It’s Time to Place Your Bets

I can hear the collective sigh of relief emanating from all corners of the globe.

The US Fed has finally cut rates, and not only that they have started with 50bps!

Phew.

The US dollar index continues to teeter above major support at 100. What happens below there? The Aussie dollar is itching to break out above 68 cents as I said last week.

Will a sharp fall in the US dollar stop the rot in commodities?

China is still sputtering along hoping their property market doesn’t collapse and US growth is showing signs of slowing.

So perhaps China facing commodities will continue to sag despite a falling US dollar.

Did the Fed cut 50bps because they can see something we can’t? Perhaps they are trying to get in front of a problem they see arriving soon.

Whatever the reason behind the large cut, it has shifted the market into a new paradigm. Stock prices are moving as market players are placing their bets.

I would prefer to see how stocks trade for a few weeks after the rate cut before sticking my neck out and making sweeping statements about what comes next.

I think the bullish and bearish case for stocks is fairly evenly matched.

The rally is getting long in the tooth and economic data in China and the US are pointing to a slowdown. But falling rates could enable a soft landing and see growth picking back up next year. Also, markets often rally after a US election.

While the trend in stocks remains up, you have to give it the benefit of the doubt and go with it. But as I show you in today’s Closing Bell video below, there is some resistance overhead that could cause some trouble.

As rates and the US dollar fall, money is flowing into the beaten up property sector. If you were looking to lock in a solid dividend yield and think there is further upside as commercial property stocks recover that may be a happy hunting ground for you.

I show you a few property stocks in today’s video.

I also revisit the Australian dollar and point out that the path of least resistance is up as the RBA holds firm on rates and the US Fed cuts. I think the Aussie dollar could run towards 71–74 cents if we see a weekly close above 68.5 cents.

A few key commodities are responding to the US dollar weakness and threatening to head higher with copper, zinc, and aluminium the most promising.

Gold is of course going off like a frog in a sock and long may it continue.

In today’s Closing Bell video I look at the relationship between central bank balance sheets and the S&P 500. I also analyse the ASX 200, Australian dollar, copper and property stocks.

If you want to understand how I analyse markets at a deeper level then make sure you have a read of ‘The Lessons’ which gives you six of the key lessons I have learned about trading over the past 30 years.

You will learn how I use mean-reversion to get into no-lose positions. How traders’ mistakes can help you find opportunities to get into winning trades. And how taking part profits along the way helps you to sleep easier at night.

Regards,

Murray Dawes,
Editor, Retirement Trader and Fat Tail Microcaps

All advice is general advice and has not taken into account your personal circumstances.

Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.

Murray Dawes is our resident expert trader and portfolio manager. He is a former Sydney Futures Exchange floor trader who went on to design custom trading systems and strategies for ultra-wealthy clients (including one of Australia’s richest families). Today, his mission is to help ordinary Aussie investors make profitable investments, while expertly managing risk.

He uses his proprietary system for his more conversative and longer-term-focused service Retirement Trader…and then applies the same system to the ultra-speculative end of the Australian market in Fat Tail Microcaps (this service is strictly limited and via invitation only).