Watch the end of the week for some markets to rollover
Richard ‘Doc’ Postma joins us for a market wrap to discuss gold, oil and stocks. He is not buying into the moves in any of those markets. The overall takeaway being – don’t believe in this rally.
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One thing that’s changed is gold price price volatility. We went from very low volatility to a moving average crossover denoting higher volatility going forward. What would really have to change suddenly on any volatility is to go from negatively correlated tompositively correlated in short order:
Our $TNX:!PRII indicator has pulled back some on the daily scale, which on the weekly chart would be bouncing off the 34-week EMA. That could mean a high volatility downside plunge very briefly in gold prices. But some things emerge, such as lower interest rates when oil prices take a pause, or that GE major indeces sell off compared to miners:
Proud; Avi currently is in my tent generally or I’m in his camp generally. I believe all these markets are getting a little “heavy” and that we’re due for a turn lower in the next 2 weeks. How low for the conventional markets I’ll leave up to folks like Avi etal. who do pivot points and fibonaccis and Elliot wave. I can generally give a take on turns and direction but I generally don’t get into specific price points since I do a different form of technicals. I might add that the dollar still has some downturn pressure and it is also pointing to a bottoming in the next 2 weeks. Hope this helps.
Doc – I enjoyed your commentary today on going long volatility soon. I picked up some (TVIX) today and had swing-traded it last week briefly. However, I am thinking of averaging into volatility over the next week or two even heavier, expecting a further dip in the conventional markets.
VIX is setting up to run higher in my view and if I am correct it has hit an interim bottom already so a bounce is in the offing as soon as tomorrow.
Doc, good comments today.
Cory, good questions !
DOC:
On the 08/28/15 KER, you said you thought silver would hit $12.50-13.00 by October or November. Are your technicals still showing silver reaching these levels before the end of 2015? Also, with the possibility of both a PM decline & tax loss selling upcoming, does SLW @ $10.00 look achievable by late December? Thanks!
All The Best,
JIM
Jim, right now it doesn’t look like silver will hit $12.50-$13.00 by the end of November. The odds of them reaching the levels before the end of 2015 is a toss up at this juncture. SLW reaching $10.00 by late December is also a toss up. It appears a lot of these stocks are now topping with the PMs. If we have a pull back here and if we break down below the 50 day MA for the metals and stocks then the levels have a better chance to be reached by the end of December but it’s still a stretch since the longer the metals stay at this level heading into late October, the less the chance. In fact if gold stays above the 1070 level by December which is very possible then silver won’t make the numbers. Silver bounced off the 200 month MA and that is huge. If it can manage to stay above that level by the end of December, the lows might be in. That’s why from December into 2017 may be a good time to start to acquire the metals again. Also, it appears that taking positions slowly in some of the PM stocks over time into 2017 is a good decision.
DOC:
Based on your response above and the recent PM price action, should I still be looking to purchase the following stocks by late December to mid-January around the following price point guidelines: HL @$1-2, PAAS @$2-3, TCK @$1-2 and FCX @<$5? If not, could we possibly get a new price update please. Thanks very much!
All The Best,
JIM
TCK looks like the most vulnerable at this time to reach the targets mentioned by the end of the year. I’m going to closely watch the action with the next move down to decide if I’ll personally take a base position in these stocks above the projected prices—we’re getting some nice volumes at this point in time and it could be that we’ve bottomed already—I’ll get a feel for what’ll happen when we roll over in the PMs the next time. These stocks are getting to the point where they might not move much lower then the recent lows. I’ll better be able to give an opinion when we see the moves over the next few weeks heading into the end of the year.
Just my feelings Doc. I am looking for gold to fall to at least 1120 – 1121 at a minimum before we get the next bounce. Gold looks to be making a rising wedge formation and its final direction is not conclusive yet.
That is not Gary’s breakout scenario unfortunately and it just means we have to wait a little longer to determine if its safe to get back in the water by staking out long term positions in any miners.
The way TCK is looking now though is that it has been most responsive (short term correlated) to changes in the Canadian dollar and copper so those bear careful monitoring. All three rose together and they are all doing a bit of a retrace yesterday.
