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Fed Chairman, Jerome Powell, is giving his testimony today and has already mentioned a few things. One, that tapering is confirmed to end in March, and that interest rates will likely rise later this year. The Fed still plans to adjust their monetary policy throughout the year as the recent Omicron surge pans out and uncertainty lingers in investors minds.

The Chairman also stated that the recovery has been impressive thus far and the banking system in continuing to look stronger. We can likely see better earnings throughout the year to, and this could be a major driver for the market in value companies as well as growth.

Fed Plan To Raise Rates Has Market Higher

Fed Plan To Raise Rates Has Market Higher
SPX500 on 1D timeframe rejecting the lows from support on the rising trend line and pushing the 50 DMA. RSI reading is at 50.

COT data also suggests a move higher as interest is gaining across the board and futures contracts are being picked up. Retail is also trying to get in on the action as investors are now 99% long on the NAS100 tech stock index. The S&P and US30 are trailing NASDAQ's gains, but are up overall for the day.

Do This Now

On a technical scale, if price on the indices closes with the bullish hammer they have now, we could likely expect another test at the highs. That is about a 2% move for the SPX500 and a 5% move on the NAS100. It's tough to say how long this rally will last, and it could even dwindle by the end of today, but it will be important to watch price action on today's candles and see where we end up at the close. So, before you trade do a quick analysis on the charts to see whether or not you feel confident in the potential market moves later this week.

Why will US markets be flat or worse?

On December 15th the Federal Reserve Board of Governors made a press release detailing their plans to reduce their open market operation purchases in 2022. The central bank also predicts several rate hikes in 2021, and continuing on into 2023. When you combine this with the current overvalued state of the market, there's good reason to believe that we will see a minor correction, or a mostly flat market.

1. Fed Tapers Asset Purchases.

Fed Open Market Operation purchases of bank bonds and other assets of buoyed up the stock market. SPY and Fed assets look like virtually the same line. Running a correlation on SPY and Fed purchases from 1/2/2021 yields an astounding correlation between the two of 0.8537, or 85.37%. We hardly EVER see this much influence by the fed

2. Interest Rates

Rates have an inverse relationship with the market. When rates go up, stocks go down. What we want to know is how much rates will increase and how many hikes there will be. The Fed has indicated that there will be three hikes in 2022.

3. Overvalued Stocks?

Three Alternative Markets to Consider:

  1. King Dollar: The dollar has had an excellent run, as most FOREX traders know. But for all the reasons I mentioned above, you can expect it to do better in the long run. Less FED asset purchases and rate hikes will increase the USD's value relative to other currencies and traders should expect further gains in the new year
  2. Gold and Gold Miners: Downward pressure on US Equities and the FED backing off of support may scare investors out of the traditional equities. Two options for the prospective traders is your standard XAU pairs and gold miners. If you are unable to trade stocks on US markets, I recommend looking for gold miners on exchanges that are available to you in your own country

3. Emerging Markets and Heavy Industry related currencies in South East Asia and Pacific Economies
AUD, NZD will benefit form the gains in emerging markets in South East Asia. This year alone, Vietnam a 34% increase in their largest stock index. Because these are the largest regional speculative currencies in the area, FOREX traders looking to benefit from the gains in emerging economies would do well to consider AUD and NZD pairs.

For questions and comments, you can reach the author at smstreb97@protonmail.com or through the A1Trading discord at @smstreb97

By Sean Streb

The Update

Last week I posted an article about how to take advantage of future inflation and the supply shock occurring in the United States and abroad. Towards the end of the article, I briefly referenced a futures ETF called $JO, and how it matches the characteristics of an asset that will benefit from supply shocks and the increased money supply. I think we will see some movement in this stock in the coming days and weeks

The News

Earlier this morning, Reuters posted a great article about how coffee farmers are defaulting on contracts with traders. Previous to this, Yahoo Finance did a piece on how major coffee companies were hoarding beans in anticipation of a shortage. Middlemen and coffee suppliers are having difficulty buying coffee in Brazil and some of these traders are actually suing the suppliers for defaulting on their crops. Reuters notes that this increased scarcity could drive futures contracts higher than they are despite the fact they are already near at 7 year highs. This benefits $JO as it is an ETF that buys and sells monthly coffee futures contracts, and an increase in prices would push this ETF up.

