Theorized Near Future of the Stock Market
At this time, the stock market seems to be making headlines with the highest weekly price rally since 1974. Despite this upward turn from the massive waterfall plummet of February and March, analysts say that the stock market did not hit its lowest in bear market territory yet. For example, during the Great Depression, the stock market rallied quickly about 38 times just as much, or even more, as is happening now. The market can still rise even when it is still slipping down in a decline over the long-term. So, while many wish to declare the worst is behind us, analyzing data from history shows that this might not be the case.
Volatility Index and BEAR Market Future
The VIX, known as the CBOE Volatility Index, measures the expectations in the volatility of the stock market. Because of COVID-19, the VIX recorded high levels of volatility. At the time of writing, the VIX is decreasing, meaning the stock market is doing well. However, analysts noted that this rally does not mean the VIX high in recent months is over.
Another way of making the same point is to measure the number of days between the end of the bear market’s first leg down and its eventual end. There are 11 bear markets in the Ned Davis calendar in which the Dow fell by more than the 37.1% loss it incurred between its February 2020 high to its March low. On average across those 11 […] the final bear market low came 137 days after first registering such a loss. If we add that average to the day of the March low, we come up with a projected [final] low on Aug. 7.From MarketWatch.
The VIX, through recorded history, tends to hit its highest before the bear market reaches its low. This is from analyses of all bear markets since 1990. Further analysis yields an average time of 90 days delay between VIX high and bear market low. This suggests the high of March 16 volatility will catch up starting on June 14.
Once the worst hits, pessimism and distrust will ensue. However, we should still consider the cause of this economic turmoil. It originally did not stem from an economic issue, the coronavirus pandemic ignited this. Economists proclaimed optimism at the beginning that because this is caused by a medical issue, the comeback might take as long as other crises. But, rising unemployment and falling Consumer Price Indexes will still have lasting damage.
CPI and Oil
This year, the reports for the Consumer Price Index (CPI) show so far that inflation pressures lessened. In March, the CPI fell 0.4%. This drop is measured considerably by the drop in gasoline demand and price.
Gasoline prices cut down 10.5% in March 2020 alone. This makes for an 18-year low below $20/barrel. Although, after an OPEC teleconference with Russia this week, reports say that Russia and Texas plan big cuts to come. This has resurrected crude oil futures. The oil price last traded at $25.25 a barrel versus last week below $20/barrel.
Core inflation also dropped 0.1% in March after rising 0.2% in February. Growing deflation risks are now being examined as the global market place sees plummets in demand across the board from the quarantine. In the US, approximately 95% of Americans are following quarantine orders.
Gold and Silver Ratio, Futures, and Prices
So, currently gold is in an upward trend. People believe it is not likely to drop because of demand, rising inflation concerns, and the stock market bottom to come. However, Christopher Aaron, a Global Market Analyst on YouTube, suggests that gold is likely to drop.
Futures at this time extend through 2021. The active contract now is the Comex April Futures for gold, which last settled at $1732.50 high. The June Futures contract last traded at a high of $1752.80. Additionally, there is a huge difference between futures and the spot price for gold, which closed slightly above $1700/ounce on the day.
This leads Aaron to consider gold less bullish right now. This is because if it was going to continue rising, there should be a higher premium for front/early contracts and lower prices for later contracts. Right now, there is a difference of about $20 for the front month and later contracts, and the spot price is still significantly lower than this. In 2008, the opposite occurred. There was a phenomenon called ‘backwardation’ in which prices were higher on front but lower for later contracts. Because the opposite is occurring now, Aaron believes precious metals are not as bullish as many would like you to believe. He also examines the Gold/Silver Ratio that is now spiking upward.
Aaron suggests this has never been the sign of a sustainable market in gold. This is particularly because silver prices are lagging behind gold, and may lag more.
Gold and Silver Right Now
Nevertheless, prices are currently soaring to a 7.5 year high after the Federal Reserve announced further moves with a stimulus package. On April 9th, gold traded around $1750 in futures contracts for later months.
So, June Gold Futures were up $61.30. Silver May Comex Futures contracts were also up at $15.91. This makes for a good week for stock market bulls. The next breakout objective is closing above $1800 per ounce and a downside breakout objective around $1670.
Also, May Silver Futures achieved a 4-Week high on Thursday in a 3-week upward trend. Its next upward price objective is closing at $17.00.
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