SD Midweek: Monday’s market wind gusts have been upgraded to hurricane force winds. Here’s what it means for the markets…
It’s just one of those weeks.
On Monday I said there would be wind gusts.
It is becoming clear these wind gusts are from leaving the eye of the financial hurricane and feeling the brunt of the tail end.
The dollar is looking like it could break-out above 93.50:
The horizontal line I drew is at 94.
I thought 93 was the top in the dollar, and until yesterday, that was looking like the case. The dollar is in kind of a “no man’s land” between here and 94, and resistance is stout at that 94 level.
But is the dollar just going to keep on being overbought like it is?
Remember – wind gusts change directions.
Growing up in North Carolina, I lived through several hurricanes, and if you ever watch the trees getting whipsawed by high winds, you know that once second the tree is leaning in one direction, then the wind shifts, and the next second the tree looks like it could snap like a twig, only in a different direction.
Disclaimer: It’s generally not advised to be outside or inside in front of a window watching the immense energy of a hurricane.
But then again, we all know what happened to the cat when curiosity got the best of it.
There is a point here: These markets are shifting and changing direction on a dime.
I think it’s Doug Casey how says “we’re in the eye of the financial hurricane”.
Well, we’re not really in the eye anymore.
The tail end of the hurricane is already making its presence felt.
The VIX looked like it could break below 10:
But now it’s right back at 15.
Check out this move in the 10-Year Note:
That’s basically a 100 basis point move from one day to the next.
And it may not seem like it, but that’s a huge move.
Imagine walking from New York to Florida. Let’s assume, for simplicity’s sake, that Florida is directly below New York. So you start walking and if you walk in a straight line, you arrive in Florida no problem. It’s a long way to walk, yes, but you stayed the course.
Now imagine walking from New York to Florida, only you drift a little to the right as you walk. Now, just leaving New York, that is not a big deal, but unless you correct the direction, if you keep on walking drifting to the right, you could very well end up in Louisiana instead of Florida.
There is a point here: Changing conditions, like surging 100 basis points in one day on the 10-Year, may not seem like a big deal at first, but drawn out over some time, it becomes a huge deal.
Are the markets ready for these types of changes?
Right now everything is getting blown around in the wind gusts.
Remember, and this is pretty much true in investing as it is in life in general: Most of the people have to be wrong most of the time.
So for the dollar to be rallying here, that’s the wrong move in the long run, because a bond market that is selling off, as in rising interest rates, is a vote of “no-confidence” in the dollar.
Eventually people will come to this conclusion.
I would have thought the conclusion would have come already, given the world of big data and high frequency trading in which we live.
That said, manipulation can attempt to smooth things out, but it cannot hold back the powerful wind gusts that are starting to bear down on us.
The stock market is already starting to buckle:
This actually makes sense – rising rates are bad for equities. Rising rates are seen as a “risk free” return, whereas stocks are considered “risk assets”. If people can make more money in a less risky environment, then they will do that.
Here’s the problem though: There has been so much manipulation of all markets over the last ten years, that where the stock and bond markets could act as checks and balances in the past, things have been so distorted that the checks and balances will not function properly until the reign of constant manipulation wears itself out.
Governments and central banks seem to think they can keep the magic going forever, but then cannot.
The better question is, how close are we to the breakdown in the manipulations?
These quick shifting winds and wind gusts are clues that we’re getting close.
In fact, often the analogy is used that for the last eight years, we’ve been in the eye of the hurricane, and now we’re exiting that eye, and since the winds are now picking up, that analogy makes sense.
We’ll soon find out if this financial storm has been downgraded to a tropical storm, or if it has been upgraded to a raging Cat 5.
In my opinion, with the heavy hand of manipulation over the past ten years, the tail-end of the storm will be even more destructive.
There will be no reprieve.
Copper is not looking very good right now:
As copper continues to fade, the death cross is becoming more pronounced, and if price does not revert soon, then we’ll be lower for longer.
But if the dollar turns and starts moving south again, all bets are off.
And we see how overbought the dollar is, as it has been now for weeks, so if we are close to the reversion of the dollar, then we are close to the reversion in copper.
Crude is oblivious to all of this:
That’s another 52-week high put in just yesterday. Notice the difference between crude and the dollar. Crude has been riding high on the Relative Strength Index, but it hasn’t been screaming “overbought” like the dollar has, with the exception of coming off of the new year rally.
