Stock And Bonds Play Tug Of War While Gold & Silver Show They Have Follow Through Momentum

SD Outlook: This is going to be a very busy and very important week in the markets. Here’s why…

The events on the calendar this week are robust and wide ranging.

Early on and through Wednesday we really see how varied the week will be:

Potential market moving moments include retail sales, a bunch of housing data, and the Fed’s FOMC minutes from the September meeting. Of particular interest will be whether the Fed inserts some political jabs at the fiscal policy of the US in general or at President Trump specifically. Remember that last week, the President not only call the Fed “crazy”, but also “going loco”.

OK, “Hey Half Dollar, those minutes are from the September FOMC and long meeting before all the market chaos happened last week!”.

Good point, but here’s the thing: I would not recommend for one second the thinking that what is released three weeks after the FOMC is what was actually spoken about in the meeting. Not a snowball’s chance in hades. Those minutes are pure Fed propaganda. What happens is the Fed gets a free pass, because depending how the “market” responds to the FOMC and the rate hike, or depending if there were certain market events or not that the Fed is not liking, it only makes sense to assume the Fed concocts whatever minutes they want, regardless of what actually was said, for the purposes of communicating a particular message to the markets.

That said, an example of this could be, “Several members of the committee expressed concern that ongoing fiscal imbalances with regards to higher than estimated deficit spending, as well as the application of tariffs and political uncertainty with regards to existing trade deals, would act as a headwind for the pick-up in economic activity we have seen over the last several blah blah blah blah blah”. That would be a thinly veiled stab at President Trump, and Washington in general just to make it seem like it is not simply an attack on Trump. So be on the look out for something like that because last week, as the President was saying the market drop was all the Fed’s fault, the Fed basically said nothing, neither to dispute the President’s statements nor to defend the Fed’s actions. They get a chance on Wednesday to spew their propaganda, so we will be watching closely at 2:00 p.m. EST that day.

Rounding out the week we get some Fed Head speeches and more housing data:

I think the housing data is most important right about now because we have been seeing signs of the housing bubble popping, and this week will be several data points to potentially support that claim.

Those are just the economic events as they pertain to the US. If we zoom out and look at dynamics affecting global markets, the key word would be “uncertainty” in both politics and with markets. There is uncertainty in Europe over the political uncertainty caused by the recent Bavarian elections, and there is uncertainty over Brexit. Let’s not forget the European banking crisis that seems to be unfolding in real time. In the Middle East, there will surely be talk about the disappearance and likely murder (assassination?) of WAPO journalist Khashoggi, and we may see a bit of a flare-up in Syria and or Iran, which took a back-seat last week to Saudi Arabia and the Khashoggi incident. Then there’s the whole “China’s bubbles are popping”, which means more contagion, and finally, the Trade Wars in general, which are far from resolved, and if anything seem to be escalating yet again..

If all of that wasn’t enough to keep everybody busy this week, let’s not forget we are coming off of a week of utter turmoil in the markets. Is the turmoil over? Are we going to get a rally here in the stock market? I, for one, am not so sure. These markets have been artificially rigged higher for so long, that the natural direction they want to head is down, not up. Just like gold & silver have been artificially rigged lower for so long, that the natural direction the metals want to head is up, not down. So this week will be interesting and potentially action packed to say the least.

We see gold & silver got off to a good start overnight:

Not bad for a Sunday evening/Monday morning session.

Since this is potentially just the start of the rally, we see the gold to silver ratio is still favoring silver:

Personally, 80 is a line in the sand I have drawn where any and all stacking decisions will be silver. When the ratio gets down to 70, I will still be heavy silver, but will mix in gold as my personal ratio is about 70 – 75 to 1, and that is because I know that as a long term investor, I plan to take advantage of the arbitrage potential when the ratio comes down, at which point I will be able to convert some of those ounces of silver to ounces of gold and enjoy an over-all net gain in total gold weight of my stack.

