scaled historic new summits in July as the
rebounded from its June swoon much faster than when it fell. The
market gained traction after Federal Reserve Chairman Ben
Bernanke said the central bank has no preset timeline for cutting
back on economic stimulus and that its near-zero-interest-rate
policy will remain for the foreseeable future.
SPDR S&P 500 (
) popped 5% to nearly 170 -- an all-time high -- after dipping 2%
in June. S&P companies, up 18% year to date, will grow
earnings by about 5% in the next 12 months and the index will
reach 1,740 (roughly $174.00 a share for SPY) by mid-2014,
Russell Investments projects.
On the other hand, weak breadth indicators, the Supply
Management Price Index reading below 50, low liquidity and margin
debt roaring to a 10-year high suggests
should brace for a correction, says Brad Lamensdorf, founder of
the Lamensdorf Market Timing newsletter.
"Margin debt is at a record high," he wrote in his July issue.
"An abrupt sell-off can trigger margin calls and beget more
SPDR Gold Shares (
) rebounded from a three-year low, rallying 7% to 127.90 in July
and snapping a three-month losing streak. Down 21% year to date,
it pared the collapse from its historic high of 185.85 from
September 2011 to 31%.
GLD could rise to 135 to 140 a share before resuming its
downtrend, says Patrick Hejlik, CEO of Fourth Quadrant Asset
Management . He recommends short selling to profit from falling
"Disinflation, higher real (interest) rates, a stronger dollar
and slowing economies will continue to pressure the metal,"
Hejlik, said in an email. He believes gold will bottom at its
average cost of production at $1,000 an ounce.
Charles Biderman, CEO of TrimTabs Investment Research , has
funneled a quarter of his assets into one-ounce gold bars on
expectations that the U.S., Europe and Japan will continue to
engage in quantitative easing to debase their currencies and
support their economies.
Bullish Case For Gold
Gold bottomed at $1,200 an ounce (about 120 for GLD) and will
continue higher thanks to heavy demand for bullion and jewelry in
emerging markets and as short-sellers, betting on falling prices,
close their positions by buying gold futures, he said.
IShares MSCI EAFE Index (
), tracking developed foreign markets, advanced 5% in July and 6%
year to date.
Russell upgraded European stocks from underweight to neutral
following the second-quarter correction. It recommends buying
Japan and Europe over the U.S. because of their low
"Japanese equities are trading at just 1.3 times book value.
Reflation and yen devaluation are positive catalysts for EPS
growth," Russell wrote in an outlook. "The Japanese economy is
responding to policy stimulus, and business confidence surveys
are signaling optimism."
The eurozone recession will likely end in the third quarter
although growth will continue to be weak coupled with high
unemployment and no lending growth, according to Russell.
IShares MSCI Emerging Markets Index (
) added 1% in July -- one of just two months this year in which
it closed with a gain. It's tumbled 12% year to date in the face
of plunging commodity prices, currency depreciation against the
dollar and China's credit crunch and economic slowdown.
What's more, anti-government protests erupted nationwide in
Brazil, Bulgaria, Egypt and Turkey.
"A lot of the bad news is now priced in and emerging markets
offer good medium-term value," Russell wrote. "Attractive
valuations, good earnings prospects, the impacts of stimulus
measures and stronger exports should eventually deliver
Emerging markets are trading at a 20% discount to developed
markets and 5% below their 10-year average, Russell wrote. But
from a bearish view, emerging markets tend to lag developed
markets when the dollar strengthens because it prompts banks to
tighten lending and central banks to sell foreign reserves to
maintain their currency pegs to the dollar, Russell noted.
Biderman recommends shorting both foreign developed and
emerging markets on the expectations that they'll sell off harder
when the Fed tapers quantitative easing.
"Unless the economy grows faster, I don't see how the market
can keep going up when the Fed does stop (QE)," he said.