Markets Continue to Hover at High Levels After Mixed Trading, but a Drop-Off Seems Inevitable

The equity indexes closed mixed once again on Wednesday as the Dow Jones Industrial Average dropped 36 points with the S&P 500 rose 1.6 points.  The Nasdaq gained 8.2 points and the Russell 2000 closed lower by 2.3 points.

The S&P 500 volume traded just over 50 million shares.  Its volume on a daily time frame for the first two months in 2016 was three to four times the volume traded by the index in 2017.

Everyone wants to know why the CBOE Market Volatility Index is near an all-time low.  That is because complacency is near an all-time high. Does anyone believe that it is different this time and that the bull market will not end?

There are two things that stand out in this global, interconnected marketplace, but are being overlooked or understated.

The first is that China's foreign currency reserves have fallen below $3 trillion, the lowest level since 2011. There is a tremendous capital flight out of China, and at this rate, China could very well be broke by the end of 2017.  We have seen this before with countries, notably Brazil and Argentina. There is only one way out of this situation for China, and that is a massive de-valuation of their currency, the yuan.

That would send shock waves around the global markets, including the U.S.

Secondly, it was reported on Wednesday that Stanley Druckenmiller was buying gold again after selling gold in November after Donald Trump's victory in last fall's presidential election.  Gold is the most manipulated asset there is. But, it would certainly appear that gold is again the asset of choice in 2017.  We have been mentioning and writing about this for a while.

Attached is the daily chart of the SPDR Gold Trust  (GLD) .  Again, this is a bullish chart to start 2017, and the ETF is expected to continue to move higher throughout 2017.

Everyone should have a long position in gold.  It is not too late.  This is our favorite asset class for 2017.  Gold miners, Daily Gold Miners Bull 3x ETF (NUGT) , is also included in the favorite asset class.

There is a disconnect between perception and reality in this stock market.  The time will come soon when reality wins out.

This article is commentary by an independent contributor. At the time of publication, the author held a position in NUGT.

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