I posted a video on Friday talking about how markets were finally showing clearer direction.
The dollar has had the clearest break up after trading for months between 88 and 91. That’s put a damper on gold, which may have topped out at $1,375. It’s close to breaking an important support level around $1,270, which could cause a sharp decline.
The 10-year Treasury bonds have also broken above a 30-year downward trend line, just below 3% yields, and have gotten as high as 3.10%. It’s possible this is a signal for a major surge up to as high as 5%.
That would almost surely put a halt to the long bull markets in stocks and real estate.
But the news today is that stocks look like they’re finally breaking out after months of correction. That means we could see one final high in the blow-off channel in place since early 2016.
Trump’s victory and pro-business policies accelerated this channel…
As you can see in this chart, the “a” wave peaked in late April 2016, followed by a “b” wave correction into early November. Then a long “c” wave brought us to a dramatic peak in late January 2018, followed by a bottom in late March.
That peak broke above the top trend-line of the channel, looking more like a long-term top.
Then the Dow broke below the bottom trend line in February and March, looking like it might be breaking down.
But it has now held support three times at near 23,500.
As I see it, there should be one more rally, likely shorter, that could take us to somewhere around 27,000 or 28,000 on the Dow by late July or so…
But that should then be it.
So, around July, it would be prudent to be extremely cautious.
The greatest headwind is likely to be a sharp rise in 10-year Treasury yields due to rising inflation and less demand from foreign investors, including China. The rising dollar only exacerbates that key trend.
That’s what I am going to be watching the most ahead.
Follow me on Twitter @harrydentjr
P.S. This latest rally seems to be on news that the U.S. and China may be walking back from a trade war. That’s great news for individual companies that won’t be as affected by tariffs, but that doesn’t mean everything is right with the investment world. It’s as insane and irrational out there as ever before. Like I said, caution is warranted. I expect we’ll see a major route before long. But, we’ve still got to make money when and where we can, so use this rally into July as an opportunity to explore making new streams of income. There are many ways to do this, which is why we’ve just welcomed Lee Lowell into our Dent Research family. He’s spent a decade figuring out how to add additional income to your bottom line. And you’ll be hearing a lot more from and about him and his discoveries in the coming days, both in Economy & Markets and The Rich Investor. Stay tuned.