Gary Dorsch of Global Money Trends expects the Dow and S&P 500 to hit 18,000 and 2100, respectively, between now and the end of January on strong seasonal market strength and a revived yen carry trade. Citing breakeven costs, Dorsch believes oil is close to a bottom with gold possibly headed toward $1050-$1100 an ounce before miners begin to cut back and provide a floor against further declines.
The following is a summary of his recent Financial Sense Newshour interview as part of our weekly technician segment.
Aside from “data dependent” comments from the Fed, any doubts regarding a “Yellen put” for stocks were put to rest when Fed officials suggested a possible extension of QE if the correction deepened further.
There is a very high degree of correlation between US markets, particularly the S&P 500, and the dollar/yen ratio due to the yen carry trade. With the Bank of Japan’s recent expansion of its own QE program, this has led to a drastic fall in the yen and a corresponding move higher in US stocks.
Stock market seasonality is most favorable between November and January. Expect stocks to push higher over the next three months.
In order to determine a bottom for major commodities, like gold and oil, you must look at the key breakeven prices for major producers. Once falling below that price, expect cutbacks on production or development leading to a lower supply in the market.
For oil, various analysts believe Saudi Arabia’s breakeven cost is $80 a barrel. They may allow prices to drop to $70 before cutting production if it can help create more damage on Russia and Iran, with Russia’s breakeven estimated at a much higher price of $104.
At $70/barrel, about half of US shale companies are estimated to become unprofitable.
Most of the downward move may be over and oil prices may see stabilization in the current area for several months. The decline in oil prices has resulted in a large transfer of wealth from the Middle East and other oil producers to largely consumer-driven importing nations like the US.
The median all-inclusive breakeven cost for the eighteen largest gold miners is roughly $1200 an ounce. With gold at $1145-1150, about half are losing money. Some larger companies have a breakeven closer to $900, which means gold may stabilize around the $1050-$1100 region. When companies start announcing cutbacks that will help signal a bottom.
To listen to this full podcast interview with Gary Dorsch on our site or in iTunes, please see the following links below:
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