U.S. Stock Market - Record Highs Today, But Correction Imminent !

The Dow Jones Industrial Average and the S&P 500 Index both posted solid gains and record closing highs today, but the NASDAQ Composite and the Russell 2000 Index were both flat, and the Dow Jones Transportation Average was actually down on the day (-0.27%). NYSE breadth was nicely positive (+3:2), but on the NASDAQ there were actually more stocks down than up today (1,188 issues up vs 1,236 down). Since last Friday’s intra-day upside reversal, I have been suggesting in this column that the U.S. stock market would rally all this week and peak on Monday, April 15^th. However, I now think the peak was either made today or will be made by mid-day tomorrow.

Here are today’s closing marks, with changes from Wednesday’s close:

                                                                                    Thursday’s Closing Prices                 

Dow Jones Industrial Average                        14,865.14        +62.90             +0.42%

S&P 500 Index                                                  1,593.37        +  5.64             +0.36%

NASDAQ Composite Index                               3,300.16        +  2.90             +0.09%

Russell 2000 Index                                              947.05        +  0.96             +0.10%

Dow Jones Transportation Average                 6,164.86         - 16.47             - 0.27%

And what about Gold? SoGen made headlines last week with a negative report on the yellow metal, and both Goldman Sachs and Deutsche Bank weighed in this week with negative outlooks of their own. Goldman slashed its target to $1,545 per ounce for 2013, down from its previous estimate of $1,610. It also lowered its outlook for 2014 to $1,350 an ounce, down from an earlier forecast of $1,490. And Deutsche Bank reduced its year-end forecast to $1,637 an ounce. While that's still higher than gold's current price, it's almost 12% below Deutsche Bank's previous forecast of $1,856 per ounce. In support of their newfound bearish views on Gold, analysts for both banks cited an improving U.S. economy, a stronger U.S. Dollar, and a rotation by investors away from “safe haven” assets in preference for “risk assets”. Cyprus has announced that it will now sell 400 million euros worth of its gold reserves as part of the latest “bail out” agreement between Cyprus and the EU/IMF.

The price of gold has dropped more than 10% during the past six months and is now nearly 20% below its all-time high above $1,900, reached in September 2011. Can SoGen, Goldman, and Deutsche Bank all be correct now with their bearish calls on gold? Should we even listen to these well paid analysts? To answer this question, I am reminded of a period in mid-2008 when crude oil prices were skyrocketing every day. $150/barrel was just hit and a major investment bank came out with a report which suggested that $200/barrel was the next stop and that this lofty level would be breached very soon. $150/barrel was the top, of course, and six months later, crude oil prices had plummeted to $35/barrel. At $35/barrel, this same investment bank was out again with another report which suggested that $30barrel was the next stop and support there was questionable. Of course, crude oil prices promptly rose to near $100/barrel. The lesson is simple: The folks at Goldman, SoGen, and Deutsche Bank are all smart people, but they don’t know where gold prices are headed tomorrow, next week, next month, or next year. These guys probably work very hard and have exceptional resources, but they just don’t know!

However, given the fact that my computer system just triggered daily and weekly chart sell signals in the U.S. Dollar Index, I believe that Gold (and Silver) prices are headed higher (much higher) very soon, and over the next several quarters, and maybe even over the next several years. The Canadian Dollar made a 7-week high against the U.S. Dollar today, and Gold/Silver prices are clearly finding decent support here despite a deluge of “bad” news recently.

  

Bottom Line: In the interest of full disclosure, I started accumulating the S&P 500 Index double-short SDS ETF in last hour NYSE trade today. And I also started accumulating Gold/Silver mining shares late today. Unless there is new compelling evidence to suggest otherwise, I will probably add to both positions tomorrow in the accounts that I manage. By Monday’s close at the latest, I expect the U.S. stock market to be in full retreat. While there may be a few Fed Governors who “protest too much” in the media about Central Bank bond purchases (QE3), I don’t think the Fed will scale back its buying anytime soon. And U.S. stocks will go down anyway because corporate earnings estimates are too high and too many things can go wrong right now (black swan?). While no one can say what the catalyst for the imminent downturn will be, I feel confident that there is a negative catalyst for U.S. stocks on the very near-term horizon. Will gold/silver stocks benefit from a correction in the U.S. stock market? Since I don’t see a liquidity squeeze anytime soon (with central banks all over the world in print mode), I think Gold/Silver stocks will do very well from here.

U.S. Dollar Index (DXY) Weekly Bar Chart with Computer-generated Buy & Sell Signals