 week) moving average.  It rose up to the start of the next significant resistance range from 1070 to 1120, but may already be turning down.  It has also recovered almost 50 percent of the 2007-2008 decline (the halfway point is S&P 1120), which is approximately where corrective moves tend to top out.  We believe a second phase down is likely to begin at some point during the fall/winter, but the intermediate trend is assumed to remain up until we see a weekly close over 1 percent below the 65 week moving average.
  • The high level of positive sentiment in equities and gold combined with extremely negative sentiment toward the dollar indicates to us that it is quite likely there at some point will be a second down phase for stocks, gold, and commodities in general, where a second phase rise in the U.S. dollar simultaneously takes place.  That would be the opposite of what the majority of participants in all mentioned markets are expecting.
  • After crude oil finally broke back up through the $50-55 area, it quickly ran up to major resistance between $68 and $80.  Our anticipated short term support around $47 worked out very well as a long entry point, and we sold out with a large profit near $68 - the start of our expected resistance area.  If $80 breaks on a weekly close, a new major uptrend is likely underway.  As long as prices do not break $80, our assumption remains that oil prices are likely to decline anew once a second downturn phase begins in the economy and stock market.
  • Gold corrected the move from $681 to the recent test of the $1000 level - $1033.90 record high.  We long stated that the likely target for the correction was around $855-$823, and gold hit a low of $860.  Gold has now moved up for another attempt at breaking the $1000-$1034 level.  Whether it successfully breaks through this time or has another major decline is unclear until we see a weekly close above $1050 or below $900.
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  • The US Dollar (as measured by the US Dollar Index) may now be headed for a test of the all-time low of 70.70 recorded in 2008 after closing 1 percent below the late 2008 low of 77.69.  A weekly close at 81 or higher is needed to resume the uptrend.
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Detailed Analysis of Individual Charts of Current Interest:

The Gold/S&P ratio has corrected back to our anticipated target area (1.00 to 0.80), indicating that the time to exit general equities and re-enter long gold positions likely here - or near.

U.S. and World equity markets are presumably still in multi-year downtrends.  However, the S&P 500 has validly broken the 300 day (65 week) moving average.  It rose up to the start of the next significant resistance range from 1070 to 1120, but may already be turning down.  It has also recovered almost 50 percent of the 2007-2008 decline (the halfway point is S&P 1120), which is approximately where corrective moves tend to top out.  We believe a second phase down is likely to begin at some point during the fall/winter, but the intermediate trend is assumed to remain up until we see a weekly close over 1 percent below the 65 week moving average.

The high level of positive sentiment in equities and gold combined with extremely negative sentiment toward the dollar indicates to us that it is quite likely there at some point will be a second down phase for stocks, gold, and commodities in general, where a second phase rise in the U.S. dollar simultaneously takes place.  That would be the opposite of what the majority of participants in all mentioned markets are expecting.   
The most plausible target range for the next intermediate bottom for the S&P 500 remains around 620-580 and 5900-5500 for the Dow Jones Industrial Average.  Initial support is likely around S&P 800, and if 765 breaks on a weekly close, the odds of a continued fall down to test the March low at 666 increases significantly.  A total collapse down to below S&P 500 / Dow 4000 cannot be entirely ruled out either.  An 89% decline as from 1929 to 1932 would take us to about S&P 175 and Dow 1550.  We may not ever get that far, but we may go lower than most can imagine.

A final bottom in the stock market may be another year or more away from happening.  For example, during the 2000 to 2002 bear market, the S&P took 31 months from the peak to the ultimate low (down 51% from the peak).  During the 1929 to 1932 market collapse, the Dow Industrial Average took 34 months to hit bottom (down 89% from the peak).  So far, the S&P is only 22 months into its current bear market.  There could thus easily be about a year of decline left for the equity markets.

Until next weekend, have a very good week.  Always remember that proper risk management is essential - don't fall victim to complacency just because the markets have seen much lower volatility over the past few months.  There could be - and most likely will be - at least one more major leg down for general equities and likely also most commodities this fall / winter.

 

 

 

 

           

 
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