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By Robert P. Balan, Senior Market Strategist, Diapason Commodities Management

  • We believe that the new bull phase in equities is completing its first major correction. Despite the incomplete resolution of the euro debt crisis, signs that China and U.S. economies will fare modestly well for the rest of 2011, plus a Fed promise to intervene in case of external shocks or growth decline, will support the rally until Q1 2012.
  • We are now at the conclusion of our Sept 30 bi-directional short-term forecasts: an S&P 500 rally to the 1250 – 1275, then followed by another price reversion to the 1175 area. This call for 1175 levels is unlikely to be seen; support is now strong at circa 1200. The rally resumes in earnest soon, probably before month-end. We still expect the SPX to test the 1350 – 1375 highs by Q1 next year.
  • We are now at the tail-end of our Sept. 30 bi-directional short-term outlook for bond yields: a rise in 10yr yields to circa 2.40% – 2.45%, then followed by another reversion to 2.15% – 2.12%, which was substantially overshot (low was at 1.93% —it may still fall to 1.88%). However, yields should rally strongly from there before month-end. By Q1 2012, we expect the 10yr yield to be at the 2.95% – 3.00% area.
  • The U.S. dollar bear phase resumes soon— we are also forecasting that resumption of risk taking over the rest of the year, and into Q1 2012, will have the U.S. dollar falling to new historic lows.
  • Brent Crude Oil should continue to perform well in coming months — we may be on track to see $127/bbl – $130/bbl by Q1 2012 202012.
  • We also said that by Q1 2012, we are expecting gold prices to be back at the $1,880/oz – $1,900/oz range, which now looks likely to be surpassed, with $2000/oz the next market focus, if targets breached.

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Source: Diapason Commodities

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