Some Analysis

$JO has a solid upward trend, approaching a previous double top support. The stock also gapped up three days ago on November 1st. If we couple this with some of the points I brought up in my previous post: During the pandemic, coffee was inelastic good, meaning that people continued to demand a similar amount even if the price increases. This is a surprise to no one as America is addicted to caffeine. There is a supply issue: shipping delays, crop issues and defaults have decreased the supply. Add all this to the increase in coffee futures, and we get a better picture of what might happen to the value of this commodity in the near future.

For questions and comments, you can reach me at smstreb97@protonmail.com or through the A1Trading discord at @smstreb97

Today I'll share some economic analysis on the CPI report and what to look for in order to tell if inflation will get worse. Lastly, I'll cover some ways that you can make an investment play on inflation.

September CPI Report

The Consumer Price Index report for September 2021 was published on October 12, 2021. Prices increased for urban consumers by 0.4 percent in September on a seasonally adjusted basis. This is slightly higher than August which came in at 0.3 percent. On a 12 month basis, the CPI is up 5.4% from September 2020.

CPI's impact on Inflation

Largest Price Increases

Energy

You have likely seen your gas prices so I don't need to tell you that prices are up, but it's worth noting how much. All major energy indexes are up this month. The entire energy index increased by 24.8% on a12 month seasonally adjusted basis. Gasoline is up 42.1% and Natural Gas is up 20.6% over the same period. Electricity also increased by 5.2%.

CPI's impact on Inflation

Food

The index for food was up 4.5% over the past 12 months. The largest movers in the food index were meat products. Meat, fish, poultry, and eggs increased 10.5% and the index for beef is up 12.6% in the last year.

CPI's impact on Inflation

Will Inflation Get Worse?

We've all heard someone in the last few months say something to the effect of : "40% of all dollars were printed in the last year" with an ominous reference to potential inflation. This is more or less correct as the US government has printed a ton of new dollars, but printing more money doesn't directly lead to inflation. If we look at the velocity theory of money we can understand why. The velocity of money is essentially a way of measuring how fast money changes hands, given the price level, GDP and money supply.

Rearranging this, we can see that the speed at which money changes hands is a function of the price of goods, the GDP and the Money supply. Price levels and GDP haven't shifted much, but the M money supply increased a lot. This means that the Velocity of money should be low. And velocity is very low.

This means that inflation hasn't hit us hard yet.. If inflation really starts to pick up, the velocity of money should see a noticeable increase as more dollars start to change hands to pay for the increased price of goods. This is demand inflation. Prices have increased in specific areas, but we have yet to see large scale inflation.

Case Against Inflation

The Federal reserve has shown that it is hesitant to drastically increase interest rates from their near 0 levels, and are more than willing to increase the amount of assets on it's books. As a result the the amount of dollars in the system increases. Under normal circumstances, low interest rates and an increase in the money supply increases the demand for goods and services. But we haven't seen this. Why?

Individuals and businesses have thus far used PPE loans and government stimulus to pay off debts and cover their bases during the pandemic. Since these individuals and businesses can pay for the goods and services that they need, they don't demand more. There is no pressure for a demand shock at this time. The money generated by Fed is sitting idle in bank accounts, investments and institutions.

We are currently in a supply shock in the U.S., increasing in the price of select goods, but we haven't seen a drastic increase in demand or a change in velocity of money. This doesn't eliminate the possibility of future inflation though. That money is still in the system, and we could still be sitting on a powder keg.

