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-- Posted Sunday, 21 March 2010 | Digg This Article | | Source: GoldSeek.com

A surge in put or sell options in New York, and a decline in call or buy options is a classic signal of a stock market trend reversal, and is now in place. On Friday the S&P 500 also registered its biggest percentage fall in almost a month.

Then again on Friday 89 per cent of stocks in the S&P 500 traded above their 50-day moving average, and by definition a trend line above an average is not sustainable.

Indian rate hike

On Monday Indian stocks will lead the downturn after a surprise interest hike after hours on Friday. Meanwhile, renewed fears over the Greek debt crisis have floored the euro again.

In the US housing dominates the statistical show next week. Housing has been the component of the US recovery that has failed to come right so far. Existing home sales are out on Tuesday and new home sales on Wednesday.

It is also uncertain how the now expected passing of President Obama’s controversial healthcare bill will be received by financial markets. This removes uncertainty but the cost of the measures may be judged anti-business. Then again Google pulling out of China is hardly a positive.

On Friday the dollar gained against all major 16 currencies. This is an indicator of what to expect in a big market sell-off. Bond yields will take a dip and prices jump. All commodity prices, including precious metals will fall.

The flight to the dollar and bonds as a safe haven has started. Partly this is an automatic response to the liquidation of assets like stocks that are denominated in dollars. Partly it is a shift from risky assets to a perceived safe haven.

How long will this dollar rally and stock market correction take? Stock markets generally correct much faster than they rally. So a 12-month rally might be followed by a three-month fall, or it could be an even quicker correction.

Size matters

However, the higher and longer a market rally then logic suggests the harder and longer the fall. In previous bear market rallies after major financial crises the correction has generally been to a new low and over a matter of several months.

So successful has the Fed been in sustaining this rally that most investors have forgotten that this now leaves the emperor with no clothes, as the liquidity is spent and it is impossible to lower interest rates meaningfully – and that is how 20 per cent corrections are usually capped.

Is it too late to short the S&P 500 at this point?

Gold’s next move is down says $5,000-an-ounce author

While firmly sticking to his forecast of $5,000 gold within the next few years, ArabianMoney editor and publisher Peter Cooper can see a three-month price correction as the next move for the yellow metal and its best friend silver.

Of course books are frequently published just as major changes of direction occur, and markets do not always move on cue as authors would like. That does not necessarily invalidate a price theory but it certainly does test it.

Stock market crash

The devil in the brew for gold right now is an imminent correction in global financial markets.

Late in 2008 gold bugs saw their precious metal dragged down with other global financial markets in a big sell-off. Basically good assets were sold down with the bad to meet margin calls by investors.

It will most likely happen again. And if this sell-off proves to be as strong as ArabianMoney suspects then gold will also be a big loser. It is even possible that we might test the lows of last April, and fall below $700, although $950 is a more reasonable downside target.

But that really will be the ideal moment to stack up your vault with gold. For the $5,000 target is still there and the bounce back will be very strong with money rotating out of bonds and back into precious metals and particularly associated equities.

Ultimate bubble

Presumably general equities will also offer some rebound potential from these summer lows. But if George Soros and other hedge fund investors in precious metals are right then this is the next and ‘ultimate bubble’.

That leaves investors with little alternative but to park their money in US dollars and bonds before investing in precious metals this summer. Even the normal seasonal upturn in precious metals in the autumn would make this an excellent trade but as readers of ‘Dubai Sabbatical, The Road to $5,000 Gold’ will know there is far more money to be made.

However, whether holders of gold and silver should now sell up and try to buy back at a lower level is always a difficult question. Getting market timing wrong is always a consideration, and with some of the world’s great hedge fund managers presently big hoarders of gold you have to wonder if they know something that is not yet apparent.

-- Posted Sunday, 21 March 2010 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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