We are at the midpoint of 2019 and the major averages are in a new high territory, in line with our forecast. The trading over the past month has shown enough strength to suggest the rally could go another 5%-10%. But nothing has surfaced to change our belief that it is the last rally in this bull market and a considerable decline should begin in the traditional September-October timeframe. Meanwhile, we are happy that we are participating in this run and may make a short-term trade, if the opportunity presents itself.
From a macroeconomic standpoint, we are in an unusual environment. Some of the key things we look at from this perspective are the 10-year yield on U. S. Treasury Bond, the price of gold and the long-term charts for the Dow Jones Industrials, Transportation Index and the S&P 500 Index. The Dollar index is also of interest, but currencies have so many factors influencing their price that it is very difficult to predict their future movement with any degree of certainty. We have mentioned interest rates in past commentaries and talked about the 10-year treasury breaking its 30-year downtrend in terms of yield. Since that break, the yield has since declined back below the line which is consistent with the process of changing direction for such a long trend. What makes this particularly interesting, is while this has happened, the price of gold has spiked up, usually indicating a fear of inflation. So, while the bond market is saying there could be more of a deflationary risk, the gold market is acting like inflation is a risk. It’s not possible, at this point, to predict what the outcome of this condition will be, but we believe it is a warning sign of the beginning of instability in the system which may be the cause of the decline we think is coming later in the year.
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Gary and Dianne
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