Making an Investment Play on Inflation

Currently, I am looking at stocks and asset classes that I think will rise in the event of inflation. Ill share my methodology for my search and give some stocks that I think fit into this criteria. Ill try and explain why I think some industries will do well and why others will not. This is not advice, I am only sharing my opinion and observations.

Methodology:

  1. Find stocks in an industry that can easily pass on price changes to their consumers. This means that when prices do increase, identify those companies that can change the price of their goods VERY fast and pass them onto consumers
  2. Find an industry that deal in inelastic goods or assets that are still demanded by consumers regardless of the price change, consumers will demand a similar amount of the good.
  3. Assets who's production is not slowed down by supply chain issues or price increases. By necessity, all industries are affected by supply chain problems. The key here is finding those that are affected the least.
  4. Make sure these stocks have solid fundamentals.

Things to Consider:

Oil and Natural Gas Producers: Natural gas is up in price by 20.6% and Fuel Oil is up 41.7% since last year. Winter is coming in the United States and Europe and the prices for these commodities are already increasing. Couple this with inflation and supply problems, producers will benefit immensely from this. These guys find the material, and sell it. they only get more money if the price of the commodity goes up and people still need to full up their gas tanks and heat. their homes. The risk is that shipping problems could cause issues.

$OXY, $APA,

Coffee Producers and Futures : America has an addiction to coffee, this is no secret. An article from yahoo finance, described how Caribou Coffee is buying tons of Coffee beans in anticipation of supply shortages. This commodity shows robust demand despite price increases. One difficulty I see with this is finding the right way to invest in this commodity. I'm trying to avoid companies like Starbucks, Nestle and Keurig that sell coffee directly to consumers as they may not be able to pass on as the price increase. It seems like that is the only option aside from directly purchasing futures. One possibility is $JO, which is an ETF that tracks monthly coffee futures contracts.

Things to Avoid

Refiners and Pipelines: Avoid these like the plague if oil and gas prices go up. These companies take a hit when prices increase because they cannot pass prices onto their consumers quickly, yet they still have to meet the demand of consumers to stay in business.

Beef and Pork: If inflation hits this sector Americans will substitute out the expensive red meats for cheaper alternatives like chicken. This is due to the fact that most Americans have a predetermined budget for grocery shopping and will maximize the amount of food they get.

For questions and comments, you can reach me at smstreb97@protonmail.com or through the A1Trading discord at smstreb97

Hey everybody, this is a breakdown of some of the macro trends around Gold and some of the pressures it is facing from inflation and the Fed's potential rate hikes.

Overview

As of 09/26/2021, the Gold Continuous Contract is down -0.75% this week, and -3.79% for the month. Gold is currently caught in a limbo between rising inflation and rate hikes from the Federal Reserve. Inflation is positively correlated with the price of Gold, but there isn't much inflation despite all the liquidity introduced by the Fed.

The Fed

Bank of America/Merrill Lynch theorizes that Chairmen Powell will announce that QE tapering on November 3rd. The first rate hike to occur in 3Q23 and continue on a quarterly basis. The Fed currently wants inflation as it will juice the economy. If inflation pushes beyond that zone, they may decide to increase rates. Short term inflation is a large concern because of supply line disruptions in the market. If the supply chain cannot meet the demand, then the prices of goods could kick off a bout of inflation that shoots us past the 'Troublesome Zone'.

The key variable is time. If inflation rapidly increases, the fed will move up their 3Q23 plan. If this occurs, the market could react by buying Gold to hedge against a sudden inflationary episode that grew out of the Fed’s control.

Gold Stocks are Undervalued

The Gold Mining sector is trading below the 10 year Net Asset Valuation, which indicates that the miners themselves are currently undervalued, particularly the Jr. mining stocks. If the price of gold were to swing in favor of the miners, there is more pressure to revert to the mean

A New Way to Track the Price of Gold?

After a little digging, I found a Bloomberg Index fund that tracks the price of Gold with incredible accuracy. The following chart shows the top 7 major market indices with the strongest correlation to gold.

