Markets At Crossroads: Huge Moves Brewing In Stocks And Gold

Barchart ^ | May 05, 2016 | Taki Tsaklanos

[expat_panama]

Seldom have we seen so many assets and indicators at decision points simultaneously! We see stocks, gold, and the U.S. dollar trading at extremely important levels, all in conjunction. Note that this is not according to technical analysis, but our intermarket analysis and chart patterns.

First, as indicated in recent analysis, risk indicators in U.S. stocks have turned positive in recent weeks. That suggest a bullish outcome for stocks, almost exactly at their breakout level. We prefer to let the market do its work, and so far we have not seen a breakout. But there are sufficient signs that it is in the making.

As stocks are testing key resistance, the U.S. dollar is testing secular support. Needless to say that the next chart is of incredible importance to all markets worldwide. Remember the summer of 2014, when the dollar started a huge rally? It created a domino effect in all markets: crude oil crashed with more than 70% (its steepest decline ever), stock markets went through a flash crash, emerging markets collapsed, … If the dollar manages to hold the 92 level, it would imply a successful test of its secular breakout. We should not understimate the importance of this scenario, as the dollar would be in a confirmed bull market, or, at a minimum, in a consolidation phase of its bull market.

 

 

We realize that a dollar bull market is not in line with the expectations of many, including ourselves. Let us reiterate, just like we did repeatedly in the past, that we are not hoping for that outcome. We do not believe that ongoing extreme monetary policies will end well, and the sooner a correction in monetary markets takes place, the better. Our job, however, is to read the message of markets, regardless our opinion(s). So our analysis is objective, and we simply look for trends and try to derive as much as possible valuable information on the charts.

Talking about expectations, below is the chart featuring inflation expectations. This is another case of an asset that reached multi-year resistance.

While all previous charts were interesting and meaningful, the most fascinating chart currently is GOLD. This is an incredible story. The yellow metal moved from the bottom of its descending trend channel to the top in a matter of weeks. That was an extremely powerful move, and we admit in all honesty that we did not see that coming.

 

 

However, gold is being stopped currently, and seems not able to rally any further. Gold’s huge resistance area coincides with secular support in the U.S. dollar, resistance in inflation expectations, and critical resistance in U.S. stocks. That is really no coincidence. From an intermarket point of view, this is an extremely important period of time, as the next big moves are brewing, and we can expect a resolution sooner rather than later.

Which direction will gold go? We believe the rally in gold is over, and a sharp correction is in the making, based on two indicators.

First, gold miners, a leading indicator in the precious metals complex, have reached extreme resistance. Note on the next chart how the current resistance level goes back to the 2013 collapse. After the incredible recent run in which gold miners doubled in a matter of weeks, the rally seems extremely overbought currently, and we see a sharp reversal right at the upper boundaries of resistance. This is extremely bearish.

Our second, and more important, indicator in precious metals is the COT report. Readers know meantime that we are focused on the combination of extreme net positions of commercial traders and the rate of change of their net positions. Both paramaters suggest an extremely bearish scenario. Commercial traders have accumulated short positions in a very fast way (too fast), and reached extreme levels not seen since December 2012, right before the big crash of precious metals.

Are we now saying that a crash is coming in gold and silver, similar to 2013? Not necessarily, but our point is that a severe correction is in the making, and we do not exclude that gold will fall back to the lower area of its trend channel, which would be right above $1,000, based on the extremely bearish COT report.

 

 

 

CONCLUSION:

We believe gold is about to correct sharply very soon. The U.S. dollar is testing its secular breakout point, watch whether the 92 level holds for a breakdown or a confirmation of its bull market. Deending on the move of the U.S. dollar stabilizes, we will see consequences in global markets: a stabilization of the dollar could push stocks much higher, a break down of the dollar (very unlikely though) will lit a fire under commodities markets, while a successful retest of the dollar’s breakout level will result in a strong correction in commodities and gold.

[expat_panama]

OK, too many words and tiny graphs.  What I did is I skipped over most of the words and focused on the stocks an gold parts.  As for the graphs, click on 'em to enlarge!

We don't know the future will bring but we do know what the futures markets are today and what we got is uncertainty.  OK, I suppose if that doesn't make sense then you probably are with me.  The point is that markets and economies usually follow trends that we can gear up to, and this is not the case now.

What's happening now is that we got a lot more upheaval brewing than usual and things may break severely in many different directions.

So That's why these days I'm hunkering down and going into 'wait and see' mode...

[cassiusking]

I’ve never seen a double head and shoulders - just sayin

[showme_the_Glory]

Just Gold? Or are all precious metals going to go down with it.

