Over the past three trading sessions, global stocks and commodities have rallied sharply. But I view this advance with skepticism. This rally is more likely to be a counter-trend move within the ongoing downtrend.
If my assumption is correct, the S&P500 Index will fail to climb and stay above its 200-day moving average. Looking at the weekly charts of various stock markets and commodities, it becomes clear that they are in a downtrend, albeit rallying from oversold positions. So, for now, the trend is down.
Global financial markets are vulnerable on many fronts and the ongoing private-sector credit contraction in the West is exerting pressure on the "risk trade". Accordingly, unless we get a massive stimulus, the trend is likely to remain down for stocks, commodities and foreign currencies. I do not possess a crystal ball and cannot predict the future. Thus, I continue to take cues from ongoing price action, which never lie! I have realized that all forecasts, opinions and predictions are simply "noise" and what matters is the price action. The only way one can make money in the market is by aligning oneself with the ongoing trend - whether up or down. Arguing with the tape and fighting the market is the surest and easiest way to the poorhouse.
Turning to energy markets, the crude price is in a downtrend and overhead resistance is around the 50-day moving average. Should the oil price close above its 50-day moving average, the next resistance is around $90 per barrel. As the global economy is deteriorating rapidly and the USis already in recession, it is highly unlikely that crude will embark on a sustainable rally. Thus, I continue to foresee lower prices over the following weeks.
Over in the precious metals arena, the price of gold found support around its 200-day moving average, but I see overhead resistance around the $1,700 per ounce mark. If we get another forced liquidation in the market, the gold price could decline further and in any event, I do not expect new highs anytime soon. Looking at silver's weekly chart, it appears as though there is tremendous overhead resistance around the $32.5-$33 per ounce area. I do not have a firm near-term view on silver now, but I do know that in the event of another Lehman-type credit crunch, the silver price will get hit very hard.
In the currencies market, the US dollar has weakened somewhat but it's still trading above 50-day and 200-day moving averages. Its recent weakness has coincided with the "relief" rally in stocks and commodities. If the "risk trade" abates soon, the US dollar will resume its rally.
Over in the bond market, US Treasuries seem to be facing some selling pressure. But the trend for it is firmly up. As long as global stock and commodity markets are rallying, US Treasuries and German Bunds are likely to depreciate in value. However, once risk aversion regains the upper hand, these bonds will resume their northbound journey.
The author is CEO of Puru Saxena Wealth Management (www.purusaxena.com). The views expressed here are entirely his own.