Just like with copper, as the dollar reverts and starts moving lower, that will act as a launchpad for the price of crude.
The move to $80 in crude begins as the dollar starts moving back into the 80s.
Platinum is downright sickly right now:
If platinum loses the low in the middle of the chart, that will be a very bad sign. Platinum already has a numerous series of lower-highs nad lower-lows, and the sad part is that platinum is not even screaming “oversold” just yet.
Palladium is only slightly better looking than platinum on the chart:
Palladium’s technicals are more neutral than platinum’s, but, just like with copper, the more palladium fades the recent price action, the more pronounced the death cross becomes.
And we painfully know what that means.
This is truly a test of will power.
Like when I used to run seven miles per day, in one hour mind you. I knew it was all in the mind, so those days when I quit at six miles, I knew it wasn’t because of my ability but my mental state of mind.
Why am I bringing this up?
Because we often hear talk of “a lost generation”, or “a lost decade”, and things look bleak now, but I don’t think they are bleak enough to be called “a lost year”, full of nothingness, and stuck waiting for a breakout in the metals that never comes.
Don’t take my word for it, but assess the fundamentals. Here’s some that come to mind:
- Inflation is starting to really affect companies and family’s bottom lines.
- The government is spending out of control.
- Contrary to everybody proclaiming “world peace”, there has been a lot of talk, but actions speak for themselves, especially in the Middle East.
- The stock market run is “long in the tooth” and overvalued on every metric.
- The dollar has been on a relentless, nation crushing bull run for four solid years now.
- Sovereign nations are beginning to default on the periphery, signaling contagion is only a matter of time.
- China, Russia, Turkey and other nations who are smart with their savings are still scarfing up gold & silver with an insatiable appetite.
- Oil is on the rise which is a major cost in mining.
- The gold & silver miners have already cut production costs to the bone.
Of course, I’m sure I’ve left out some fundamental factors, but you get my points.
Nothing has changed.
Well something has changed – the necessity to stay mentally sharp and not capitulate.
Because I want all the stackers out there to be rewarded – rewarded for the year of hard work and staying the course.
Remember, even in the world of stackers, because of capitulation or some other reason forcing one to sell the stack – most will probably not make it.
I remember seeing as stat somewhere that said only 1% or 5% or something like that of the entire population has what it takes to get in and make it through boot camp and leave the military on good terms.
Why would anybody think it’s any different with gold & silver investing?
Suck it up and stick it out and you will be rewarded.
The gold to silver ratio shot back up yesterday:
Two points to make about the GSR:
- We’re not above 80 across the board, but rather, it’s more like these wind gusts blowing things around.
- You could literally draw a downward sloping, parallel channel from the highs of the black bars, to the lows of the red hollow bars.
I may just start doing that, because the topping process is clear.
Could it get blow around a little more?
Sure, but remember, the dollar is so overbought right now, and these metals are due for break-out.
Though it seems like silver could break-down:
Here’s that mind game I was talking about.
Silver is right there right now, at the bottom of our broad channel $16.20 to $16.80.
If we don’t bounce here, but break-down instead, what do you think that is going to do to sentiment?
Be ready for it.
Laugh it off, shrug it off, and do whatever you can to brush it off, because if we know this, the cartel really knows this.
Wouldn’t they love to just smash silver below $16.20, or even below $16 to a $15 handle?
We must be ready for it, because on the chart, we’re right there, right now.
Let’s end with some optimism to help keep that mental edge over what seem like insurmountable odds at this point.
The trend in gold is clear:
Rise off of $1200 to $1340s, and fall back to $1240. Rise off of $1240 to $1360s, and where will we fall back to? Probably the low $1280s. But what does that mean going forward?
Will the next rise take us to $1380?
If the next rise take us to $1380, then we will have taken out the June, 2016 Brexit highs of $1377.50.
So we’re right there at the start of something big.
And I still am thinking it starts next week.
Just man-up or woman-up and suck it up with the mental ability to make it through the rest of this week.
Could we go lower?
Do winds in a hurricane shift and turn of a dime?
More like a sleek Merc dime, worn smooth after so many decades, and offering the least of resistance to the changing winds.
And that is what this is: The tail end of the hurricane is now upon us.
– Half Dollar