Interesting times in the markets. US equities have now completed a standard fare "Fibonacci retracement" off of the March 6 lows. Now, where to from here?
Bulls and bears alike conceded that a strong rally was quite probable. Now that it's happened, what can we expect?
There seem to be two or three prevailing market outlooks today - and all 3 are quite different!
1. We've averted armageddon. Now it's back to business as usual, albeit at lower levels. How much lower is the big question.
2. We haven't yet seen the bottom of this, and the March 6 lows are destined to be taken out. This is nothing more than a parallel universe to 1930.
3. This rally was engineered by the government and driven by the printing of money. Inflation has shown up sooner than expected - thus we should pile into gold, silver, and metals while we still can.
If you discount the less dramatic "Golilocks scenario" of #1, then you're left again with inflation and deflation staring you in the face.
Both sides of the debate have strong arguments for - and against. It's one of the most intellectually challenging forecasts that I can remember seeing in my (young) investing career.
I've accepted the fact that I'm not as smart as the gurus on both sides of the debate...if they can't figure out which it will be, how can I!
While, as regular readers know, I've recently warmed to the deflationary outlook, I'd still like to hedge my bets in case I'm wrong.
So, though I'm not doing much trading, I am watching the commodity sector closer than every. You'll recall that commodities, one by one, rolled over in early 2008, prior to the equity markets. I've come to believe that commodity prices are "smarter" economic forecasters than, say, the S&P 500.
Here are three charts that I pulled up this evening, which appear potentially ominous, at least in the short term.
The Baltic Dry Index shows that, well, less stuff is being shipped: