Downside Potential In Stocks And The Euro (Updated)

By: Chris Ciovacco | Fri, Sep 23, 2011
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Global leaders continue to make statements, vows, and promises, but they have done next to nothing in terms of concrete actions. According to Bloomberg:

Policy makers are "committed to a strong and coordinated international response to address the renewed challenges facing the global economy," G-20 finance ministers and central bank governors said in a statement late yesterday in Washington. Many urged Europe to implement a July promise to expand the powers of a rescue fund, Japanese Finance Minister Jun Azumi said.

Silver futures are down over 8% this morning - gold is down less, at less than 2%. This is a deflationary and ominous sign for stocks. As we mentioned on September 11, the gold:silver ratio has moved in a similar manner to what transpired in August 2008. After the gold:silver signal in 2008, all asset prices, including precious metals, performed poorly relative to shorting the market.

For those who believe everything will be fine once the next bundle of cash is shipped to Greece, Bloomberg highlights the short-term nature of the next "fix":

Even if Greece receives its next aid payment, due next month, default beckons in December when 5.23 billion euros of bonds mature, said Harvinder Sian, senior interest rate strategist at Royal Bank of Scotland Group Plc.

On September 22, we listed twenty-two reasons why the S&P 500 may be headed below 1,050. While the headline was interesting, we are not big fans of price targets. We prefer to use technical analysis as a way to monitor the markets, rather than forecast. However, it can be helpful to know where markets may find support from potential buyers. Areas of support may offer an opportunity to "cover" a short position or reduce exposure to defensive assets. The video below explores downside potential in the stock market and euro.

We sold our relatively small position in gold mining stocks (GDX) yesterday. We added to our deflation-friendly S&P 500 short (SH) and our stake in the U.S. dollar (UUP). We made no changes to our Treasury position (TLT). We do not plan to hold any of these positions for the long-term. SH was up 3.14% on Thursday - UUP was up 1.04% and TLT was up 3.76%.

Long-term downtrends and bear markets do not mean stocks go down every day - countertrend rallies will occur and they can be sharp.

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

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Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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