Market Cycles Explained
You will learn when it is the best time to switch between stocks and commodities.
Dear investors,
Welcome back to Thursday’s free newsletter, where we discuss investable assets by their history, current and future outlook with technical analysis.
Market cycles are extremely helpful to understand, it can give investors an advantage over other investors by switching investment strategies before everyone else does.
DJI/GOLD - 1 Month Chart
Did you ever wanted to sell your indexes/stocks but did not know when it was the best time to do so? With the Dow Jones Index divided by gold you can see when stocks are overvalued in relative to commodities and vice versa.
With the help of the chart above you can better determine when stocks are overvalued or oversold, to switch investment strategies based on market cycles.
When Paul Volcker (Federal Reserve Chairman) got inflation under control at the start of the 80’s by hiking interest rates to double digits, the beginning of a multi-decade bull-run took place in the stock market. However, when the top of the dot.com bubble was reached gold performed better than the Dow Jones in the decade thereafter (2001-2011). Until the Federal Reserve intervened again by lowering interest rates near zero and boosting the economy by excessive currency printing after the housing bubble (2008).
If we focus on the technical analysis you can see multiple vertical lines in the chart (1966-1971, 1999-2001, 2018-2022). Between those lines momentum was losing its strength (shown on the MACD Indicator) and eventually after multiple rejections at local resistances the Dow Jones Index experienced severe corrections and gold started its bull-run.
Current Time
Today we believe the same fate is about to happen as the two prior big declines. We believe gold and other commodities are extremely undervalued in relative to the stock market and we expect a shift to take place in the coming months.
With inflation at 40 year highs, a aggressive/hawkish Federal Reserve and a high change of a recession. We think that more investors are changing their strategy what they have been using for the last 10 years and are looking for store of values what does generally well in times of uncertainty, like gold.
If the stock market goes into a bear market and gold is rising, we believe the time to switch back into stocks is at the blue circle highlighted on our support line. And when the Fed becomes less aggressive again when they have inflation finally under control.
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