After Last Week's Losses, What Next?

Last week was about losses. This week "felt" the same, but it wasn't. The S&P was down, but only around 0.01%. Gold was down around 0.08%. Bonds continued losing money as well.

Was the surprisingly small loss for the week a positive for stocks? Longer-term it's unlikely, although the "Melt-Up" King I follow keeps insisting stocks are poised to rise 80% - of course, that's before they crash and burn. And he thinks it will be a pretty bad crash. But, of course, he wants us to push ourselves into his recommendations and grab some of that 80%. 

Hey, it's a living.

One little "+" for stocks: We track the Dow 30 stocks, using a service that provides Green, Yellow, and Red trends for each. When 12 or more go Red, it's time to be cautious. The number hit 16 - which means even more caution. But this past week, one of those 16 turned Yellow. A reversal on the way?

What to make of all this? Here's a stab.

Assuming we're in a Bear Market (and by no means is this the consensus), we could be in for a correction in the downward spiral that comes with the Bear. If so, that means May could be the month that April was supposed to be: positive for stocks. The question is, positive by how much?

We already know what the Melt-Up King thinks, so let's move on to one of our trusted sources, a guy who studies cycles. His shorter cycles say we may get a bounce. As for how much, he cautions it could be not much more than a modest trading range, as opposed to a Melt-Up. But he's pretty sure, based on his longer-term cycles, that we head back down again some time in the summer and for the rest of the year. He's completely out of general stocks as a result and holds only a couple of commodity stocks. His long-term prognosis is pretty dismal.

What about other items like bonds and precious metals? He's got 'em in "sell" mode. For Bonds, he's thinking we could get a bounce after this really long down turn (which I think is longer than most of us thought it might be). But he's not looking for a huge move up. 

Combining his insights with some other trusted sources, I think the bigger picture is whether the 40+ year Bond Bull Market has finally - definitively - ended. If so, we're not going to get that protection bonds once provided in serious stock market downturns. We'll have to find other counter-weights and hedges and not rely on bonds for balance anymore. That's a HUGE change from the asset allocation discipline of the last 40 years.

Now, to be sure this "Is it finally over?" thing has been going on for years. But maybe we're really coming to (or have arrived at) the end. Lacy Hunt at Hoisington, who has been touting treasuries for years through thick and thin - and has always been basically right, even in the face of some serious bond declines - seems to have thrown out a note of caution for the first time in living memory (at least my living memory).

For Gold, our cycle guy's not buying now; but longer-term, he's waiting for cycles to turn up and plow back in, with the belief that, ultimately, Gold is in a long-term Bull Market. 

Meanwhile, the dollar remains strong, pounding 103 on the Dollar Index (DXY) and slipping past what may prove to be serious resistance. If it does stay above and charge higher, who knows where the USD winds up? Sure, long-term it's toast, like all fiat currencies. But now apparently the world can't find a better place to put cash, with the Yen more or less collapsing lately, taking out a currency that was for a long time a go-to place for some relative stability re other currencies. I guess the dollar's pretty much the only game in town at the moment.

With that, the steady deterioration of portfolio values, whatever they happen to hold, has proven a bit frustrating. Of course, if you hold Cash, it's relatively better than some, but it's still been down for just about every asset.

Times like this make weekend breaks quite appealing.