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Global Market Outlook

Global Markets Sending Diverging Signals

February 8, 1999

The global equity and commodity markets have been sending diverging signals of late, with some major foreign markets rebounding strongly from recent depressed prices while others hover near the precipice. Overall, the global equity markets look positive near-term while commodities are still mostly depressed with signs of recovery in isolated sectors.


The downtrend is still intact for the Nikkei Dow. Until the falling trendline is decisively penetrated to the upside, nothing will change for Japan. The Nikkei currently remains stuck in a range between 13000 and 14000. Nothing has changed for this country in an entire decade and no positive changes are in sight.

An interesting article concerning Japanese popular culture appeared on the front page of the Jan. 27 Wall Street Journal, entitled, "Seeing Guys Hitchhike Beats Indiana Jones and Oprah Combined." The overriding theme of the article was that, for millions of Japanese—especially younger Japanese people, an optimistic, "pull-yourself-up-by-the-bootstrap" mentality has taken root and has suffused throughout the entire culture.

The top television programs in Japan, according to the article, focus on everyday Japanese people making the best of tough economic situations that have plagued Japan throughout the '90s. One such popular show, "Escape From the Poorhouse," features a "different small-time restaurant owner as he struggles to re-educate himself in order to turn around his restaurant, inevitably on the brink of collapse." In other words, Japanese are finding hope from seemingly impossible situations and are inspired at everyday attempts at climbing out of financial difficulty. Perhaps not surprisingly, an article in that same issue of WSJ argues that "Japan is getting closer to a bottom…" and that "Japan sees bullish view in officials."

Although many investors would view this as a sign that Japan is regaining its confidence and hence starting a new bull market, we see this as a sign that the bottom is NOT yet in for Japan. Whenever hope and optimism exist during a recession or bear market, it usually means the bottom has not been seen. It is widely known that the prevailing sentiment at the bottom of any major bear market is agony and despair, emotions that have not yet surfaced in the Japanese culture. Until these emotions make their appearance, we'll venture to say that further tough times are ahead for Japan.

Hong Kong's Hang Seng index has recovered nicely from its nearly two-year bear market and is building a nice level of consolidation at the 9000-10000 level. This corresponds to a Dow Theory "line" and should presage a strong move upward if prices break to the upside of this congestion. Indeed, the long-term downtrend line in this index has technically been broken and the outlook is starting to look good for Hong Kong, though time will tell us more.

Singapore, South Korea and, to a lesser degree, Indonesia, all have shown strong evidence of having bottomed. The charts for each of these indices look positive and we expect the uptrend to continue for the foreseeable future.

While we are on the subject of Asia's recovery, we note with interest an excellent and insightful analysis on the subject of the global economy written by the analysts at Stratfor ( In a global intelligence analysis entitled, U.S., Asian Economic News Points Away From Economic Globalism," the writer made these remarks:

"A year and a half after Asia went into economic crisis, the announcement of a surging GDP in 1998 shows that the U.S. has managed to avoid being dragged down by Asia, at least thus far. In fact, parts of Asia are showing signs of recovery, particularly, South Korea, Philippines, Malaysia, Singapore and Thailand. Japan remains in deep trouble while China and Taiwan appear to be getting weaker. The important news: the nation-state is not dead. The diverging patterns we see indicate that globalist theories of a single, integrated economy are simply not true. This means that nation-states will continue to act in ways defined by national interests, both in their economic and political lives. We see the twenty first century looking very much like the nineteenth and twentieth. If the U.S. moves into recession, and it may, it will be because of the rhythm of the domestic economy and not because of irresistible global influences."

The point is well made that the inexorable forces of the free market will always move to its own rhythm despite all human efforts at manipulating the trend. This explains why the U.S. stock market and economy keep humming along despite the myriad economic woes overseas. In time, the U.S. will also experience recession (or worse) but only in accordance to the rhythm of the domestic economic cycle, not the mythical global economic cycle.


The yield on the 30-year U.S. T-bond is at 5.338%. Clearly, the bond bull has lost its steam and bearish forces are beginning to take over. This situation will not change until the U.S. stock market takes a plunge, at which time bonds should regain their luster and safe haven status. For now, the yields are simply too tempting in the U.S. stock market with bond yields paltry by comparison.


We knew something "fishy" was up in the silver market when its price started soaring last week and continued climbing by leaps and bound through the end of the current week. From a tape reading perspective, its price wasn't "behaving" correctly in our view. So we did what every good technical analyst would do in just such a situation—we cleared our mind of all pre-existing bias and gave the chart a good, critical look. What we saw shed much light on the current silver situation.

It seems the recent spike in silver prices is yet another short, sharp "suckers" rally, the variety of which we saw last year when the announcement was made that Warren Buffet had purchased 130,000 tons of silver at an average of $5/ounce. Of course, immediately thereafter the price fell back to its previous low level and Buffet ended up liquidating his entire store of silver at just about what he paid for it, according to the London Financial Times.

Lawrence Patterson, in his excellent magazine, Criminal Politics, had this to say of the situation: "We wonder why this story did not reach the U.S. financial publications. Could it be—just maybe—that they want to burn as many fingers as possible in the metals markets so that you will never trust metals again?"

From a technical perspective, a very interesting situation developed in the silver market on Friday, Feb. 5. At the open of trade on the Comex, silver futures were trading in backwardation to its spot counterpart. This situation develops when the current, or spot, price is higher than the futures price—an unusual occurrence and one that usually harbingers bearishness. As the day wore on, silver spots and futures were trading at about the same price and were down between 10 and 15 cents from the previous day's close. This is significant since the Fibonacci 50% retracement is at $5.625, approximately where silver met overhead resistance before falling back.

In order for silver to convince us its trend has indeed reversed higher, we must see a firm close above Fibonacci 62% resistance at $5.865. If silver continues to fall, however, it will confirm this was nothing more than a bear market rally.

Plain and simple, the downtrend in gold remains unbroken. Until trendline resistance at $295 is broken, the intermediate term will continue downward.

Only if higher resistance at $300-$305 is decisively penetrated will gold be able to soar to greater heights. As we have pointed out in previous commentaries, gold has been in consolidation for the past year between the $285 and $300 levels, which represents either distribution or accumulation. We will not know for sure which of these two is underway until we get an Edwards & Magee buy or sell signal either 3 percent above $300 resistance or $285 support. Until price break one way or another out of the channel, we do not recommend making firm commitments at this time.

Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy.  The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment.  He is also the author of numerous books, including “2014: America’s Date With Destiny.” You can view all of Clif's books here. For more information visit

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