The summer thin-volume doldrums are definitively here and I really have the feeling that it could be that déjà vu all over again.
I know that past trends are not a reliable guide to where prices in the financial markets could go from here, but I wouldn’t be surprised to see parallel patterns starting to develop comparable to those we’ve seen in the second and third quarters of 2008.
Keeping in mind 2008, I would certainly start to consider locking in my profits in this classic thin-volume summer market. That said, since the third quarter of 2008 we have had to live in this new era of unprecedented uncertainty that’s continuously reflected in risk-on, risk-off price actions caused by the inflation-fearful and the deflation-fearful camps.
For now, at least at the moment of this writing, the bulls appear to have the upper hand. Nevertheless, I think that there are more sufficiently substantive reasons for the bull camp than for the bear camp to err.
The recent aggressive sell-off in the price of corn, wheat, and soy futures that took place through much of June certainly reminded me of last year’s preliminary trends that acted as an omen of the decline in investor confidence in the second half of 2008.
A year ago these declines were also mirrored in oil, gold, and in the Baltic Dry index, the world’s pre-eminent indicator of global trade. Let’s wait and see what happens now.
But, and also as an example, it’s interesting to take notice that GBP/JPY (British pound/Japanese yen) recently fell through its uptrend support in a repeat performance from almost exactly one year ago.
In 2008, the collapse in confidence came amidst heightened concern over the likely implications of the brewing financial crisis. Today, a collapse in confidence could start to grow because nobody really knows whether the developed economies can withstand the removal of their fiscal stimuli.
In my opinion, it’s not overstatement to say there is a growing discomfort about the quality of the coming economic growth and the scope of further fiscal stimuli and stabilizers in the event that this is needed.
Therefore, I think because we are facing these possibilities investors will probably be better off and safer not to wait too long before taking profits from the present weak dollar position.
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