The Canadian dollar meanwhile turned down at a precise resistance point I had set my sights on (daily chart) and with luck it will slowly decline all the way back to its September low (support line) over the next month or more and put in a meaningful double bottom.
That is why I am not concerned about missing the boat on TCK. It should roughly mirror declines in CAD and indeed, yesterday it sold off sharply as both copper and the Loonie began to fall.
Technically though TCK still has a little more upside before it does a larger retrace so time is likely on the side of those who wait a little however its worth pointing out that there is a good chance both Copper and the Canadian dollar have already seen their initial lows that indicate the final bottoming process has begun.
Check the monthly charts on those. I am sure many here will agree with me on this.
If that is the case then stocks like Teck, Freeport, Newmont, Vale and many others are close to or already at their bottoms too. Like you said, this is the time to watch carefully or you will end up chasing prices and making yourself crazy.
Gary left some great comments yesterday about the mindset of investors and traders trying to pick bottoms and then missing them by over-thinking the trades. I had a good laugh about what he was saying because there was so much truth to it.
Don’t we all get insecure and second guess ourselves at such times. After getting burned repeatedly on mining trades gone sour over the past year we all feel a little gun shy now. So its good to have rules to adhere too.
For me, the most important two indicators right now are what happens with CAD and Copper.
A Listener:
Thanks for your thoughts & incite posted below. There wasn’t a “Reply to this Comment” tab under your post, so I went above.
All The Best,
JIM
For some reason it posted below??
JIM
Looks like the nice people over at ZeroHedge do read this site after all.
They have picked up on the chart I featured this past weekend that displays just how vast the gulf in wealth exists between the top .1% and pretty much everyone else (the bottom 90%).
I may just have to bite my tongue since I blew a fuse over some of their reporting on the Syrian proxy war between the US and Russia which I thought was unnecessarily provocative and intended to elicit a war response (sorry about that….but I hated a few of the recent articles they wrote).
Anyway, here is the chart again for anyone who missed it the first time around. It is called the “Distribution Share of Household Wealth Since 1917” and it clearly shows that in the US we are again at an inflection point that bears an eerie resemblance to the days leading up to the boom period that preceded the crash and Great Depression.
Again, I would reiterate, that what matters on this chart is the impending crossover between the blue line (top 1%) and the red line (bottom 90%). It is a death cross for most everyone and a golden cross for the few.
The last time this happened the share of wealth in the hands of the richest rocketed from 18% to 25% in a span of just 5 years before stock and bond markets imploded in 1929. That was a wealth transfer of almost 40% in a VERY short period of time.
For reference, we do know what happened back then as stock markets, property and bonds soared. An asset bubble in other words. But we only know in retrospect after the data was crunched and charted recently just how much of a wealth transfer really took place.
Anyway, this crossover that is about to take place suggests that the financialization of assets is about to stage a repeat of history (if the chart is going to be supported) and rather than stock markets crashing, are about to go on an epic tear higher.
This is obviously completely at odds with what almost everyone believes. Are we not on the verge of an epic market meltdown after all? Are bonds not about to implode just any old day? That is what the newsletter doomers have been saying all along.
If what they say is true though, how can we explain this fascinating graphic?
I have only the chart to guide me here and it looks unequivocal. The lines are indeed going to cross and so the second great wealth transfer of the last 100 years is going to accelerate as the poor become much poorer, the middle class sinks under a pile of stinking debt and the richest top percent see their assets soar in value.
And that means we likely have several more years of rising stock markets ahead of us which interestingly fits in with Martin Armstrong’s assertion that we are entering into a private wave where capital shifts to business, equities, corporate debt etc and away from public assets.
Without knowing exactly how he came up with that specific call I can only say it seems profound after reviewing this chart which is supportive of his view asset prices are set to rise and not fall on this cycle (an idea others have called absurd).
I would suggest everyone here study this chart for what it really means and try to project in the future what it has done in the past. There has got to be insights we might otherwise have missed.
