Weekend Update Part 1: Worldview of future, Implications on the $, Gold and Equities, Charts you won't see elsewhere

I’m presenting my big picture view for equities, gold and the dollar and my rational behind this view. It is a bit of a contrarian view to the mainstream view, but fwiw, it’s my view of where the world is and where we’re going. It begins with a interesting premise that presumes both inflation and a rising dollar. Obviously, most of the world sees our monetary policy as a means to inflating the value of the dollar away making it virtually worthless. While this very well may happen in the future, I don’t think it will happen over the next several years at least, perhaps longer. My theory is based upon the relative strength of the dollar to the rest of the worldwide currencies. We have a great deal of debt, but the rest of the world has collectively more and have borrowed over 13 trillion in USD over the past few years. The stronger the dollar gets, the harder it is for the ROW to service its debt. (God forbid interest rates increase, the ROW already requires over $1 trillion a year to service its debt). There is a resulting worldwide shortage of DOLLARS, people cannot get their hands on enough dollars to service their debt both domestically and worldwide (go back and look at what repo rates did last Sep/Oct for the US impact). Even though we’ve undertaken 2 trillion dollars worth of relief, the dollar continues to hold its strength as the rest of the world also prints their currency. See the ECB, the BOC, the BOJ, the PBOC, the BOE… This ultimately weakens all currencies vs the dollar. There is a mounting currency crisis (that will probably eventually lead to a dollar crash as the rest of the world gets sick of having to use the USD and are tired of being bullied by the dollar), and a new system away from USD could be built; but, this is complicated and those nations will be at the risk of losing the US as a trade partner). I foresee money accelerating into the US resulting in asset prices increasing. Unlike most gold bugs who see a crashing dollar and stock market as the catalyst to rising gold value, I see a combined value increase in both the dollar and gold as dollars flow into the US due to the relative strength of the US economy (see debt to GDP levels for ROW) and the need to service dollar denominated debt by the rest of the world. The dollar could reach its previous all time high in the coming years. As long as 80 holds, I’m comfortable with this position. And this relative strength of the US in my opinion will lead to an increase in asset prices, both equities and gold. We must be open to the idea that the stock market and USD can appreciate even when times are bad here! For the forseeable future, the US is the healthiest horse in the glue factory and I believe money should flow into the US dollar and equity markets to reflect that. In summary, over the long term, the dollar will likely lose value and will be inflated away along with all the other fiat currencies and gold will soar. In the near term, I believe there is upside to both. The near to intermediate term trade is USD vs all other currencies. Ultimately yields will rise on foreign sovereign bonds as it becomes clear that the US has the best chance of funding their budget deficit. As a result money will flow out of the ROW bonds and likely into the US dollar assets, both Treasury bonds and the equity markets will be the beneficiary.

Looking at gold, I believe there is a good chance that 1045 marked the bottom to Gold, while most EW analysts are looking for sub 900 levels for gold. I don’t totally discount this possibility. It is possible they are correct, particularly given my view of the dollar. BUT, i plan on starting to roll into a long gold position on a retracement to ~1400-1370. This is the previous breakout level and I believe we are due for a re-test of that level in the coming days/weeks. I’ll place a stop around 1200, should that level be taken out, then we could see the opportunity to go long gold around 850-900. Note: gold recently hit 1450, this might have been the end to 2, I’m watching 1530 level and any bounce about that I’ll look to start a position.

Based upon continuing develops and the severity of the decline in equity prices, I’m introducing a new alternative count for equities (although my existing count fits equally well with my theory). My new wave count is looking for a near term bottom for equities. I know to many this sounds preposterous given the current pandemic scare and the impact it will have near term on the economy. But, we must remember that equity markets recover far sooner than the economy as a great deal of downside is already baked into the cake. Looking back on the equity indexes individual moves up from the December 2018 lows, the rallies count far better as 3 wave moves with triangle B waves, than they do impulsive five wave moves. This would imply that the move down to those December 2018 lows was primary wave [A], the rise into 2020 the [B] wave of an expanded flat and now the [C] leg, which typically mearsures 1.62x[A] is completing. For the NDX this target is 6813 (6837 currently), for the Russell/IWM that target is 95 (currently 95.69), for the SPX that target was 2429, (currently 2304 or 1.87x{A]), for the DOW that target was 21K (currently 18.9k or 2x[A]) and for the BKX that target is 54 (currently 57). Below are weekly charts for these indexes and for gold. This clearly is an ultra bullish count. I’ll post my bearish count in Part 2. Both of these counts look for at least a near term bounce. We might see another day or two of downside to begin the week, but I believe we are very close to the beginning of a very large move up for equities.

Remember nothing happens in a straight line. There will be corrections to every move up, over the coming months. This is my personal investment plan, everyone must choose what’s best for themselves.

About alphahorn

I received an MBA from Columbia University’s Graduate School of Business in New York and am a Wall Street veteran. I’ve worked for a number of investment banks including Smith Barney and First Boston/C S First Boston in New York. Over the years, I have developed my own Proprietary Swing System and I combine that System with my own Elliott Wave Analysis to trade.
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1 Response to Weekend Update Part 1: Worldview of future, Implications on the $, Gold and Equities, Charts you won't see elsewhere

  1. Pingback: Thanksgiving Update Part 2: The SPX | Alphahorn's Market Musings

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