Folks, I've decided to no longer keep this blog going. I've had a lot of fun sharing my thoughts over the last two years. My general outlook on equity markets (bearish) and precious metals (bullish) is still firm as ever. There will be a time in the future (3 years? 5 years?) where gold and silver run their course and equities bottom, but that time is not now. Thank you to all that have read and commented.
A bevy of gold and silver miners are printing 52-week highs today. I believe this is significant because miners tend to lead the physical metals. This, in turn, suggests that gold and silver are probably close to their next legs higher. As I've said before, the intermediate and, arguably, the long-term trend has turned in the bull's favor. Don't try and outsmart the market by trading all of the day-to-day noise. Sit tight and be right. This move will play out for months and probably years.
Once again I'm sorry for the lack of posts recently. I've been out of town and away from a computer. To be honest, there wasn't a whole lot of action in the metals or the equities as most of the movement while I was gone fell into the "noise" category if you know what I mean. Well, at least until yesterday that is.
Two very important dates are now behind us: July 26 (Comex gold expiration) and July 27 (FOMC announcement). First, Comex gold expiration has always been a "play thing" of the bullion banks. Prices tend to get pegged or massaged in the days and weeks leading up to expiration based on max pain levels in the options markets. Very rarely do the metals rally into expiration. For that reason alone, I wasn't surprised to see gold and silver drift down in uninspiring trade. Keep in mind also that Silver trades on the heels of gold, just in a more volatile fashion. As gold goes, so does silver.
The second date, July 27 (yesterday), was the usual FOMC day where gold and silver get smashed the moment the announcement is made (the first reaction is literally always lower, regardless of the statement). FOMC days are a cluster and I would never recommend trying to trade an announcement. After the initial smash lower, there tends to be huge volatility in both directions. So it is likely that you will get whipsawed out of a position based on knee-jerk reaction trading. Also, it usually takes a day or two for the metals to settle down after the announcement.
So now that those two days are behind us, there really aren't any more wild cards in that I'm seeing in the short-term which should bode well for the PM sector. That said, let's take a look at some charts and see what's going on.
After reaching a new 52- week high of $1377 on July 6, gold has pulled back in a fairly orderly fashion on innocuous volume. Each of the last three pullbacks has now established a nice upward-sloping trend line, shown above. Yesterday, after the FOMC announcement (and the usual knee-jerk smash), gold reversed higher and jumped off that trend line, leaving a decent gap on the chart. Technically speaking, it's great for the bulls that the trend line acted as support once again. Don't be surprised if gold corrects a bit to fill that gap, but I think this chart is very supportive of a continued move higher.
Silver, to me anyway, is painting a much cleaner chart than gold. After printing a new 52-week high on July 3, just above $21, it too began to correct on light volume. For the next three weeks, it painted a beautiful pennant consolidation pattern (shown above). Yesterday it exploded higher in a no-doubt bullish breakout. I would put a conservative price target of $23.00 on the current advance based on the size and duration of the pennant formation. I'll explore the longer-term charts in a future post to see what that means in the big picture. But for now, the daily chart looks awfully bullish.
Moving on the miners, they too saw a healthy bounce yesterday post-FOMC. As you can see above, the 50 dma has been providing support for several months now. As a result, I would continue to expect this going forward. If you're looking for an entry point, waiting for a pullback to this level makes sense. Aside from a brief blip in May, the RSI mid-line has acted as support for the last six months so keep an eye on this as well if you're looking to get in. Overall, I really like the action in GDX. It's been grinding higher all year, with brief, shallow pullbacks along the way. I see nothing bearish on this chart.
Last but not least, I wanted to share the daily chart of Platinum - the much less talked about precious metal. I tweeted about this yesterday, so this chart may look familiar if you follow me. Talk about a beautiful cup-with-handle formation! Everything on this chart is working in the bull's favor. From the tight price action, to volume increases at exactly the right times, to yesterday's breakout - very, very nice. I don't post on Platinum too often, but the chart was so compelling that I wanted to show it.
That's all for today folks. Thanks so much for reading!
With the Dow Jones Industrial Average making new all-time-never-before-seen-highs, I thought a look at the Dow Theory as an acid test for the validity of the rally might be worthwhile.
For a brief bit of background, I'm going to paste a few lines from Wikipedia for those that aren't familiar with Charles Dow or the Dow Theory as it's known today:
The Dow theory on stock price movement is a form of technical analysis that includes some aspects of sector rotation. The theory was derived from 255 Wall Street Journal editorials written by Charles H. Dow (1851-1902), journalist, founder and first editor of The Wall Street Journal and co-founder of Dow Jones and Company. Following Dow's death, William Peter Hamilton, Robert Rhea and E. George Schaefer organized and collectively represented Dow theory, based on Dow's editorials. Dow himself never used the term Dow theory nor presented it as a trading system.
