The US stock market continues in a major uptrend that remains very analogous to the bull markets, which ran into the 1929 and 1987 crashes.

Despite rallying 226 points or 11.2% in 2016 even the possible laggard index, the SPX has got further to go before a major retracement or crash. In this respect, the three violent checks in 2016 can be retrospectively seen to be a healthy sign as it has prevented the market becoming overly long, firstly after the December rate hike, second on the Brexit spike down in June and finally in November on US election.

US Stocks therefore remain in final leg of the uptrend from 2009. These uptrends typically complete with aggressive blowouts driven more by speculation than fundamentals. (Although this may not ultimately prove to be the final leg, such considerations take us well beyond 2018 even). In 1929 this final leg travelled 29.6% in 69 days, and in 1987 22.86% in 67 days. Until now we have not seen such volatility. But the arrival of the expansionist Donald Trump has changed the dynamic and provided the perfect trigger for an exaggerated climax. Since his election SPX has rallied to an 8.95% high in 26 days (DJIA 11.66% in 31 days).

The SPX in particular continues in the last leg of the uptrend that started in February 2016 at 1810, the long awaited 1987/1929 style blowout. Typically the final leg of the uptrend is dramatic and similar in structure and size to the first leg in 2009, therefore projecting an ideal 2515 ultimate destination. Although this rally will be punctuated by sharp mini crashes from 2278/2351/2450 reaction points, SPX should now continue to fade below 2240 and hold 2213.75 to maintain momentum. Only a loss the previous 2193 high suggests either this last rally is premature and/or it is over, begging a return to 1810.


Gold remains in a post bubble deflation since the August 2011 high. There are plenty of precedents since markets first began for how they trade within this regression to mean, from 17th century Tulipmania to the Nikkei since 1987 even Bitcoin and Gold itself from 1980 to 1999.

Gold made a net gain of $77 or 7.2% in 2016 but this disguises the 31.4% rally in the first half of the year finishing with the Brexit inspired flight to safety and the subsequent US rate and strong US Dollar driven deep retracement. The 31.4% rally in the first half of 2016 copied the Washington Gold Agreement rally of September 1999 and therefore should similarly represent the first leg of a new stability if not major recovery to eventual 1485 and 1587 Fibonacci targets. However that rally also represented a relatively small bubble similar to that in both 1980 and 1999, and also risked the current prolonged corrective regression to mean before it could break higher. Gold took two years languishing around the equivalent of 1200 and retesting the lows before it subsequently broke the equivalent 1375 high.

Having therefore already easily achieved all textbook retracement targets (1171 61.8% retracement target and now the 76.4%, 1123) the same textbook-prescribed uptrend may not be sustained without a lot more consolidation. Indeed the speed and momentum of this move (analogous to the capitulation of oil in 2014) suggests rallies may well fade 1200 for the 1095 weekly uptrend line and even a stronger retest of the 1045 lows, in other words, a grinded rather than sharp bottom in a 1045-1240 range.


It is not particularly helpful to say Oil will remain trapped in a very wide $25-$110 range for the foreseeable future due to countervailing forces of supply and demand. However it does explain why and how it has scope to be very volatile and erratic in 2017 due to extreme political manipulation and violent shifts in market sentiment.

As the price rises near to, or indeed above $100, this serves to reduce demand through income substitution and alternative energy sources (eg electric cars such as TESLA) and encourage supply from both OPEC and non OPEC members and new entrants (ie US frackers). As the price consequently falls, demand increases again through income substitution and supply falls, ie fracker bankruptcies or mothballing. This was pretty much the story of 2016 with the aggressive decline completing on the China crisis around the 2003 lows. As oil rig counts declined rapidly and OPEC started negotiating an initial production freeze, then cut, the circumstances and indeed the price action mirrored a very similar context to 1998-1999 with a resulting recovery to close the year 45.4% higher.

Second guessing the politics and economics of oil beyond the textbook is rife with difficulty but fortunately a similarity to both recoveries in oil and gold from the 1998-2000 period, and indeed gold two months previously, not only helped us catch the sub $30-$45 rally but continues as a template for what we believe will be a much larger recovery.

Oil has therefore started a new longer term uptrend following very similar paths set by the 1999 rally and the Washington Gold rally (and its recent copy). Despite these similarities and the prospect of a later larger recovery to $75 and above $100 again, the issue is whether the break above the recent $40-$50 consolidation range can be sustained. Although further strength is likely, to an ideal $57.20, oil will need to maintain momentum through verifiable production cuts beyond the $62.58 June 2016 high to confirm upward acceleration. Until then we suspect the first three to six months to be surrounded by doubt and therefore at least one dip back below $49, possibly even below $40. This is similar in fact to the April 2009 correction before going higher.


