Slowly through each wave of rise and fall, markets are revealing where the capitals are concentrating. The market leaders are no longer US, Japan, nor Europe, but Brazil, India, China, and Taiwan.

US market is facing heavy pressure again today. S&P 500 has broken support at 1080/1085, and then 1065/1060. The technical pictures are simply getting worse and worse. However, that is not so for Brazil, India, China, Taiwan, and other southeast Asian markets. They are far above July low by some 10%. The good news is that I believe these market leaders are not forecasting a repeat of depression, or a serious bout of recession. The bad news (for more mature markets as to emerging markets) is that the better days are not for us.

Going forward the stock markets will be increasingly selective. Given the extremely low interest rate environment, there are LOTS of hot money trying to find a home. But it’s probably not going to be in S&P 500.

I have been sitting on about 40% in cash (double at the “normal” 20% for me to compensate my high volatility stocks), trying to avoid a big fall that may have come. The last market drop wasn’t that big. In fact, it has risen back to about the mid-point of the trading range.

I’m guessing that for the next month until about mid-September, markets will stay in the bullish trend, possibly challenging the last high set in May again in all markets. When US dollar falls, it is good for all markets. Definitely you should keep an eye on Euro.

I’m going to pick up a few beaten up stocks here and there. It’s still not too late to buy something for your portfolio.

It may be difficult to fight off the deflation mentality out there. But I know in my guts that eventually the resolution is definitely inflation. This is not 1929-1932 anymore. America is not Japan either. A debtor country (USA) cannot afford a deflation. Besides, we’ve got helicopter Bernanke hyper-actively working overtime at every deflation scare.

Just a short message on stock market. If S&P 500 doesn’t hold 1040/1050 today or through this earning season, then I will turn bearish again. Holding at this level is critical to paint a chart of higher low than the last low at S&P at 1010.

Markets have been extremely volatile. It’s best to step aside. Volatility is often a sign of nearing the big moves either way. Betting money before the market make up its mind can be hazardous.

Best luck.

Frugal at 1stMillionAt33.com

Markets have dipped and then came back since I last commented. For the short term (months), I am moving my bearish stance to neutral because markets have moved beyond the Fibonacci levels. Staying on the sideline in this volatile market is probably the best bet for now. One should use small trading size and take profits at near resistance levels, while take a small bite at near support levels.

Based on the relative strength, I continue to believe that high-tech sector should be slightly over-weighed. However, since I’m already in high-tech industry, I do not hold anything in this sector besides my company shares & options.

Intermediate to longer term, precious metal-related investment should continue to go up.

Without any external events, this summer stock markets may be just range-bound to slightly trending up. Until all the banks stop to extend & pretend on their loan terms, kicking out the home squatters (not paying any mortgages for an average of 449 days), there will not be big write-offs from the balance sheets, nor a dramatic fall in financial sector. Reckoning days postponed.

The 10 suicides at Foxconn have happened in this year, and are no longer news. However, they are so important in the big economic picture that special attentions are deserved.

Just some background on this Taiwan-based company itself. This company is arguably the biggest and most efficient manufacturer of all sorts of goods in the world. After these suicides, the company raised the salary of ALL workers at the plan by some 30%, and have some 60% additional bonus reserved for good output. Various question can be asked, but I’m mainly concerned about the big picture causes and effects from such action at the edge of tidal wave.

Through US-pegged renminbi, US monetary inflation is manifesting in Chinese economy. For all the deflationists out there, the proof of inflation is not domestic, but in China & India, and eventually will find its way back to US soil. The eventual re-evaluation of renminbi is inevitable to re-balance the living standards on the two sides of the pacific ocean.

I don’t have time to elaborate more, but point you to two excellent articles on this topic:
1. Chinese Workers Force the Issue by Peter Schiff
2. The Asian Inflation Bug by Martin Hutchinson

Stock rally is stalling a little bit. This summer until September may be quite nasty. I suggest lightening up for possible reloading later, which still needs to be qualified by technical observations.

Gold is approaching the high ceiling again, due to stabilization of euro. It’s still the strongest currency, stronger than both euro & US dollar. If there is a buying opportunity this summer, grab it.

And sorry I haven’t paid any attention to oil & energy markets for quite awhile, since I’ve cleaned out my entire stake several months back. “Thanks” to BP, the entire sector has been sold down. And I’m not interested yet.

By the way, US debt is now 13 trillions now, not counting any of the medicare/social security obligations. Mark my words. Deficit will be at 20 trillions in less than 10 years, and US dollar will break down, creating the next big wave of inflation (at least in the US territories).