The Dow Theory can be boiled down to six basic points on stock market movements, each of which is summarized nicely on the Wikipedia page linked above. I'm going to focus on two of the points specifically for this post:
Let's take a look at the charts and see what they're telling us:
The DJIA rallied almost 9% over the last three weeks, ultimately breaking above it's previous all-time high set back in May 2015. From a Dow Theory perspective, the price action seen above is undoubtedly bullish. While price a huge determinant of primary market trends, there are other factors to consider, such as volume. As stated in the second bullet above, bull markets should see volume that is heavier on market advances than on corrections. Well, that's exactly the opposite of what's taking place. The DJIA broke out on absolutely paltry volume last week. In fact, volume was less than half of what it was during several weeks in early 2016 when the average was falling. This is non-confirmation red flag #1.
Now let's look at the Dow Jones Transportation Average:
This is a three-year weekly chart just like the DJIA chart above. Here is your non-confirmation red flag #2. The DJTA isn't even close to making a new high. In fact, it hasn't even made an intermediate higher high as it's still trading below it's high from April. No doubt the chart is showing a potential bottoming pattern, but at this point it's still solidly in a downtrend. Volume has been decent these last few weeks, but still below the volume seen during the declines in late 2015 and early 2016.
I understand that the Dow Theory was developed over a century ago when the U.S. was a manufacturing powerhouse - back when this country actually made things. Industrials and Rails were the Googles and Facebooks of their time. So some may argue that looking at the DJIA and DJTA as indicators is an obsolete practice. Perhaps. But I would argue that 100 years of evidence argues otherwise. The bottom line is that for this bull market to succeed, volume better accompanying rallies and the DJTA better get its act together, and soon.
Regular readers know that I prefer to focus on longer-term charts since I'm not a trader. I think daily charts reflect too much noise and oftentimes give false signals. Weekly and monthly charts filter out a lot of that stuff and do a better job at showing more meaningful trends.
With that in mind, today's post will be annotated monthly charts of gold and silver. The gold chart, shown above on a log scale, is sooooooo close to definitively breaking out to the upside. Rallies in June and July have stopped precisely at the line of resistance originating from its 2011 peak. The monthly MACD and RSI have both undeniably turned higher after a brutal couple of years. In fact, the RSI has just pushed above the midline (bullish) for the first time since 2013. Volume has been increasing on the rallies which is what bulls want to see. The final nail in the bear market coffin will come when Gold can manage a monthly close above that descending blue trendline. If and when that happens, it has a clear shot, from a charting standpoint, at recapturing its 2011 highs.
[It's worth noting that if you plot the same chart above using a linear scale instead of a log scale, gold has already broken above that descending line of resistance.]
Moving on to silver, you can see that it's bottoming process is a bit more advanced that gold's. It has no doubt broken above its long-term line of resistance. It even backtested the line in May only to explode higher the following month. Bulls couldn't ask for a better chart formation. Similar to Gold, Silver's momentum indicators are moving higher in unison. The MACD has now printed a bullish cross-over signaling that the long-term momentum has shifted in the bull's favor.
From a support and resistance standpoint, Silver has already cleared the biggest hurdle now that it's overcome the long-term resistance on the chart. I'm seeing a bit of congestion in the low $20s and then again in the low $30s. Both areas will likely act as intermediate resistance but nothing too major.
All in all, both metals are painting a very bullish technical picture. Throw in some extremely strong fundamental arguments for higher prices, and we have a winning combination.
And just for fun, I'll leave you with this 50 year chart of Silver..........
On May 16, I pointed out some gorgeous basing patterns shaping up in the bond market. Every duration I looked at was sporting a bullish setup. Almost two months have now gone by and I think it's safe to say that the bull scenario has in fact played out.
Today I'm going to provide a quick update on bond prices, focusing specifically on TLT, the 20 year treasury ETF. You can see above that TLT recently broke out of a very well-defined cup-with-handle setup on very nice volume. The last couple weeks have been a bit "gappy" with all of the Brexit uncertainty so I wouldn't be surprised to see it retrace back to the breakout point before moving higher again. Regardless, the trend is your friend, and right now the trend is unquestionably higher.
Looking at the long-term chart shows just how strong treasuries have been for the past 15 years. Even with stocks in a 7-year bull market ("officially"), TLT has powered higher, not once putting in a lower low on a correction. In fact, its MACD and RSI have never been oversold on the monthly chart. Now that is some serious long-term strength.
With price roaring higher these past few weeks, it's starting to bump up against its long-term line of resistance. As such I would expect a little pullback - or at least sideways action - sometime in the near future. By no means, however, do I expect a serious correction, much less a bear market, any time soon. As for the reason why, I direct you to the next chart.
Here I'm plotting the ratio of TLT to SPY, or bonds vs. equities. The ratio falls when equities outperform treasuries and it rises when treasuries outperform equities. As you can see above, TLT:SPY definitively broke above a well-defined downtrend that had been in place since 2009. And for the past four years it has been carving out a nice rounded bottom pattern suggesting that the tide is turning even more heavily in favor of bonds.
So what does this mean? It means that investors are buying bonds more aggressively than equities, which begs the question: "Why?" Well for starters, there is over $8 Trillion in negative-yielding sovereign debt floating around out there so the fact that U.S. Treasuries offer a positive yield makes them a no-brainer relatively speaking. Second, as Brexit has demonstrated, world financial markets are in a very precarious situation. Or as John Hussman put it, Brexit and the Bubble in Search of a Pin. Markets dislike uncertainty, so when there's literally nothing but uncertainty hanging around (US elections, negative rates, Brexit, etc), money is going to flee risk assets (most stocks) and flood into safe havens like defensive stocks, gold, and yes, Treasuries. In essence, you're seeing the double-whammy effect of yield-seeking investors and risk-fleeing investors all pouring money into the same asset class: US Treasuries. The effect, obviously, is higher prices and lower yields. That, in a nutshell, is why I believe bond prices will continue marching higher for at least the rest of 2016 and potentially many years thereafter.
Almost one year ago, I posted that the XAU:Gold ratio hit a fresh all-time low. The XAU gold miners index has been around for over 30 years, so when you see it touching 30-year lows against gold, there's probably an opportunity. If you bought the miners any time in the 2nd half of 2015, then you're likely enjoying some amazing gains.
Today I'm going to take a look at a bunch of individual mining stocks. I didn't pick these for any particular reason - you could basically pick miners at random and the charts all look the same (ie: bullish). Will they see a pullback? Yes. When? I have no idea. Right now the charts are suggesting very nice upside before any serious resistance comes into play so you might have to keep waiting for that pullback.
This is another post where I'm going to let the charts do the talking. I'm seeing extremely bullish formations across the commodities complex. While it's taken longer than I ever expected, the Fed's easy money policies of the past 8 years are finally starting to manifest themselves in commodity prices. I don't care if demand is falling off a cliff (which it is in many areas), when you print $Billions ($Trillions?) that money has got to go somewhere.
First I'll look at the precious metals, including Platinum and Palladium:
And now moving on some big-time industrial commodities:
And lastly, Copper has slowly started to turn things around. I assure you this due to central bank policies and NOT a sudden upswing in demand.
The major U.S. stock indices are all sporting a common characteristic: bearish MACD crosses on the weekly chart. If you're a bull, this is exactly the opposite of what you'd like to see. Weekly MACD crosses, either bullish or bearish, are a sign that the trend has changed on an intermediate term basis. In this case, the trend has turned bearish, helped in large part by the Brexit vote. Today's bounce is nothing more than a relief rally considering many of the major indices lost 5-10% in the previous two trading days.
Below are weekly charts of some of the big indices with prior bearish MACD crosses noted. Once again I ask the question: Will this time be different?
I have to be honest - I did not think Brexit had a chance. Apparently Wall Street didn't either because trading on Friday was a disaster for equity markets around the world, with banks taking a particularly hard beating. There was a very clear flight to safety with defensive sectors like Utilities and precious metals outperforming. Speaking of precious metals, gold, silver, and the miners had a terrific day as you will see below.
The tide is turning folks. Equity markets, depending on how one measures valuation, are at or near all-time highs. Earnings have been declining for months and yet stocks continued to march higher (at least until yesterday). Precious metals have been bottoming for over a year as both fundamentals and technicals continue to tilt in the bull's favor. In my post from Wednesday I commented, "I feel like there is going to be a huge move soon, possibly in [both equities and precious metals], but I have no idea which direction it will be." Well, I think Brexit has given us the answer.
Today's post will be chart-heavy with annotations and a few comments smattered about. My takeaway from Friday is nothing more than a confirmation of what I've been saying for over a year: equity markets are topping and precious metals are bottoming - it's time to position yourself accordingly.
First up is a look at the S&P 500 daily and weekly charts. Friday did a ton of damage to the bullish thesis. If the 7-year bull market is still intact, it's going to be a long, hard slog to repair what has happened in a single trading session. 2100 has become a very clear line of resistance - just check out the weekly chart to see what I mean.
And on to the Nasdaq. Same story, different index. Down 4% in a single day with massive volume to boot.
And a quick peek at Financials. Lots of room to fall to that lower line of support.
I specifically wanted to show you a couple charts of our old friend Deutsche Bank. It's now trading just pennies away from all-time lows. The word FUBAR comes to mind...
Now we head to the stars of Friday's show: precious metals and miners. First, we start with gold.
And now a look at gold's more volatile sibling, silver. Silver's move on Friday stopped right at big-time resistance. Look back at 2013 and 2014 and you'll see that $18.50 provided support for a long time. Once that level was breached in September 2014, it became resistance with lots of overhead supply sitting on top. Also, I would like to note the curious lack of volume on Friday. Not sure what it means, if anything. Overall, silver continues to paint a very bullish picture on the charts.
The gold miners continue to look good as well.
I'm going to end with the WTF chart of the day. Take a look at the FTSE weekly chart. If you're not familiar with it, the FTSE is a share index of the 100 companies listed on the London Stock Exchange with the highest market capitalization. In other words, it's very similar to the Dow Jones Industrial Average. Did you know that after Friday's bloodbath the FTSE still gained 2% on the week?