Want to peek into the future of some key markets?
Let’s do that now, by using the best forecasting methods I know of. They’re based largely on a science I’ve been deeply involved with for more than 30 years — historical analysis of the internal rhythms and hidden forces that truly drive the markets: Cycles.
Cycles capture the sum totality of human behavior in the markets via rigorous statistical methods.
Today, I’ll cover what’s foremost on readers’ minds: The Dow Jones Industrials, the dollar, and gold. Then, I’ll show you a startling new forecast.
First, the Dow Industrials: Is the recent rally from the March record low over? Highly unlikely.
Consider this chart, based on my work using the data and cycle methods that my colleagues use at the Foundation for the Study of Cycles.
Although the Dow has pulled back on a short-term basis, the important intermediate-term 24 and 40 month cycles on the Dow have already bottomed and point solidly higher into April 2010.
That doesn’t mean you won’t see more short-term pullbacks in stocks. You probably will. What this cycle chart does tell you though is …
That the downside in the Dow right now is limited …
That selling short the Dow or buying inverse ETFs on a short-term basis is not the way to go right now, and instead …
The correct strategy is to hold existing low-risk positions you might have entered into previously, and buy additional positions on weakness.
That’s even more true now because the important short-term 10-week cycle should be bottoming any minute, as you can see from the weekly cycle chart below.
Bottom line: If you’ve acted on my previous suggestions to buy positions such as Dow Diamonds Trust ETF (DIA) … or even the Energy Select Sector SPDR (XLE), I recommend holding them for a continued rally. Since I first suggested them, these positions are up 19.2 percent and 13.2 percent, respectively.
Now, you’re probably wondering, with all the bad economic news out there, how could stocks rally again?
My answer: Who’s to say the news won’t improve? Besides, the best stock rallies tend to occur when hardly anyone believes stocks can rally, and precisely when news is bad. Hence the expression “stocks often climb a wall of worry.” I believe we’re in such a period now.
Second, the all-important U.S. dollar: Take a peek into the future here. Notice how the short-term cycles in the dollar show a choppy picture going forward, with the dollar having a slight upward bias to it.
That’s why the dollar has been trying to lift its head, but is getting nowhere. It’s pretty much stuck in a tight, sloppy trading range.
Meanwhile, the intermediate- and longer-term scenario for the buck remains as bearish as ever, as you can see from this longer-term monthly chart on the dollar.
Notice here how reliable this forecasting method has been for the buck. It’s based on data going all the way back to 1912, and it’s called virtually every major trend in the greenback, including the peak in 2001, the short-term bottom in 2004, the record low in 2008, and the recent bounce.
Combined with the previous short-term chart on the dollar, it’s not hard to see where the greenback is headed: For the next few months, sloppy, sideways trading with a slight upward bias (not worth trading on the long side), and then down hard for the next few years.
The fundamentals support the long-term bear market in the dollar as well. Just recently, for instance, India and France have joined with Russia and China calling for the dollar to be replaced as the world’s reserve currency. And now there are even rumblings coming out of Japan that it, too, is looking to diversify its dollar reserves — at $685.9 billion, the second largest in the world — away from the dollar.
And then there’s the U.S. budget deficit, which just hit $1,000,000,000,000 … and trillions more in liabilities soon coming due.
My view: Ignore any short-term rallies in the dollar.
Instead, use them to diversify out of the buck into natural resources, other strong currencies such as the New Zealand dollar, the Singapore dollar and the Swiss franc, and/or hedge your dollars and aim for some gains by using an inverse dollar ETF such as the PowerShares DB U.S. Dollar Index Bearish Fund (UDN).
Third, the only real currency in the world, gold: If you’re a subscriber to my Real Wealth Report, then you received the Flash Alert I sent out on July 9 issuing a short-term sell signal in gold and recommending you hedge your positions against a swift, sharp decline. Here’s why I issued that alert — the short cycle forecast for gold:
Notice the swift decline the cyclical forces are projecting — into a low around July 28. I’ve also received confirmation of that signal on my other technical systems, which also give me a price projection — that gold could fall as low as $808 by then.
Hence, why I recommended my subscribers hedge their gold.
But longer-term, there’s no need to worry and certainly no reason to exit your gold holdings. Chief reason: Gold’s long-term bull market remains very much intact:
As you can see from this chart, after some short-term weakness, gold is set to resume it’s bull market, which should see it rally strongly into early January of next year, then dip into the spring of 2010, and then rally strongly again into August 2010. That’s when I suspect we will see at least $1,500 gold.
My view: Hold your core gold and gold shares. Despite some short-term weakness, gold’s bull market is just getting warmed up.
Good news. Despite what all the pundits are telling you about unemployment, that it will likely continue soaring, my work indicates job losses should soon abate, and employment should soon start picking up.
You can see it here in this long-term chart based on nearly 40 years of unemployment data.
Notice how the cycles projections have called nearly every rise and fall in unemployment over the last four decades.
Does this mean the economy has bottomed since unemployment tends to be a lagging indicator?
It’s too soon to say. But no matter how you look at it, I think this is great news.
P.S. For more detailed cycle analysis … including razor-sharp timing recommendations for your core portfolios, certainly consider a subscription to my Real Wealth Report. It’s a mere $99 per year.
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