The first quarter comes to a close today with major averages at or near multi-year highs. Expect "substantial" further gains for stocks before a "major top" occurs in late summer, says noted forecaster Harry Dent, founder of HS Dent and The Dent Method.
The good news, for those long, is Dent predicts the Dow will trade as high as 13,200 by mid-summer and the S&P 500 as high as 1430, or more-than 7% above current levels. The bad news is "then we could see another major crash," Dent says, forecasting the Dow could trade as low as 3300 in a worst-case scenario. "Bubbles go back to where they started or a little lower," he says. "The stock market bubble started at (Dow) 3800 in late 1994."
While Dent predicts the Dow's crash will play out over several years, he sees clear and present danger in gold, silver, oil and other commodities. "All investors should lighten up on or sell oil, silver, and gold as the U.S. dollar looks like it has bottomed and should rise ahead," he writes in the March issue of HS Dent Forecast.
In the accompanying video, Dent further explains his thinking for why commodities will stumble ahead of stocks, which is the opposite of what happened in 2007-08. In sum, he believes efforts by global central bankers to fight inflation — with the notable exception of the Fed -- will hurt growth in emerging markets as well as demand for many commodities.
As for the Fed, they are "checkmated," Dent says, suggesting the Ben Bernanke & Co. are damned if they do QE3 -- because the bond market will freak out -- and damned if they don't -- because the economy and financial markets are so dependent on easy money.
Stocks: Harry Dent seems to be using the price high on the $SPX from May 2008 to support a top around 1,430 later in the summer of 2011.
On the weekly chart below I've drawn in trend support from the 2009 low and price resistance from the May 2008 high. We see there is little price and time left given those lines. There's definitely the opportunity for a significant market high at his price target and time frame.
My personal view is two fold. I too have a potential top some time this summer. Since the daily chart does not reflect exhaustion or a topping pattern, I expect the markets to grind higher in the coming weeks. And I too think the 1,400 to 1,440 zone on the $SPX makes for a logical price top.
My second thought is for a potential top in December 2011 or January 2012. Early January 2012 marks a monthly Fib. count of 34 months.
Within a 4 year cycle of bottom to bottom, if the 4 year cycle is going to be short in time frame than this summer makes more sense, but if the 4 year cycle is going to extend in time then I prefer the January 2012 time frame.
Never the less, these are the two time frames I will be looking for price structure to provide a clue a correction of size has increased in probability.
Commodities: Below is the monthly chart of Gold. I too expect some kind of commodities top in the near future. But like the stock market, we could easily grind higher or even see another sharp price advance.
What I'm looking for in a clue commodities have topped is for gold to reflect some kind of exhaustion, break below the blue trend line, but most importantly, roll the monthly MACD over. That process could take a while longer!
I like what Harry Dent had to offer in his market views, and I tend to agree with him in general with stocks and commodities. I actually love the idea of another advance in stocks to suck in more novice investors while the smart money transitions. That's typically what marks a top!
What will be truly interesting to see is if Bernanke is in a no win situation!!! I tend to agree, at least conceptually that QE of any kind can't always be the saving tool. Nothing works all the time, but will the near future be the time we see the emperor has not clothes on and Bernanke is out of bullets?
Where I might disagree with Dent is on the potential bottom for the stock market. It's simply to early to be so wildly bearish. However, I do think we get a retest and even a push below the 2008 lows on the major stock market indexes!
Hope all is well.
J.D. Rosendahl, Rosey