Distribution of Wealth Since 1917 — Via ZeroHedge – Courtesy BofA Merril Lynch Global
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/10/Wealth%20Distribution.jpg
Armstrong and Edelson are both predicting a huge move up (possibly after further correction), then a huge bout of deflation near the end of 2032. I don’t know how it all pans out, but they seem to think that after that’s over, China will be the economic victor. Then again, 2032 isn’t exactly tomorrow.
http://www.armstrongeconomics.com/wp-content/uploads/2014/03/ECM-1970-2084.jpg
Right. What is interesting is that they don’t really tell you how they have come to that conclusion though. Certainly not from a chart perspective. We are left to either trust their assertions purely on the basis of cycle theory or to corroborate what they are saying with some basis of history and facts. I am doing this in my own way by reviewing charts and data and interestingly it leads to similar conclusions. I was really surprised by this recent find but there have been others. Btww, there could be another process in play here although I can’t yet be 100% certain and that is that the next bull run in stocks is driven almost purely by inflation. But that portends a falling dollar and is at odds with what the other guys say. I need only ask though…what exactly would take us to DOW 36,000 if not a dollar in retreat at what should otherwise be a peak in asset prices? See, there is a big puzzle. The dollar bears will no doubt side with that idea because it is supportive of the idea a commodity bottom is here and thus we should see stock markets and resources such as gold rise together. I just need a little more evidence to make a case for that hypothesis.
A.l. I am glad you come to same conclusion as I regarding bull run and inflation. This is why I don’t buy crash theory of KWN.
IF YOU look at the chart…….in 1977 to 1981……..the interest rates were 15-18% for Savers. Do a quick rule of 72 , and if you had any money , it doubled real quick.
I am suggesting that the RETURN ON SAVINGS was the HIGHEST in anyoneS current lifetime, for EASY MONEY ON CD’s, NO RISK.
And Doc…..I know it sounds nuts but I am committing to China stocks again. It is the contrary play right now but its also compelling. There was a nice 5 wave Elliot move into the highs and what I think is a 3 wave decline has now completed on the Shanghai…..so just when NOBODY sane would buy that market is when I find it rather appealing.
But it could also be insanity. don’t do anything I do!
I just heard my friends talking about China is removing bank reserve requirement recently. This is bad for China in a long long but might be good for commodities . Apparently the world is making same mistake.
A Listener, thanks for the posts. All I’m saying about the China market is we’re due for a move down again—-whether it’s just a short term move before a larger reversal move higher; I can’t tell you currently. You could be right—-I just can tell technically we’re due for a move lower.
Anytime Doc. I think I am on to something here.
You may very well be especially with the wealth distribution which shows that it took about 2 years for the 1929 crash after the lines crossed—history doesn’t necessarily repeat but it certainly rhymes.
With a beautiful chart like that one, Doc, I need only refer to Bob Farrell’s rule #2 to reaffirm my conviction I am on the right track. Bob wrote “Excesses in one direction will lead to an opposite excess in the other direction”.
And that is indeed what history has shown where vast divergences in wealth equity have developed over time so the rule is an important one to keep in mind. Like most classic charts this one will also mean-revert and the current excess will not last forever.
Timing its reversal though is more art than science but we can get a pretty good idea based on the historical trend. What I am confidant about is that the final percentages of wealth distribution between the .1% and the 90% will come in at a higher level than what we saw prior to the crash of 29.
That is to say that the 25% peak figure seen at that time will be bested with a closing number greater than 30% for the richest people making this current period the new “greatest wealth transfer in all history”.
What I also believe is that we are probably further away from the massive debt reconciliation and asset price correction than we perhaps thought. That chart tells me that the game has not played out to its natural conclusion.
When China stocks was crashing I said if they allow the stock to crash to 3000 level, they can maintain that level easily. Chinese government showed great effort to rescue the stocks and make people think they would do whatever it takes to boost the market. It turned out government is smarter than that. They did allow the market to drop below 3000 and now they can have a market easily maintained. They used to suppress the market. If they don’t the market can be traded between 3-4000 by itself..
Cory, Avi Glbert this weekend predicted a 2 scenario case for a crash coming this month as far down as the low 1700’s before spiking higher to 2350 by some time in 2017; beginning in November. Can you ask the 3 musketeers tomorrow of their thoughts on Avi’s weekend commentary please? Doc your opinion I highly value.