SOURCE: World Gold Council

The index with the highest correlation is the Bloomberg Barclays Global Treasury Index, which is pegged to the Global bond market, excluding US bonds and other treasuries. Both foreign bonds and Gold have an inverse relationship with the dollar, but the BBG Global Index is useful for forecasting the overall trend of gold as it offers a less volatile perspective. Due to its high correlation to gold and it’s relatively low volatility, one can chart the overall direction of gold with near 70% correlation. This correlation holds back to 2015.

The benefit of having only a .70 correlation coefficient as opposed to 100% correlation, is that it allows us to see through the "static" of Gold's volatility. The best example is near the end of the chart: GLD moves up near 6.00%, but eventually corrects down to conform with the overall downtrend signal given by the index fund.

7/19/2021

US markets tumble nearly 2% with the dollar as investors fear the delta strain and inflation factors. COVID cases are now averaging 30,000 today in the US as 14-Day case change is up 140%. Meanwhile, bonds extend losses to 1.19%. Banks and tech stocks are getting hit hard today as money is shifting toward the bond market.

Our outlook

Further downside did come for the markets as well as the USD. Fears are high right now, and indices are selling off. Although this is very worrisome and people are afraid of another shutdown in the US, the circumstances are different from last year.

For one, we now have vaccines. About 50% of the US is vaccinated while Americans continue to flood the job market. Vaccines aren't going to guarantee that you won't get sick, but the antibodies your body builds up with the vaccine should help offset a lot of the illness or even prevent it entirely.

Secondly, many businesses changed their working model to accommodate the stay-at-home lifestyle that was pushed on citizens nationwide. So, unlike last year, we already have the necessities prepared for another shutdown where layoffs may be lessened and economic productivity doesn't have to come to a screeching halt. This also could mean that tech stocks will be the first sector investors look to during economic fears.

Trade Setups

SPX500

Here is the SPX500 in the 1D chart which is down 1.47% at the time of writing this. Price has come down all the way to major support on its 50-day moving average which is showing some positive momentum after that bounce. If price can maintain above the moving average today, it could suggest that investors are ready to go long again.

NAS100

Massive buying in the tech sector on this latest 4H candle as price action shows big rejection from the low with a candle hammer formation. Further support is at its 200 SMA on this timeframe for mild support. Price is not testing newly formed resistance now as it made a lower low.

IWM

The Russel 2000 ETF that tracks growth stocks came down to a multi-month bottom before bouncing right back this morning. Price also got real close to its 200 DMA on the 1D timeframe which could serve as support if price comes back down. However, this looks like the bounce is already happening.

Throughout the year, we've seen many changes to the way we trade, how we manage risk and how we interpret the markets. The new insights we have gained over the months usually come after years of trading and adapting to ever-changing environments. We've done all that in a matter of months! Up until the New Year, we will see even more changes to the way we trade as news about stimulus, BREXIT, COVID-19 and other things storm the market and dominate the news. With all this in mind, from what we currently know, here are some things that we think will be top tier for trading/investing in the markets, forex, metals and crypto from here and into the next year.

Because we're looking for ideas that stay relevant in the longer term (as in 2020 and 2021), these ideas/setups are going to be more fundamentally based rather than short-term technical setups.

EUR/AUD

EUR/AUD daily chart

This pair has proven to be very volatile during times of economic fallout. That spike we see starting in late February kept bringing up new highs for a massive gain once the rally was over. With the news about the UK and their emergency from the new COVID strain, we could see heavy volatility from here on as a new strain could be bad news for our most recent vaccines. One thing we can take from a trade like is momentum. If governments start announcing further shut downs worldwide, expect this pair to take flight once more.

Biden's Goals for Solar Power and Cannabis

As of January 2021, the Biden Administration plans to decriminalize marijuana as well as help introduce more solar panels as they push to end the era of fossil fuels. Experts in the clean energy field have established that solar power is now less costly than fossil fuel plants. Companies like SolarEdge (SEDG) and Sunrun (RUN) could see some long term growth in the next 4 years.