[grania]

The article seems to jump from a rational argument that gold has had growth in supply because it’s being overbought. Then the author adds in silver, too. Why would other metals necessarily crater when gold does? There are very different rationales and conditions associated with silver.

[JonPreston]

I have been long gold & silver (physical possession) for years. Honestly, for every sound reason to sell there are countless reasons to hold. That said I have yet to learn what moves the PM markets, so I simply store and hold the shinny stuff.

[expat_panama]

Happy Friday traders!

Investment prices all seem to in 'what's-the-other-guy-doing' mode, kind of like a same-sex dance and everyone's waiting for the other partner to lead.  Problem is the music's already beginning...

8:30 AM Nonfarm Payrolls
8:30 AM Nonfarm Private Payrolls
8:30 AM Unemployment Rate
8:30 AM Hourly Earnings
8:30 AM Average Workweek
3:00 PM Consumer Credit

Related link:  Why Jobs Reports Are Less Useful For Business.  Other reading:

• Global Social Upheaval Is Just Beginning
• Technical Weakness Is Spreading Through Mkt
• Even In Retirement Men and Women Are Different

[DocRock]

Bookmark

[expat_panama]

never seen a double head and shoulders

 

Now you have.

[Attention Surplus Disorder]

Whatever is going on in markets as to our impressions (eg; bull/bear) is IMO these days dominated by 1: worldwide currency wars and 2: flight of capital from NIRP or NIRP-coming countries. It’s not whether AAPL or MRK or JNJ is/are over or undervalued so much as it is (again, IMO) where do people with container ships full of money put their money when govts & central banks all over the world are trying to force-create inflation using negative interest rates.

This for example; makes US Tsys very attractive so buyers buy them up, despite some of the lowest coupons in history. Well, 1.6% for ten years is better than -.2% for...??

It is very confusing, it is a continuation of value distortion across all sectors and for non-rapid traders it is IMO largely uninvestable. The appetite/disdain for risk oscillates between the two of them far too often.

There is absolutely nothing wrong with holding cash, now, then, forever.

[Gasshog]

Don’t like the rounded top in SPX.

Need to see a breakout before getting back in.

YTD bonds are winners over the SPX

That could change but not until we see new highs.

[servantboy777]

Bet’cha all said and done, the treasury and not so federal reserve are manipulating the markets in an effort to buoy during the election year.

Trump takes the reigns and the bottom will likely drop out of the markets.

I’m not an economist, but I did stay in a Holiday Inn Express last night. lol

[aMorePerfectUnion]

Thanks!

Where did you settle in Panama?

[agere_contra]

The Fed are going to declare another QE.

There’s also a good chance that the petrodollar is going to end this year, which will mean a frackton of foreign-held dollars will be coming home.

It’s not a good time to hang onto fiat.

And it’s definitely not a good time to sell precious metals.

If the price of PMs lowers for a week or two, it won’t last.

[Ghost of SVR4]

I’ve been scooping up all the .925 silver I can find in my area in order to refine it myself alongside purchases each payday of fine silver. Since Douche Bank disclosed the PM manipulation by many, many banks and now China getting into price fixing via their exchange, I see one last smack down coming for PM’s before the banks can no longer manipulate and control and PM’s take off in value/price.

[gloryblaze]

.....There is absolutely nothing wrong with holding cash, now, then, forever.

It is nice to read that from someone who seems to know about these things. It is my theory, as well, but based only on instinctual fear of the other options.

[expat_panama]

The

...Gold? Or are all precious metals going to go down...

Things change. Right now pm's are lookin' pretty good.

[VTenigma]

Bet’cha all said and done, the treasury and not so federal reserve are manipulating the markets in an effort to buoy during the election year.

Trump takes the reigns and the bottom will likely drop out of the markets.

---

^^^^^ This + a million. The fundamentals that in the past were recognized as market drivers are in pathetic shape worldwide. That no longer matters in a globalist manipulated world market. As long as they can print, and suppress the value of gold they can continue their game. Once gold starts to breakout (as in China going to a gold backed Yuan) the game is up an the house of cards is blown away.

[expat_panama]

nothing wrong with holding cash, now, then, forever.

my theory, as well

Most people go w/ their feelings and some go w/ hard reality; the trend over centuries time frame is stocks are smart, cash is stupid:

 

[Keflavik76]

Poor job report today just bumped gold higher. Thank for the graphs. It will be interesting to see what the dollar does.

[Attention Surplus Disorder]

Cash or “flat” as we weasels call it is a perfectly valid position.

The key to making money in any market is in controlling your losses. The wonderful thing about stocks is that you can cut off your pain at any time. That does not mean that it is a smart thing to do, it does not mean that being underwater on an investment is smart or dumb. Nobody can predict the future.