DAX rose 7.1% in 2016 to finish at 11434, (3.66% to 12031 in USD terms) in three rallies that were interspersed by political event risk corrections. It significantly lagged the US uptrend for most of the year until the last seven weeks catch up. Since global (particularly US) interest in DAX from the start of QE late 2014, DAX measured in USD has, and remains, a key driver of the Index.

Following the corrective three-legged retracement to 8699 in February 2016, DAX spent the year in a potential new uptrend checked by EU concerns due to Brexit; fears surrounding the US Election; and the Italian Referendum. As it now appears potentially unfettered in the near term, it has a window to preserve the persistent analogy with (now) December 1999 and accelerate into and beyond the 12400 highs. This potential catch-up with the US markets is encouraged by a break of the 12137 (DAX in USD) high. Indeed while the more recent break of 10800 is maintained this projects a [5=1] equality target of 14662 just beyond the 14200 measured target following the break of the 2000-2013 range. It is only from these aggressive new highs or a loss of 10800 that DAX should return to consolidation and possibly 8200-8600 in the third retracement to the 14 year range break point.


It is because not despite the UK’s decision to leave the EU in June that FTSE closed 2016 14% higher at all-time highs. The 24% devaluation in GBP more than accounts for this partly due to currency equalisation – FTSE in USD actually fell 4.6% from 9196 to 8775 – but also partly due to the significant non-GBP revenue of many global FTSE 100 companies (FTSE 250 fared much worse). So although FTSE remains in a longer term uptrend to a conservative 8140 but with potential for 9400, we doubt it will be able to gain real momentum and sustain the rally until FTSE expressed in USD breaks its high of 9493 (and/or, of course, the extremely unlikely event of GBPUSD breaking the 1.0350 all time low occurs). Until then it will be subject frequent corrections back to the 6600 region. Indeed a strong similarity to the uptrend following UK’s exit from the ERM in 1992 suggests ideally 6435 holds until the move gathers pace or suggest a false break with a return to 5500 and further range trading.


The NKY remains in a deflationary (post-1989 Bubble) range in the 7000-22,700 range but we believe it will eventually break out to the upside to challenge the 35000-39000 highs. However, until there are green shoots to end prolonged deflation, it is destined to remain trapped in the range setting a base and moving in lockstep with USDJPY. Of all our longer term forecasts this is probably the boldest. Although we doubt it will break the 22700 inflation/deflation pivot in 2017, if Trumpflation and our bullish oil view is sustained then 2017 could herald the beginning of the end of Japanese deflation and, just as boldly, start a deterioration in the 25 year old USDJPY-NKY symbiotic relationship. One only needs to look at the late 1980s and indeed NKY-USDJPY in the oil push inflation of the 1970s to see the historical precedent.
Having completed a trend sequence from 7000 in October 2008 to 20950 in July 2015, the NKY should still be correcting that rally. The current strong recovery from 14865 should prove deceptive not only as the second leg within a pivotal 15000-21000 range but as precursor to a larger corrective decline later in 2017 to 13970 [50%] or even 12,320 [61.8%]. It as this weakness fades, or indeed NKY breaks 22700, that we see a new bull market and the disconnect with USDJPY.


2016 was a revelation for NIFTY. Arguably the least, but still an emerging market, NIFTY was driven by external forces in 2016. The China fears in Q1 delivered a 14% drop. The Modi effect in isolation then delivered a 24% ramp, but the currency debacle and Trump factor took the index back to its 2016 start of 7946. Only the last three days of the year delivered a 3% gain. What this says is that given the Trump association of US stock strength and USD strength and therefore INR weakness, our bullish view of 10000 can probably only be achieved when the Trump effect is neutralised or the USD disconnects from stock strength.

NIFTY still remains in only the third leg of a trend sequence well beyond 10000 but is likely to consolidate or at best remain muted for the first half of 2017. The index will probably only reveal uptrend credentials on a break above 8965 later in the year. Indeed following the 50% corrective retracement of the previous rally to 6816 (perfectly matching the 2011 correction) the failure to break the 8900-9100 highs again suggests further prolonged 7200-8965 consolidation, probably forming a narrowing triangle. This therefore risks possibly more than one dip below 7700 probably retesting eight year trend support (currently 7190) before it can break up to the next target at 10911 target.