Cannabis is also something to look out for during Biden's presidency. With the MORE Act already passing through Congress which aims to decriminalize pot, it's up to the Senate to push it through although it is considered unlikely. Nevertheless, more bills continue to swing into view such as the STATES Act. This bill will help companies in their profits by giving them tax breaks since they pay sky-high amounts as of now. Although these bills are not guaranteed to pass, this shows that the government is pushing toward more leniency on this industry and will likely reach some sort of conclusion with the help of Biden's push for legalization.

Gold

XAU/USD 4H chart

Gold will also have a big role to play in the coming months as well as into 2021. As you probably know, gold is a risk-off investment and usually performs well when the USD suffers. This year, stimulus brought about some extreme printing of money pouring into the US economy. This in turn, hurt the USD causing the XAU/USD pair to skyrocket in the summer.

With the new COVID strain out in the UK, there are some things we need to consider: what does this mean for our vaccine? And will countries have to shut down once more? If this strain of the virus becomes another global situation, it is likely that our country will have to repeat the same process back in February and March. A country-wide shut down will only hurt recovering businesses more, and stimulus will be needed to be pumped back into the economy. If the future were to play out like this, the USD will only be further weakened as gold will rise in demand. Analysts also believe in a $2000 price target for this metal.

Crypto

Similarly to gold, cryptos will likely see a rise in demand if the USD falls. More analysts, hedge funds and banks are starting to recognize this type of currency transaction as the way of the future after being so bearish on them for the past three years.

Bitcoin had a key thing happen with Grayscale Bitcoin Trust increased their asset in Bitcoin to over $13 billion from $1 billion last year. We are also starting to see more funds get into this crypto like Massachusetts Mutual Life Insurance Co. who bought about $100 million to add to their portfolio.

Another crypto to look out for going into 2021 is the meme currency, dogecoin. After Musk's latest tweet about doge, the pair soared 20% reaching highs from July. Elon Musk is clearly joking when he talks about dogecoin, yet his words still bring traction to the market. In an effort for investors to raise it over $1, investors don't need valuation to justify a ridiculous price; they just need the hype.

-

One thing we could take away from this year is that with hype comes momentum, and it's usually a good bit of it. We saw the way EUR/AUD took off at the beginning of the government shut downs. We saw global stocks rise to all-time highs after the Fed announced their stimulus package. Gold hit record highs as well, all from momentum. The circumstances change, but the idea is always the same. If we can look passed the fact some things may seem worthless (like Bitcoin in 2017, like Tesla in 2019), we can be in for some very profitable trades in the New Year. It all comes down to momentum.


Disclaimer:

Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.

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After the steepest drop in US equities in history back in February, the stock market rebounded 63% and passed all-time highs from pre-crash levels. With an economy that was once booming turned into a recession, but the market did not seem to care from the belief that the Fed would keep money flowing in and the banks, during a period of almost 0% interest rates, had nowhere to put their money except in the stock market. Led by tech, the market climbed higher than ever before. USD pairs got crushed as GU and EU skyrocketed. Although the S&P has already dipped over 6% in the past week, it seems that the time to buy is not that attractive to investors. Here are some reasons why:

Illusion of the Fed

The Fed, with seemingly unprecedented power to fuel the equities market, made investors feel backed by the central bank to where the market had nowhere to go but up. There was an illusion that the Fed would never let stocks dip whatsoever, but that can only go so far. Fueling the market means printing money, which means increasing debt and inflation. If interest rates rise, the market will tumble as well, so interest rates need to stay low while the USD deals with inflation rising. Keep in mind that interest rates were already very low to begin with as Trump promised the best market we have ever seen. Once corona hit, interest rates only had so far it could go before it reaches 0% or negative. Yes, it is true that missing this most recent bull run killed bearish sentiment, but the bears aren't going to sleep forever. The Fed won't keep printing money forever, and at some point, it is not up to them where the market decides to go.

