SPY has run up from the low of 67 to almost 110. Many of us have been wondering, what's next.
If this is a bull market, a correction is great for the bulls who would like to buy more on the dips. I am a bull and I would love to see a correction to buy at lower levels.
On the other hand, if this was a suckers rally, and new lows will be set (double-dip recession), then this is a great time to short for patient bears.
A lot of debate has been raging around inflation, deflation and a bubble in the bond market.
The question for me has been how do I discern what's going on and what side am I going to be on?
I looked at the following facts ("what is fact for one person may not be a fact for another... please feel free to disagree") and concluded "it's a bull run".
Fact #1: Feds want inflation instead of deflation (money printing aka quantitative easing)
Fact #2: US (Feds) can't afford deflation. Housing prices have stabilized but if deflation kicks in now, it can drop the prices further by 25-30% and will put the financial sector under tremendous pressure.
Fact #3: Feds want currency devaluation to support increase in prices (including housing). Not only do the Feds want USD devaluation, they are currently succeeding in it with the help of Central banks around the world
Fact #4: Gold is outperforming stocks
Fact #5: All being equal, when currency goes down, stock prices adjust upwards to reflect corresponding change in earning adjustment. It pays to be in stocks that have international earnings (they benefit from favorable currency fluctuations)
Fact #6: Banking crisis (risk to the financial system) is over.
Fact #7: SPY is approx 15-17% above is 200 day SMA. Even a 15% correction at this time, will not change the fundamental structure that this bull run is here to stay.
Fact #8: Follow the trend -- gold rallying, USD weakening, house prices stabilizing, bond rates are slowly increasing (after a little bit of dip earlier).
Based on all of the above, I am firmly footed in the "bull" camp across both asset classes- Gold, Stocks
If SPY corrects below 92.6 (in the next 3-4 months) along with strengthening in USD currency, then I will have reason to switch direction.
If GLD drops below 89 USD then, I will consider being a gold bear but until that happens, I am a bull.
My targets:
GLD - 160 (2 year)
AAPL - 320-360 (2 year)
GOOG - 750-800 (2 year)
SPY - 1500 (2 year)
USD - devalues 20% more from here in 2 years.
Note:
1) This is not a recommendation just a collection of my thoughts and ideas based on my technical analysis
2) If circumstances around the world changes, the direction/positions may change considerably
3) Technical analysis isn't about having a crystal ball. It is about identifying the next step depending on current statistics.
4) I will update the blog when I view that the direction has reversed.
5) Its better to be in Gold (GLD), than in a stock index.
6) For stocks, I am trying to pick stocks that have large international revenue to benefit from currency devaluation/adjustments.
