July 26, 2015
Weekly Market Outlook
By Keith Schneider
Stock Markets reversed this week, with the S &P 500 and QQQ each down over -2.1%. The big news was that Ray Dalio, head of Bridgewater, the world’s largest Hedge Fund threw in the towel on China. This is big as China’s huge growth has underpinned the global economy, commodity prices and profits of large multi-national companies. The Dow, which is a good bell-weather of the state of the global economy had a really lousy week and is in most trouble looking at the charts. It closed under the 200 day moving average, down -2.8% for the week, and down -1.3 YTD. So with China on the disabled list, Gold and commodities in intensive care, and with interest rates waiting for the axe to fall it’s hard to see where the next big trend will emerge.
The concentration of great performance by NASDQ giants just highlights the problem that the winners circle is just getting narrower and narrower. The highflying healthcare and Bio-tech sector got hit hard Friday after Biogen got destroyed after earnings, down almost -22%.
MarketGauge’s proprietary TSI (trend strength indicator) shows little leadership across three asset classes that include Countries, Sectors and the Global Macro picture. These TSI readings of big picture are in alignment with Dalio’s forecast.
The thinking is, that if the Fed follows thru on raising rates it would threaten the long term cycle of lower rates and have unknowable, unintended consequences on the global economy. That, along with the fact that China’s stock market bubble has popped and still unwinding despite massive attempts to keep it afloat by the Chinese communist/pseudo capitalist party which is likely to add even more pressure to slowing growth according to Dalio. Hence, no-where to hide or safe place to invest.
Another interesting development this week is the action in gold which dropped sharply over the past several weeks to multi year lows but rebounded on Friday. Hedge funds are net short gold for the first time on record. The US Mint dumped the yellow metal to the tune of 143,000 ounces as the market was cratering this week along with silver as well. Even more strange, is that the US Mint reported recently that it ran out of physical silver while at the same time dumping it in the paper realm. There is strong physical demand for precious metals but the price action is clearly divergent.
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