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The lack of new stimulus

Millions of Americans are still out of work, even more so than the great financial crisis of 2008. The unemployment numbers have been greater than 2008 for over 6 months now, and companies are still having lay-offs. Initial jobless claims data shows that the economy is not really recovering. We finally dipped below 1 million a few weeks ago, but the number each week has now been hovering in the 800,000s. The damage done is irreversible, and will take a long time to recover. Some analysts expect 8-10 years to be fully recovered. However, this will not necessarily affect the stock market and major pairs as much. The fact that Americans have been out of stimulus payments since early August shows the true colors of Congress as Democrats and Republicans continue to debate over which package is best. Now is not the time to push agendas or make Capital Hill look bad. It's time to put differences aside and help the people that need it.

Vaccine Drawbacks

News on vaccine has definitely been a major driver in the market's direction this year, but failures in the trials have brought fear back in to the minds of investors. After one patient in a voluntary vaccine trial came down with an unknown illness, the market freaked out and dipped hard with big tech leading the drop. The first step in this biological crisis is to find either a vaccine or efficient treatments to the virus and stabilize the number of cases. The number is still rising now that schools and universities are calling students back to campuses. The University of Georgia made business news when cases spiked over 1,400 positive tests. Sports teams are postponing games, some teams are not playing at all, and billions of dollars in revenue could be lost if cancellations continue.

What will tomorrow bring?

Tomorrow and next week will be interesting. Last week had moments of short-term uptrends forming before price got wiped out again. This pattern happened a lot last week. The bulls are losing momentum with all this crazy news coming out, and tomorrow may be grim. The market is following the same pattern from February: sell offs begin to bring price down before that big correction happened of -34% on the SPX500.

You can tell that the dips are becoming successfully more aggressive the higher we climb. The red candles are now overpowering the green and this recent dip has already wiped out 3 weeks of gains. The healthy thing would be for the market to correct making stock prices and value reach closer to equilibrium. Otherwise, we will see a bull market run completely by FOMO investors who want to make a quick buck on each swing up, and an inevitable correction farther in the future will be worse than if it were to do so now. Since the market has dipped back into correction territory, it's time for it to make a decision. Will we continue to buy in to the Fed-fueled rally, or will we let the market healthily correct so that it makes more sense to start investing again?
We will find out soon.


Disclaimer:

Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.

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Gores Metropoulos Inc. (NASDAQ: GMHI) has marked a deal with global leader in artificial intelligence on highway autonomy, Luminar, and is going public on this merger worth over $3 billion.

A little about Luminar Tech

Luminar works in the field of highway safety using various AI tools for detection of objects up close or even from a considerable distance. One of their products, the Iris, can detect objects from a max distance of 500 meters away.

https://www.luminartech.com/

Just from clicking on the website, you can get an idea of the kind of technology that Luminar is working with without the use of many words. The front page is an interactive picture of a city street that the users can look around with. Immediately, the site can not only grab the users attention, but expose the advanced technology without explaining it in depth.

The company is well-established in the private sector with 50 partnerships including several of the top Original Equipment Manufactures in the world.

GMHI

Gore's most recent earnings report came as a surprise to a lot of investors in a good way. On top of that, the size of this merger is a little bigger than Nikola's merger with VTIQ earlier this summer. This might be a good sign to traders now that the market cap sits at a little over $1 billion. The new valuation of $3.4 billion might drive the price up. Luminar will receive an immediate $170 million in finance as the ticker will change from GMHI to LAZR on the Nasdaq. The deal is expected to close at some point in the 4th quarter.

GMHI on the 1D chart. For those who are trying to trade this pre-merger, support can be found in the 10.70-80s price range. Price hasn't been able to break above the $12 mark yet, so a potential retest could happen come merging time. 14-Day RSI stands little under 60.

I am currently holding a position on this stock, however it is small. Remember that anything can happen in these unpredictable markets, especially the SPACs, so it's important to keep a level head and risk what you are willing to risk.


