European stocks appears ready for a breakout bases on bond yields despite recent economic weakness, ...
The Wild Ride Continues
09/26/2011 9:00 am EST
Global markets are more interconnected than ever, especially when bad news takes over the developed economies, so it’s important to stay alert and focused, write Pamela and Mary Anne Aden of The Aden Forecast.
The wild times, fears, and volatility are back, and all of the markets are being affected. A lot has changed over the past 10 days.
Most impressive was the Fed’s Operation Twist announcement, its latest plan to support the economy by buying bonds and keeping interest rates low. But the big scare came when the Fed admitted the economy faced significant downside risk. Stocks, commodities, and currencies plunged, and the metals dropped, while the US dollar and global bonds soared.
US interest rates are collapsing. The ten-year yield is at a record low as bond prices surge. They’re benefiting from the Fed’s action and a full-on flight to safety. The same is true of bonds in many other countries.
Even though bonds are overbought, the major trends are strongly in force. Keep your positions, but it’s probably best to wait before buying new ones.
The US dollar is also the safe haven, along with the Japanese yen. The US dollar index is bullish above 76.50 and several of the major currencies are now turning bearish. Continue to hold your cash in US dollars.
Gold and silver fell with the stronger dollar, as did the other precious metals, copper, and oil. All of the commodity sector was hit with the economic snowball.
Gold has room to decline further and we should view further weakness as a good buying opportunity. Likewise for silver, it fell clearly below $39 today to a ten-week low, and it could possibly test its next support at $33.
Recession fears drove stocks down sharply. From the US, to warning signs out of China, to Europe’s ongoing and vulnerable situation, the bad news had a domino effect on stocks worldwide.
The Dow Industrials, for instance, resisted at the key 11,500 level, only to fall to last week’s 2011 lows. If the Dow now closes and stays below 10,700, it would be extremely bearish.
Stay on the sidelines and out of stocks for now.
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