What to Watch in the Market's Breather
09/27/2012 11:00 am EST
It hasn't been a bad market at this point, and it looks like certain sectors will be coming on strong in the near future, write Mary Anne and Pamela Aden of The Aden Forecast.
The markets got a shot in the arm from the Federal Reserve. QE3 is now official. Bernanke pledged to help the economy for as long as needed. This is an extreme move—and the markets shot up, reaching new highs.
This week some reality set in, and the markets are taking a break, but they're still looking good.
Gold and silver shot up to a six-plus-month high, while gold shares rose much further. The XAU index rose above its 65-week MA for the first time this year, closing at its high yesterday, and it's very strong above 184.
Gold itself will also remain very strong by staying above $1,700. Silver has strong support at $32.50. Gold, silver, and their shares have room to rise further even if they soften in the short term. Keep your positions, and ideally buy on weakness.
The resource and energy sectors are taking a breather. Crude fell sharply this week from its Friday highs. Copper, platinum, and palladium followed suit. Next solid support is at $90 for crude, $3.68 for copper, and $1,580 for platinum.
Interest rates shot up to a four-month high, and bond prices declined. Despite the Fed's actions to keep interest rates low, long-term rates are going their own way and they could rise further in the months ahead as bond prices decline. But for now, interest rates could soften some before they head higher. Keep your smaller bond position and don t buy new ones.
The stock market also shot up to an almost five-year high, and our recommended stocks are looking good. Following its steep rise, however, the market could resist, but as long as the Dow Industrials stays above 13,300 it'll be very strong. The same is true of Nasdaq by holding above 3,075.
The Dow Transportations has been lagging, and it's waving a red warning flag. Continue to hold our recommended stocks.
The US dollar dropped sharply and currencies surged. But the US dollar index is now very oversold short-term and the currencies are overbought. This means last week's dollar bounce up is likely the start of a further rebound rise while the currencies take a breather.
Continue to hold the Canadian and Australian dollars, and keep a smaller part of your cash in US dollars. We may be making some adjustments in the weeks ahead. The dollar index is stable above 78.70.