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Dec 1 2013 – Weekend Market Comment

Dec 1 2013 – As I said last week this is the New Momentum in full force. The markets are at new highs and everybody wants in. Global stocks beat all assets for a third month in November, the longest winning streak since 2009, on signs that economic growth is accelerating. Commodities extended declines as gold fell the most since June. ( I will be talking more below on gold). The MSCI All-Country World Index (SPX) of equities in 45 markets rose 1.5 percent including dividends and the Standard & Poor’s 500 Index reached a record as China pledged to expand economic freedoms, the European Central Bank cut interest rates and speculation increased the Federal Reserve will delay reducing stimulus. The U.S. Dollar Index advanced 0.6 percent and the S&P GSCI Total Return Index of 24 commodities fell 0.8 percent. Bonds of all types lost 0.16 percent on average. 

Global markets might be good but US markets are king. The average return for the month is 1.5 percent, more than twice the overall monthly mean of 0.6 percent. That would put the S&P 500 index at 1,832.9 by the end of the year, giving 2013 the best annual return since 1997.

Mom and Pop, the individual investors are just now coming back to stock markets. They have sent about $30 billion to managers in 2013, which would make this year the first since 2006 that equity funds have seen net inflows, after almost $400 billion was withdrawn in the previous four years.

In short this bull is in a full on charge. Just look at the long-term picture.
(as always click and graphic to enlarge it)
That dark green 50 day average price line is just heading steady up! Sure you could argue that we are overbought, and I can show you some signs of that in a moment. But look how strong the Primary sell graph is, we are a long way from spooking the professionals but as all strong runs it does look extended. 

The Nasdaq summation index has perked up as tech stocks are showing some promise lately. 

OK so things are super bullish, but you can't just ignore that fact that we are overextended here. The U.S.  November employment report is released on Friday, it could have a huge impact on stocks and bonds alike. That's because it will not only give investors a clue about the strength of the economy. It also is expected to give another indication of when the Federal Reserve should begin to taper its quantitative easing program.

The Graph below is the VIX.  In anticipation of that the VIX has started to climb. Notice on the top of the graph is an indicator called the Commodity Channel Index or CCI. The CCI typically oscillates above and below a zero line. Normal oscillations will occur within the range of +100 and −100. Readings above +100 imply an overbought condition, while readings below −100 imply an oversold condition. As with other overbought/oversold indicators, this means that there is a large probability that the price will correct to more representative levels. Ont the bottom of the chart is the S & P 500 equal weight ETF, downturn bars are in red. Notice in the past every time the CCI(20) of the VIX broke above 100 we have had a pull back in the markets. 

Gold snapped a two-day decline on Thursday as the dollar edged lower and signs of physical demand emerged from Chinese buyers. Gains were kept in check by strong U.S. economic data that suggested an end to the U.S. Federal Reserve's stimulus program. Spot gold rose 0.7 percent to $1,244.85 an ounce by 1950 GMT. It had fallen to a 4-1/2 month low of $1,227.34 on Monday.

The U.S. dollar is likely to rally this week and that will put downward pressure on gold prices. However Gold at 1,227 an ounce is very near the magic number of 1,200.  Many traders buy gold as it nears 1,200 because he idea is that the trade has built in safety near the marginal cost of production. Of course one day 1,200 will not hold and there will be chaos. 

From the big picture Gold is just diving

I am up over 25% on my DUST play but my stop is at $38.39 locking in a profit but allowing me to see if it has more to run. The red line on the graph is my "Uncle Point" where my stop loss is. 

How to Play This
Well you can not be all out of a market like this -- Markets can remain irrational a lot longer than you and I can remain solvent. But I would be wary. There is also no reason you have to play it on the edge. Trim your speculative potions, play conservative and look at other markets.  The first trading day of December is often a winner so I expect a nice bump up Monday and Tuesday, by Wednesday we should see that VIX gather momentum as sellers begin to fear the Friday jobs report.