Disclaimer:

Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.

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Warren Buffett, one of the most successful and richest investors of all time, long-time owner of the established conglomerate, Berkshire Hathaway, and mega bull has recently turned bearish on the US stock market. Granted, he has been saying this since the April rebound, but he finally put his money into action.

Although Buffett would probably never short the market, he decided to get rid of his bank stocks by dumping JP Morgan, Wells Fargo, Goldman Sachs and other banks with smaller positions. He sold over 250 million shares, hundreds of billions of dollars worth in total, but that's not all.

https://www.cnbc.com/berkshire-hathaway-portfolio/

The oracle of Omaha had also replaced his stake in bank stocks for a gold mining company, Barrick Gold Corp (NYSE: GOLD).
But why sell bank stocks when the Fed has funded them with trillions of dollars and pushing the S&P passed all-time highs?

Surprisingly enough, bank stocks have largely under performed the market in this latest bull rally. This is due issues regarding credit and debt; Analysts expect banks to be close to $900 billion in losses by 2022, according to CCN.

https://www.advisorperspectives.com/dshort/updates/2020/08/04/market-cap-to-gdp-an-updated-look-at-the-buffett-valuation-indicator

Here's the indicator Buffett uses to measure the Wilshire Stock index valuation compared to overall GDP. The way it's measured on this site (which is the accurate way) is by taking the annual GDP from Q1 and using that as the denominator throughout the year. So, it is basically the index divided by Q1 GDP.

In most recent numbers, GuruFocus has us at 179%, which they consider 'significantly overvalued' for the market. They also predict a 2.9% decline in stock market returns this year.

https://www.gurufocus.com/stock-market-valuations.php

What Now?

It's hard to predict what is going to happen in the market with tons of factors at play. For example, two weeks ago, jobless claims dropped into the 900,000s range, and investors believed the economy was recovering. The market shot up. Last week, jobless claims (which have been driving the market either up or down) reported back over 1 million at 1.1 million. Despite bad news, the market shot up harder than the previous weeks.

The problem investors are running into is that Wall Street will tell you that the economy doesn't reflect the stock market. And when there's bad news about the economy, the market tends to go up. However, when there's good news about the economy, that news matters all of the sudden, and it causes a buying frenzy. As an investor who's got most of their money sitting on the sidelines since April, it's frustrating to try to get an idea of when is the best time to buy. Do we brush off the fact that the US is in a recession? Do we join the hype train and ride with the bulls?

The answer is painfully simple: Bull and bear markets all come to an end eventually before it resets. Look past the trees and view the whole forest. Is a vaccine going to fix the damage already caused by the pandemic? Most stocks on the S&P 500 are showing negative returns expect for a certain few. There is lasting damage to the economy, and if you were forward-looking, it would make sense to see the market reflect that in stocks. Some analysts are talking years of rebuilding before the economy 'normalizes' again.

Here is the US30 on the 4H chart showing long wicks on both the tops and bottoms of several candles. That is a big sign of uncertainty where investors can't decide on what to do. No one really knows what is about to happen in the next week, month or year, not even Buffett himself. It's about being rational and understanding what makes sense in the long run.

Put yourself in an unbiased position and ask, 'should the S&P really be at all time highs right now?' The obvious answer should be no, but again, the market does not always make sense.

What to Look Out For This Week

Watch for vaccine news: This week may see another frenzy of buyers as a successful breakthrough on treatments to the coronavirus will most likely become approved by medical officials.

Watch Big Tech: The stocks like Amazon, Apple, Google, etc have been the main drivers of the market. Analysts are finding long entries on all of these companies excluding Netflix.. Traders are likely to follow.

Watch Technicals: This is definitely a trader's market now. News does affect price, especially good news, but indices are respecting lines of support, resistance, breakouts, wedges, etc. On the 4H chart, the US30 broke above the wedge with a strong green candle. A break in highs could mean that the SPX500 might want to continue its run for now.


Disclaimer:

Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.

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