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Pring: An "Intermarket" Outlook
07/09/2004 12:00 am EST
"In-depth" is an understatement when referring to the exceptional research of Martin Pring. In addition to his weekly updates, his monthly Intermarket Review is a 37 page synopsis of his market outlook. Here are highlights from his latest on stocks, bonds, and gold.
"The current cycle, as monitored by our barometers, remains in stage IV, a stage which is bullish for stocks and commodities, and bearish for bonds. The stock barometer will likely go bearish because the money flow indicator, one of its components, is almost certain to go negative over the next month. And while there is precedent for the barometer leading the peak in the stock market by many months, a negative barometer signal definitely indicates that the economic and financial environment for equities is no longer positive, and that the stock market is living on borrowed time.
"There is a widely held view that commodity prices are headed higher and that a new bull market in interest rates has just begun. We have been hawks on interest rates for quite some time, but the consensus is not currently asking ‘whether?’, but ‘when, and by how much will rates go up?’ Whenever the crowd pre-ordains an event like this it is always wise to look for alternative scenarios. In this instance, an extremely (long-term) overbought commodity market and weakening leading indicators suggest that the bear market in bonds, if not over, is in the terminal phase. It is extremely important to stress the point that the commodity indexes have not yet broken down, so it is premature to call a top. Thus, for now, the primary trend continues to favor commodities and we continue to recommend a 10% allocation to the Pimco Commodity Real Return Strategy Fund (PCRAX ).
"Global gold is at a very critical juncture. Our indicators are rolling over but are not yet bearish. If the bull market is to extend, it needs to do so right away. If the gold index now begins to slip, it will indicate a primary bear market and a major sell signal. The primary trend for US dollar gold remains positive, since the price is still above its 12-month moving average at $394. But we note how vulnerable the situation could be since the price may well be in the terminal phase of tracing out a head and shoulders top; as such, the $380-383 area is a very critical one. If this level is violated on the downside it would, in our opinion, be sufficient to confirm that a primary bear market began earlier this year. This is obviously important for the fortunes of the yellow metal, but since the gold price is a barometer of future inflationary and deflationary pressures, the outcome of this finely balanced technical picture has a far wider implication for financial markets everywhere.
"Meanwhile, each month we introduce several technically attractive looking stocks. Sometimes the stock will have broken out and is an immediate buy, while others will need to be stalked for a short-term correction. Finally, some may appear to be forming bases, but have not broken out. These situations will usually have a short-term buy point, just requiring the price to confirm. Such stocks are recommended in anticipation of a breakout. Conservative investors may wish to wait for the long-term chart entry point to be achieved, and traders can use the lower numbers on the short-term charts.
Verizon (VZ NYSE) is a short-term buy above $36.60. Conservative investors may wish to wait for a breakout above $38.30 to buy.
TECO Energy (TE NYSE) is a short-term buy above $12.20. For conservative investors, an upside breakout would occur at $14.20
Tasty Baking (TBC NYSE) is a short term buy above $9.55. The breakout for conservative investors is a move above $9.85.
Morgan Stanley High Yield Fund (MSY NYSE) is a short term buy at current levels and is a buy on a breakout above $6.40
GPO Iusacell ADRs (CEL NYSE), a wireless telecommunications services provider in Mexico, is a short term buy at current levels and a buy above $7.15.
"We are lowering our Asian equity exposure to 15%. However, while we have liquidated other Asian markets, we are still recommending Japan. The odds favor dollar-adjusted Japanese equity prices moving higher at a faster pace than the rest of the world. The recommended vehicle is the iShare Japan (EWJ ASE) as long as it remains above $8.90 on a Friday close basis."
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