Quick Pivot

By: Bob Hoye | Wed, Jan 5, 2011
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The following is part of Quick Pivot that was published for our subscribers December 31, 2010.


 

"Get set for a great bull market"
"The stock market leads the economy" ~ Financial Post, December 22, 2010

"U.S. Equities push global advance as investors bet on economic rebound" ~ Financial Post, December 30, 2010

"Wall Street on talent hunt" ~ Reuters, December 30, 2010

"What crisis? Wall Street big spenders rediscover love of all things luxurious" ~ National Post, December 30, 2010



All-One-Market (AOM)

Now is the season to prepare an overview on the stock market for next year. For some research departments this involves separate studies on stocks, bonds and commodities. For us the phenomenon has been the belligerent policy of dollar depreciation that has prompted the most tradable assets to soar - not individually, but together.

Our outlook for next year is happening now and involves the transformation of a methodical rise into runaway speculation. This sets up a severe plunge as speculators lose the ability to bull the market. And as we have seen, governments have become highly speculative interventionists whose actions have exaggerated the ups and downs.

In engineering terms contra-cyclical is negative feedback that diminishes periodic action. By embracing speculative economic theories and practices the establishment has created a positive feedback mechanism that has fostered one of the greatest speculative eras in history.

A few weeks ago we reviewed our "Momentum Peak Forecaster" (MPF). As awkward is the title is - the model has anticipated the end of some of the most outstanding blow-offs on data back to 1970. When the indicator rises above 1.21 the action is becoming dangerous. We flagged it at 1.25 and now at 1.27 the rise is losing momentum. When it rolls over the warning signal becomes official.

It has worked on any kind of speculation as with narrowing European credit spreads in 1998, and retrospectively with the precious metals mania in 1980 and with the commodities boom in 1973.

Typically, the signal leads the end of the buying frenzy by one to two months, which is the first part of our 2011 outlook. The second part would be the collapse of speculative furies.

The prospect is fascinating and we should review the probability of it working out.


Currencies

The success of the Fed's dedication to depreciation relies upon the ability of speculators to boost prices and expand leverage. Without them the Fed's ambition is thwarted. If this wasn't the case, asset inflation would have been continuous. But the financial world is not perfect and traders will take a trend to instability and then to liquidity problems.

Traders accommodated the Fed as the dollar declined to 75.6 in early November. Our call for important lows in the DX includes the Downside Capitulation on our proprietary model and the conclusion of the Sequential Buy pattern. The latter completed in early November. Of interest was the exceptional low reading of 3 Percent Bulls, which compares to the two earlier intermediate bottoms at 7 Percent at 70.7 in April 2008 and at 74.2 in late 2009.

The low at 75.6 in November has the potential of being a very important low in the dollar. This is backed up by the MPF.

On the near-term, the DX became somewhat overbought on the initial surge to the natural target of 81. The consolidation can run into January.

The Canadian dollar keeps bumping its head at par and our view is that it is unlikely to get materially above 100. When the speculative party ends the C$ will decline - perhaps to 93.

 


Link to December 31, 2010 'Bob and Phil Show' on Howestreet.com: http://www.howestreet.com/index.php?pl=/goldradio/index.php/mediaplayer/1874

 


 

Bob Hoye

Author: Bob Hoye

Bob Hoye
Institutional Advisors

Bob Hoye

The opinions in this report are solely those of the author. The information herein was obtained from various sources; however we do not guarantee its accuracy or completeness. This research report is prepared for general circulation and is circulated for general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek financial advice regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized. Investors should note that income from such securities, if any, may fluctuate and that each security's price or value may rise or fall. Accordingly, investors may receive back less than originally invested. Past performance is not necessarily a guide to future performance.

Neither the information nor any opinion expressed constitutes an offer to buy or sell any securities or options or futures contracts. Foreign currency rates of exchange may adversely affect the value, price or income of any security or related investment mentioned in this report. In addition, investors in securities such as ADRs, whose values are influenced by the currency of the underlying security, effectively assume currency risk.

Moreover, from time to time, members of the Institutional Advisors team may be long or short positions discussed in our publications.

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