The markets are worried about inflation
The world is already in a sea of global liquidity. The combination of a Democrat president and a Democrat congress clears the way for a lot of new ideas and agendas. The Biden plan calls for a 100 % clean energy economy and net-zero emissions not later than 2050. This can lead to much more stimulus. The question is will it be another one trillion or two trillion. That will be like adding gasoline on a fire of liquidity. Clean energy stocks can take off in a big way. The clearest manifestation of this is visible in Tesla. The stock has already risen 12 times since last March. In this new environment, it will be foolhardy to bet against Tesla.
Under Biden, the world can expect better relationships with China. While major issues on intellectual property and other competitions will remain, but it will be less confrontational than the Trump presidency.
Equities
All the major indices are tracing out a five-wave rally. This rally in Dow has started from Jan 04. The advance so far has carried to 31,193, and it can continue to go higher. Any move below 30,793 would weaken this expected up move. The situation is similar in the S&P 500 as well. A move up to 3843 will bring equality in wave five with wave one. Any move below 3784 will weaken this outlook as well.
Bonds
We strongly believe bonds are progressing down in wave three which is where you want to be. This move down originally started at 183^06 on Aug 06, 2020. The implication from now on is that we are in a “third of a third“ wave decline which is the most profitable time to be in the markets. Only with six days into the year, the 10-year yield has already moved up 21 points. Our eventual target for this move is our long advertised level at 155.
Euro
The Euro’s high at 1.2350 on Jan 06 probably completes a structure that started at 1.1605 from Nov 04, 2020. The move down can extend to 1.2060-65. The market could even break lower. However, a move above 1.2315 will diminish this bearish case.
Gold
Corrections in markets can be very confusing. It gives the illusion of starting a new trend but can turn back on a dime. Believe the move up to 1959 last Wednesday was one of those. Markets have fallen 7 % since that high. I think the much bigger bearish potential exists.
However, it is very important that gold does not trade above 1959 again.
Author: ©Abraham George, CEO, Founder of AllSeasonsPTL Capital Management Ltd.
