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Situation
Alert:
Our concern is that it's beginning to feel a bit like the "Japanese Miracle" back in 1990. This kind of growth cannot be sustained forever. Market bubbles usually end unexpectedly and much blood and tears are shed. The current state of the markets has an eerie feel of a "blow off" top coming soon. Whether or not it will result in THE final high of several markets or just a significant temporary high is anyone's guess. Nonetheless, the current bull run where easy money has been accumulated in several markets could be nearing the end of the line. And if China goes down, their problem becomes everybody's problem. If this happens it will likely have a domino effect that sends other global equity markets plunging and commodities will likely get whacked as well. This could create a liquidity crisis that hammers the high yielding currencies and sends others (like the US dollar and/or Japanese yen) soaring as traders unwind currency carry trades. Flight-to-quality will likely catapult Treasuries higher. It is imperative that traders be prepared before a crisis materializes. We have seen this kind of scenario play out many times in the past. The tragedy is when the inexperienced trader refuses to face the facts after the gravy train has run it's course and the markets reverse. They usually end up giving back most of the accrued profits. Sometimes more! While we are not predicting exactly "when" or "where" the final highs will be, we do want to strongly encourage traders to start thinking defensively about protecting their profits. Here are three important ideas to consider and implement: 1.) Place protective stops on your positions! If the markets reverse you can still get out with a profit and be in a position to re-enter once the dust settles. 2.) Hedge your positions with options. Traders with long positions may want to buy put options to protect their profits and/or reduce their risk, traders with short positions may want to buy call options to protect their profits and/or reduce their risk. 3.) Take a profit! If you have multiple contracts with substantial open profits, consider liquidating some of them and bagging a profit. Disclaimer: There is risk of loss in all commodity trading. The data contained are believed to be reliable, but have not been independently verified by Pearce Financial. Accordingly, such data cannot be guaranteed as to reliability, accuracy, or completeness, and as such are subject to change without notice. Pearce Financial will not be responsible for any indirect, compensatory, or consequential damages, including loss of profits which may result from reliance on this data. Pearce Financial and/or its Principals and employees may or may not follow strictly any or all of the trading recommendations contained herein. The risk of trading futures and options can be substantial. Each investor must consider whether this is a suitable investment. Past performance is not indicative of future results.
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Could the current
global market environment be a similar situation to the "Asian
Contagion" that took place in 1998? China has been the largest
contributor to the current global bull market. Huge demand for their
expanding economy has sent commodities such as grains, energies, and
precious metals into the stratosphere. Producers just can't seem to keep
up with the insatiable demand for consumption commodities. The record
growth has also attracted investment capital into China. This huge
influx of funds has pushed the valuations of companies to record
heights. The Chinese stock market has increased nearly six-fold in the
last two years. Just this year alone the Shanghai index has more than
doubled. At least four of the world's 10 most valued companies are in
China. (PetroChina is now the first company in the world to reach a
capitalization of $1 trillion!). The market trends have become quite
obvious to investors and traders.
