Markets are overvalued but...

1. WE DO NOT PLAN TO SELL IN MAY AND GO AWAY!!

That is, not until past Trump’s birthday June 14th.  Until then we see markets range bound with an upward bias.  The question for me is what is the range: DJ 20,000 to 21,000 or 20,500-21,500? The latter is our current bet.

MARKETS ARE OVERVALUED BUT…

The tug of war between earnings and outlooks vs. elevated Geopolitical concerns continue to suggest the odds are markets will stay strong in May. 

FUNDAMENTALLY while we see MARKETS OVERPRICED by 10%+, given future increasing profits for many companies, and the prospect of lower taxes and less regulation, IT SHOULD BECOME LESS OVERVALUED AS TIME PASSES. 

1.      TECHNICALLY, this saw the SP touch MARKET RESISTANCE 2400.

LINE: As long as markets stay above SP 2362, technically we are inclined to maintain a long basis. Nonetheless, we always advise caution, and believe stock picking will easily well outperform index investing in 2017.

We recommend short term trading and conservative hedging such as writing covered calls and long/short strategies this Spring.

• In May we adjusted our Long Short Ratio to 3-2 [from 2-1] as long as the SP is above 2362; Below SP 2362 and up past SP 2420 1-1;
• If markets are so inclined to move still higher up circa 2500, then 1-2.

2016 CLOSE	19762	2238	5383	15.96	1152	53.89
5/12/2017	20896	2390	6121	16.46	1227	47.82
PIVOTS	20838	2362	6000	16	1222	48
RESISTANCE	21500	2440	6250	18	1300	50

KEY DATES:     MAY 17/18, 26

DJIA:                   20838 PIVOT 

SPX:                    2362 PIVOT   2440 RESISTANCE
NASDAQ:          6000 SUPPORT R1 6250 R2 6500 R3 7000
GOLD:                 1222 PIVOT   R1 1250  R2 1274 R3 1288 R4 1300

SILVER:              16 SUPPORT 18 RESISTANCE

OIL:                      48 PIVOT  ITà$57+  

US 10 year         2.30 PIVOT à 2.75-3.00 [RESISTANCE]        

The Market Marker includes some cautious concern.

2016 CLOSE:          DJIA 19762 SPX  2238 & NASDAQ 5383

2015 CLOSE:          DJIA 17425 SPX  2044 & NASDAQ 5007

2014 CLOSE:          DJIA 17823 SPX  2058 & NASDAQ 4736

2013 CLOSE:          DJIA 16576 SPX  1848 & NASDAQ 4178
AFUND Fair Value: GOLD $1380
THINK TRADITIONAL SWISS AND PRESERVE CAPITAL: HEDGE AND PROTECT AGAINST DOWNSIDE RISK+

 

2. We currently have no plans for any fresh buying or selling this week, although if required, we are more likely to want to buy any dips, vs selling any rallies.

3. At last week’s Silver Institute Breakfast, their 2017 forecasts for gold were more modest than mine: circa $1250, similar to Goldman Sachs.  However, their forecasts of $1425 in 2018 and $1500 in 2019 were slightly more bullish than ours. If they are right,  Gold and Silver has peaked for 2017.  While traditional seasonal weakness lies ahead, we continue to position on the long side in both Gold and Silver in Q2 2017.

Silver should have found support at $16 and gold will either here at $1225 or at $1200.  However Q3 will be telling and precious metals could move in either direction over the summer.  Regardless:

• Gold remains cheap geopolitical crisis insurance.
• For investors suffering from minuscule interest rates, accumulating gold is a no-brainer! 
• Likewise for investors who cannot or will not buy the $US currency as well as investors who wish to safely and cheaply hedge their US$ exposure, ONLY GOLD IS AS GOOD AS GOLD!

Gold FV $1380 = Commodity FV: 1325 + Currency FV: 1400 + Inflation Metal FV:1375 + Crisis FV: 1420.

Gold/Silver ratio à 61  FV $22.50

INVESTORS: Intermediate Term, we plan to stay LONG in H1 2017 (recommending steady accumulation and only occasional hedging, selling or profit taking).  We remain disinclined to short or sell until gold is overvalued e.g. $1400+.

For silver our first selling numbers are $23+. 

 

4. “The bottom line is that we are almost certainly at a bottom for the VIX and therefore actual equity-market volatility, but history says we can bump along that bottom for weeks.”

Nick Colas, chief market strategist, Convergex

HW: No reason for it to be different THIS time.

“The big signs for gold are going to be a combination of interest-rate movement and stock market fear as we enter the seasonally weak months of the year (May 1 through Halloween). If stocks start to stumble toward the end of this month and interest rates revert to their mean, we could see some temporary upside pressure to the yellow metal.”

Adam Koos, president, Libertas Wealth Management Group

HW: Just temporary?

"It looks like gold is following stocks and the U.S. dollar, but overall I would say it may have found a bottom, at least for the time being. All we need is some good physical demand."

Afshin Nabavi, head of trading, MKS

HW: All we ALWAYS need is good physical demand!

5. The Fear Index: Should Low Market Volatility Worry You?