SD Outlook: Prepare to get blown around by wind gusts as recent trends in gold, silver, and the dollar shift into new trends. Here’s the details…
On the events calendar, we see two important pieces of data mid-week:
Retail Sales comes out on Tuesday and Industrial Production comes out on Wednesday.
Retail sales are important because we live in what is often labeled as a “70% consumption based” economy. The number tomorrow will help us get a sense of just how tapped-out the American consumer is. Industrial Production is important because that is a measure of how much stuff is manufactured in the economy, as well as how much stuff is mined out of the earth, and how much electricity and gas are used. In other words, if we want to MAGA, we’re going to need industrial production to start picking up in a meaningful way.
We’ve got a regular volley of Fed Head speeches this week – not shown is Thursday and Friday, but rest assured, they’re on the calendar.
If there was a theme for this week, I would call it “winds of change”.
For example, check out the dollar:
Did the dollar top out at my 93 target?
Overnight action and into this morning has shown U.S. dollar weakness – winds of change.
The S&P is up six days in a row going into today:
If the dollar party is over, I’m not expecting the S&P to just surge on up to new all-time highs.
See, the dollar is not the safe haven it once was. It is now more of an individual player in the midst of currency wars and money printing and all those controls the government and central banks like to put on the economy.
If the dollar is rising, it makes the U.S. stock market more attractive, because in addition to currency gains, there can be capital gains in the form of rising equity (which explains in part why we’ve seen a bounce in the S&P).
Here’s a question: If the dollar starts falling, half of the enticement of the U.S. stock market is gone, so are the indices just going to keep rising?
The winds of change appear to be coming to the VIX as well:
The VIX has been steadily declining as the dollar has been gaining.
What happens once the dollar starts falling and people realize the stock market may not be the great deal everybody thinks it is because there’s no longer the currency appreciation, so an overvalued and expensive stock market just became even more so?
What happens is volatility can come back as people re-asses their investment decisions.
We already have what looks like a bottom forming in the VIX around 13.
And all of this means that we’re either going to get a break-out or a break-down in yield:
Notice how intertwined the markets are: If we get a break-out in yield, modern portfolio theory suggests that bonds become more attractive because of the “risk-free” nature of the returns. If an investor can get risk free returns rather than having to speculate in the stock market, the investors will move money from stocks to bonds.
If we get a break-out in yield, we could see a break-down in the markets, especially because a break out would get us moving through and beyond 3.0%.
Commodities have been mixed.
Copper is not sure what to make of all of this:
A weaker dollar is generally supportive of the copper price, yet overnight and into this morning we have a notable down candle forming on the daily chart.
Though crude looks like it is holding and set to open higher than Friday’s close:
Crude looks like it has some consolidating to do at this level, but with everything that went on in Iran, Israel and Syria last week, we could get geo-political factors influencing the price of crude as well.
Palladium looks like its going to ride the 200-day moving average:
However, with the technicals turning bullish, we’ll keep in line with the theme here – winds of change.
Platinum is still trying to just get above its 50-day moving average:
This is the third day of set-up to test that critical resistance. We’ll see if it can get up and through the level this week.
Gold and silver are mixed in a way that could see the gold to silver ratio back to an 80-handle:
The set-up is clearly there for the ratio to come down, but with the way the metals are opening the week, it might be going back above 80 first.
Gold held in there last night and this morning (so far) and looks to open between “unch” to slightly above Friday’s close:
We want to see gold work on getting above its 50-day moving average this week.
Silver, on the other hand, is down overnight and into the morning pre-market session:
But if the dollar is falling, which it is, then silver is not in a particularly natural direction, all things considered, but it does make sense when assuming these markets are not natural.
They are not natural.
So looking ahead this week, the theme can be winds of change.
That means more of the same as these trends finish running their course and the new trends take hold.
You know when how it’s springtime, and one day you wear shorts because it is nice and sunny, and the next day you wear jeans because it is cooler, and the day after that it rains all day long?
Yeah, kinda like those winds of change.
As in these markets are sorting themselves out this week, with the latest moves running their courses.
I still think the rally in gold & silver begins in earnest next week, not this week.
But that is assuming there are no economic black swans, or political or geo-political tensions.
That said, prepare for all sorts of surprising and not so surprising weather because these are the winds of change.
Could it clear up by Wednesday?
Perhaps, but I’m still keeping my rain jacket within arms reach all week long.
Just in case it doesn’t clear up.
– Half Dollar