The longer stock markets don’t rally when they should, the more investors will throw in the towel. I believe there is a serious danger of breaking 1040 on the S&P 500, after which the markets will collapse at an even greater speed. I have already increased my existing cash holding by almost 50% in the last week, not waiting for the markets to give a final verdict. The counter rally is pathetically weak, and going further out into summer, the European debt complication will only get more serious.

As I have been suspecting that MACD on S&P 500 may do a head fake. So far however this head fake signal only lasted 1 day. It’s exceedingly weak. The market has very little underlying support now. There are more sells than buys, and sellers are getting more panicky. Though short-term wise it’s very hard to tell whether it will be up or down. I would still advise to stay away temporarily for awhile.

Yes, markets are quite oversold, but they can stay oversold much longer than you can bear.

This week it looked like I was early by 1 day in calling the bottom this week (so far, if markets don’t break lower). But the bounce was weaker than I have expected so far. Regardless my game plan is still the same. I’ve bought into the bottom by covering my shorts, and I am planning to re-establish some of my short positions at the higher prices. My shorts on the general market are really hedges against my company options which I have been liquidating. But I will still be net long with the hedge.

Technically the market is short-term over-sold, and with MACD turning up but not strongly, I don’t know if a bullish cross-over could be established (see the green arrows in the chart). If the market cannot make this bullish cross-over, it will be quite bearish, and markets will stay oversold with lower prices to come. Also, if the MACD　cross-over is not strong, it could be a fake signal, and trap more bulls in a bigger downtrend.

Most of the time I pay more attention to the fundamental side, and for obvious reasons, fundamentally this market is treading water due to European sovereign bond market problems. And they simply won’t go away in a very short time frame (in several months). In fact, I believe that it could intensify throughout this summer, and therefore I want to side-step away. My opinion has always been that since 2008 financial crisis with the biggest housing & mortgage bubble bursting, things simply won’t be the same as before. Stock markets react very fast initially, but eventually bond markets may shoulder all the pain.

For the intermediate term, I still think that it’s better to stay in cash, and miss the potential next 10%. Stock market indexes won’t be going up by another 20% anytime soon in my opinion. But when it goes down, it will go down very fast, and the escape exits will not be available.

Play safe.

I should have realized that, just like the incessant rising up since March 2009, this going down may not have any escape. Any counter-rally if there is any is weak and would be sold.

Regardless of what happens in the short-term on a day-to-day basis, I still think that this summer, stocks will go down hard (on top of whatever that has already happened).

My own portfolio is not taking a big hit yet. But I expect that when the tsunami comes, it won’t stand either. After 1st or 2nd week of June, if things still don’t turn around, I will start rising cash in prep of the coming storm.

Best luck.

The needed counter rally I believe will begin this Monday (or today) but may only last about 2 weeks with European stocks going up already. My current target is about right after first week of June. I think it’s very important to get out of stock markets after the relief rally, to avoid the coming intermediate decline this summer. From June to until end of August, and possibly longer, I’m not bullish on stock markets at all. I continue to believe that the stock markets will be ranged bound, with heightened volatility (fast ups & downs) throughout this year.

The European debt problem will probably get quite bad this summer. It’s just not over. I would avoid Euro dollar & any European stock markets until mid-2011. The political uncertainties may continue to exacerbate Wallstreet this year. The mid-term election this November will bring down many incumbents around the country, as indicated by a big Tea Party win by Rand Paul in Kentucky. For June 8th primary in California, I’ve marked all of my choices: all incumbents are going out. Yes, vote ALL incumbents out (except Ron Paul of course) and return the government back to THE PEOPLE.

I also expect precious metal investment to continue its march in the secular bull market. HUI may get hammer again this summer, but after that it should out-perform the general stock market (again).

Although this sounds unlike me almost, but my long-term bearish stand on stock markets since year 2000 high-tech bust, is coming to an end possibly in about 1 year. This coincides with public abandoning stock markets left & right, and fully embracing the bond markets after the 2008/2009 stock market crash. At local bookstores, the books on bond investments are placed prominently indicating the shift in public sentiment. With $376 billion flow into bond funds, public is buying all it can into bonds. What I want you to take away from here is that in the shorter term timeframe for about a year, stocks may NOT do very well. But in the longer timeframe, it will be the absolute worst timing to switch from stocks to bonds where the final phase of the bond bubble is completing. Don’t let the high volatility get to you. Bond is at its last leg. Similarly a fall in bond will raise up the interest rates in general, compromising the inflationary force in real estate (for years if not decades to come). Allocate your assets properly.