Silver is set to open above its 50-day moving average:

After a couple days of gains, silver would naturally come under the brute force pounding of the cartel, but silver has been beaten down so low, and for so long, that I’m just not so sure right now. I have said before, weeks ago actually, that silver looks to be in a subtle uptrend, and now, silver simply looks to be in an uptrend. The trend is subtle no more. Getting above $15 and closing there is priority number 1.

Do I want more from silver than that?

Yes, and it would be great to see silver close out the week above $15.50, but it has been such a brutal year, that most would think that is an impossibility and something that is too much to ask for.

We’ll see.

Gold looks set to have a strong start to the week as well:

Last week I talked about a Sideways Channel of Pure Agony in gold, and I said the most likely course of action would be a break-out above the channel, and we are seeing that now. Like silver, after a few strong days, the brute force pounding from the cartel would be a near immediate response right about now, but gold has been beat-down so much this year that I’m not so sure with gold either. I have been bullish on the metals, and last week’s action re-affirmed the bullishness. In fact, you could say that I feel the metals have already crashed this year, so that when the stock markets crash, assuming they crash, I think gold and silver will not go down with them. To the contrary, I think gold and silver will be bid, just like last week.

Palladium is looking to start the week strong:

Palladium is right there to put in that all important higher-high on the chart.

Even platinum looks like the worst is behind it:

There are two higher-lows and two higher-highs for sure, arguably more, but the trend is becoming clearer by the day, as is that bottom at $755.

Crude oil looks like it wants to tag its 50-day moving average:

That said, I think we could literally tag the average and immediately bounce, especially if the dollar is turning down. I also still think my theory that crude oil is putting a floor under the metals is valid, especially for the case of silver, and crude oil is still above 70 bucks.

Copper tagged its 50-day last week and bounced:

Copper is looking more and more like it is building a base here at $2.80 in in preparation for what looks like a move to $3.10 with little resistance. I’m not going to call it a reverse head-n-shoulders pattern on the chart, unless we’re talking about a pattern with conjoined twins making up two heads, but still, once we get above $2.90 there is slight resistance at the psychological level of $3.00, but I think the real resistance doesn’t begin until $3.10.

We’ll see.

The DOW is nearing the point where it will be down year-to-date:

Stock market bulls must be getting very nervous about now.

As such, they aren’t getting help from the US dollar:

The dollar did not act as as safe haven last week. I have been saying that we could see a trip up to 97 in a double-top for this rally, but I think that opportunity is fading by the day. It really looks like the dollar is rolling over here, and if it is, foreign investors and currency traders may want to take dollar profits, and well as US dollar-based stock market profits, and take those profits sooner than later. If this profit taking happens, we could see more selling pressure on the dollar and on the stock market indices.

Granted, the VIX may be coming down somewhat:

At this point, I do not see the volatility index coming back down to 10, however. I think the most likely action will be a slight pull-back followed by more spiking volatility.

Granted, it is easy for the cartel to manipulate the VIX and the major indices as the cartel has access to the printing presses, so the question becomes, is the ESF and the Fed still on the same side, and if they are not, as in if one of them wants to bring down the markets as I eluded to last Friday, then who has more power at the moment?

The entity that has more power will win the battle.

Also interesting to watch this week will be the bond market:

Its like that Paul Abdul song “Two steps forward, one step back”, or whatever it was called.

The steps forward: interest rates are rising, which puts pressure on the stock market and makes bonds more attractive:

The step back: Investors move out of stock and into bonds, and yields come down.

The process is then repeated as interest rates rise, which pressures the stock market, which draws investors out of stocks and into bonds. It’s a tug-of-war of sorts, and interest rates and the stock market have been rigged for so long that we really can’t see or gauge the quality and strength of the teams on either side of the mud-put.

Actually, that is a bad analogy, because a tug-of-war means that one side wins.

The more likely scenario is that both stocks and bonds lose.

Stack accordingly…

– Half Dollar


 

About the Author

U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.

Paul’s free book Gold & Silver 2.0: Tales from the Crypto can be found in the usual places like Amazon, Apple iBooks & Google Play, or online at PaulEberhart.com. Paul’s Twitter is @Paul_Eberhart.

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