A Quick Update: Stock Complacency, Gold, Silver, USD
Tiho Brkan | Sep 16, 2014 07:23AM ET
Firstly, I have to apologize for lack of posts over the last several days. As few of you would have already guessed, I am traveling around Asia as I write this. And because I have been accompanied by some good friends, it is very hard… if not impossible… to get any work done. Some great food, lots of alcohol, late nights and many good laughs means there is hardly any time for work (or sleep haha). Typhoon in Hong Kong tried to stop us at our tracks, but it did not succeed.
Over the coming weeks I will be visiting Seoul, Singapore and hopefully even Tokyo if possible (I am not sure about the last one just yet).
h2 Chart 1: Extremely low stock complacency with fewest bears since 1987 /h2
Quick update on the markets. Right now I am watching a variety of markets, but mainly US stocks, Emerging Market stocks and Precious Metals. Emerging market stocks have been stuck in a range since October 2011, or even since early 2010 depending on how you look at it. These indices are trading at very compiling and attractive valuations. GEMs have been trying to break out in recent months and I have China and Russia closely on my watchlist.
However, the problem is that US stocks are very overpriced and sentiment extremely optimistic (refer to Chart 1). Furthermore, US technical breadth keeps deteriorating with fewer and fewer 52 week highs. When we look at NASDAQ and Russell 2000 components, a lot of stocks are already down over 20% and well into a bear market. Breadth is thinning, which to me signals that liquidity is drying up. Caution is advised.
h3 Chart 2: Traders are once again turning very negative on Gold and Silver/h3It seems that many market participants have been running into the USD which has affected prices of all commodities including Gold. My readers would know that I have been shorting Gold since $1310 and fully hedged my Silver core holdings by shorting Silver at $21. This trade, together with long USD – short Aussie has been working very well in recent weeks. However, on the opposite side of the sentiment spectrum, Gold is becoming quite disliked and heavily shorted by traders (refer to Chart 2).
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Does that mean I will close my shorts / hedges? I am not sure. I might if sentiment gets even worse. However, I still continue to believe that after a near term rebound in PMs prices, we could keep drifting lower. I am eventually looking for Gold to break below $1190 and Silver below $18.50. My fund remains denominated in US Dollars, which is also benefiting me somewhat, as all the cash I hold is at least not losing purchasing power on relative basis. I guess that just means more quality beer to be consumed in Singapore with some friends!
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