As we’ve often mentioned, 2016 is shaping up to be “a year of consequence”.
Here’s a look at where we stand as trading resumes…
Submitted by Craig Hemke, TFMetals Report:
Let’s start with the overall “market”. If you’ve been following along since last summer, you know that the S&P 500 saw a “death candle” back in August of 2015:
It then experienced a typical “green candle of hope” through September and into November:
But it began to roll over again as we headed into December:
We’ve previously identified the “final piece of the puzzle” to be a bearish cross of the 24-month moving average by the 6-month moving average. As you can see below, this cross immediately preceded the market crashes of 2001 and 2008. The gap between the two MAs was as wide as 200 points when 2015 began. It’s now 35 and narrowing fast. We’ll keep watching this all play out, of course. In the meantime, you should probably consider forming an exit strategy for your equity investments if/when these lines do cross.
The short term for the S&P doesn’t necessarily look promising, either. And though the general trend is largely controlled by HFT algos, do not discount the amount of “regular investor” selling that may materialize in the days ahead. Much is made of tax loss selling into year end…but what if there aren’t many losses? What if the opposite is the case? What if, instead, “investors” are sitting upon huge gains and choose to wait until the new year to sell and realize the gains? This daily chart already looks lousy and it could accelerate to the downside in January with a lot of negative momentum. (A big, down January would also serve to completely close the MA gap in the chart above.)
Other outside markets that impact gold and silver are crude oil and copper…and both just finished a very tough year. Feb16 crude closed last Thursday at $37.08. This marks the first monthly close below $40 since…wait for it…June of 2004! Yikes!!
And though copper is trying to bounce a bit, its long-term chart looks awful, too. We’ll continue to watch the $2.14 level very closely as we begin trading this week.
Against this backdrop, gold and silver begin 2016 still well within their multi-year downtrends. In gold…if we are going to break the trend and make 2016 the first UP year since 2011…we’ll need to first crawl back into the $1100s. From there, THE MAJOR TEST will be our “Nemesis Line” and the string of lower highs along it since the orchestrated beatdown of April 2013. A major breakthrough would be a rally UP and through $1180. Can gold get there? Will gold even be allowed to come close? The action in January and February will go a long way toward answering these questions.
And silver it at a crossroads, as well. It, too, is continually pressed lower by a downtrend that began in 2013. The area around $14 has acted as support for over a year now and we obviously need this to continue. IF silver finally begins to recover in 2016, the area near $18.50 will be pivotal for IF silver can retake that level and begin to move toward $20, we can all finally exhale and feel comfortable that the worst is behind us. Until then…and with crude and copper remaining under pressure…there continues to be downside risk in price, at least in the short term.
So, there you have it. This week will be back to regular business here at TFMR, with a full slate of posts and podcasts as well as an A2A for Thursday. In the meantime, tighten your seatbelt and place your tray table in the full upright and locked position. Trading for 2016 begins in a few hours and it’s going to be a wild year.