As the National Association of Home Builders/Wells Fargo index of builder confidence increased to 47, the highest since April 2006, the U.S. stock market indexes are continuing their incredibly bullish activity, with the DEC12 E-mini S&P 500 futures trading up 9 points, or +.63%.
The market has quickly retraced the “Obama low” after the election, and now is approaching the yearly highs of 2012. We would not be surprised to see the market make a run to 1500 in Q1 2013. With U.S. housing numbers consistently coming at above expectations, along with U.S. job numbers doing the same, we see potential for the rally to continue. This also would be possible especially as the U.S. dollar may continue to fall below a key level of 80. It feels to us as though the market is really starting to price in more of the infinite QE idea that many analysts say is the reality. Thus if this were the case, we believe the U.S. dollar will continue to fall and the stocks will rise. More on bonds in a moment…
Gold has continued to trade bearishly under $1,700. We have been marking $1,640 as a target or key level, and today gold is down more than $20 to $1,678. We believe the $1,630-$1,640 area will be the next stopping point, and then possibly lower going forward after that. Gold is actually down the most out of the precious metals this morning. With a risk-on and foreign currency rally, it looks like gold is being left out of the asset reallocation shifting that is occurring into the new year.
We focus on U.S. 30-year bond futures today for you. We believe that a significant downtrend may be developing in the U.S. 30-year bond. We notice that an important supportive trendline starting in September has just been breached, and this could be a signal of sellers starting to get more active in this market. Fundamentally, the selling makes perfect sense as investors become more concerned about inflation considering Bernanke’s recent pledge of more QE. It’s truly tough to pick a target because once the bond market starts a big bear move, you never know where it will end up. Same with any trending move, this is just a principle of trading with the trend. Obviously this is our opinion and a bear trend in bonds may or may not occur. But our next target for this market is 145, and then the next key level below that is 141.
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