THE DAILY FORK FULL
The Asian markets are ahead of the US so FXI, the US ETF for large-cap Chinese stocks, was able to respond Friday to the big drop in China. The reaction was mild with price gapping down only 2.1% on the open and dropping another 33 cents during the day.
Regardless of the hot air being blown by the Fed, interest rates are rising. While they like to pretend that they are in charge, the markets are raising rates now and not waiting "until September" like the Fed is saying.
This large-cap energy stock is considered relatively safe as stocks go, and with a yield of 3.4% it throws off a respectable amount of income. We will have to see if investors continue to hold the stock at $70 or if we see a large capitulation as they puke their shares into the market.
NASDAQ briefly touched 5132.52 in March of 2000 and then backed off before the close. Today price reached 5143.32 before backing off. The close today at 5132.95 was still above the prior high.
Dr. Copper doesn't care how much fiat currency gets printed or how many quantitative easings occur, he is only interested in the real economy where people are either building things or they aren't.
The blue modified-Schiff fork has identified support and resistance levels throughout oil's decline from $100+ down to sub-$50 and it continues to mark the upper end of oil's current price range
We will find out pretty quickly what the Transports are going to do next. Price is right at the upper median line of the Andrews pitchfork and this is a proven resistance level.
The only thing holding the US economy together at this point (besides spit and bubble-gum) is low interest rates. The strong rise in TNX is definitely a cause for concern.
The Dollar is demonstrating a great deal of strength and we should be very cautious about assuming that it is rolling over at this point.
The Fed keeps saying they will raise rates eventually but rates appear to be rising without the Fed's intervention.
This particular doji occurred on the third day that price was pushing against resistance at the median line of the pink Andrews pitchfork. Having the doji at an obvious resistance level suggests topping and not just hesitation.
Instead of spending more time questioning the social media phenomena, let's focus on the stocks of the four biggest companies in the sector and see what the market thinks. After all, from our perspective as traders and investors, the market is where the rubber meets the road.
Gold is up about $35 in the last few days. Price has risen to the 50 day exponential moving average and is now pulling back a little to consolidate the fairly substantial rise.
Bull rallies don't end all at once, they end one stock at a time. Seeing signs of topping in a major stock like AAPL contributes to the idea that the current bull is getting tired of running.
At some point Gold is going to retake its position as the only true money on this planet. Central bankers are doing everything they can to prevent this from occurring but they can't postpone the inevitable forever.
The current correction, assuming it is complete, has been much shorter and shallower than the previous corrections. The tweezers candlestick formation suggests a bottom but has this correction really restored the markets to the point where another multi-year advance is possible? I'd like to say, "no", but we are living in an era where the central banks of the world are trying to control every market, so anything is possible.
The mining stocks showed great strength across the board last week. NEM is one of the leaders and it managed to break above the $28 level on increased volume. This breakout in a market leader should bring additional institutional money into the tiny precious metals sector, which could easily drive the next upleg. Remember that global assets are measured in trillions of dollars while the precious metals sector is measured in billions - a tiny change in money flows can cause a big change in how the mining stocks and the physical metal performs.
The COTs are just another data point when we look at the markets and, as usual, there is a bigger picture to consider. During a bull market the number of futures contracts outstanding increases dramatically. While the current COTs picture looks bearish based on the last few years of bear market behavior, the picture changes dramatically when we look at COT behavior during a bull market.
Commercial traders make their living by being on the right side of the markets and historically, they are positioned correctly for prevailing conditions. Speculators, on the other hand, are historically wrong in their positioning. The COTs data in the chart below shows the dramatic change in the last week. Given the overextended nature of the markets and the current price levels relative to overhead resistance, this rally is likely over, or nearly so.
The Dow accelerated higher last week and pulled away from the blue fork's median line. Like the SPX, this rally is getting long in the tooth so it won't be surprising if price hesitates at the upper median line of the red modified-Schiff pitchfork. If price rises above the prior high at 17,750 we will have to re-evaluate what is happening in the equity markets.
The Heikin-Ashi candles show us that price momentum in SPX is to the upside but resistance at the fork's median line and the 200 day moving average is causing price to hesitate.
At some point things like negative interest rates and the banning of cash (just to mention two of the crazy trends in place today) will cause the average Joe to wake up and take action. That action will fuel (and may already be fueling) the third phase of the secular bull market in Gold and Silver. $5000 Gold and $200 Silver are my minimum targets for this precious metals bull.
The precious metals stocks have been on a tear for the past month and, like Gold, have become quite extended based on both MACD and the moving averages. Price doesn't like to get too far away from the moving averages (like now) so a pullback or some sideways waffling wouldn't be surprising at this point. If the metals are going to correct that will add impetus to a pullback in the shares.
In my opinion the strength of the precious metals stocks is impressive given the current sideways action in Gold and Silver. For the past 4 years any weakness in the metals resulted in another trashing of the stocks - this time, the stocks are just doing a sideways waffle along with the metals.
Recent commentary has suggested per ounce prices of $8000, $22,000 and $50,000 - if the bulls are already talking about these prices, what price will Gold have to reach in order to fulfill Mr. Russell's observation? And for the silver bulls, realize that $50,000 Gold and a 15:1 Silver:Gold ratio means $3,000 per ounce silver.
The equity markets had a big move Friday and it occurred on large volume. The trigger apparently was the Bank of Japan moving to negative interest rates. Negative interest rates will likely push money into equities as people and institutions seek yield and avoid paying for the "privilege" of parking money in banks.
The equity markets were extremely oversold and due for the bounce that started on Wednesday and continued Thursday and Friday. The question now is how far this rebound can run. Are the markets still in correction mode or have we now seen the bottom?
In my opinion the equal-weighted SPX is more accurately portraying the health of the broad equity markets. The index moved decisively below its August low before finding support along the lower median line of the Andrews fork. It is reasonable to expect a retest of the August low from below now - this test will coincide with the fork's median line.
Speaking of manipulated markets, did you catch former Fed President Richard Fisher's interview last week? He admitted that:
- the Fed intentionally over-inflated the financial markets
- markets are now correcting from this manipulation
- the Fed is out of ammo
This is an ugly chart and, since junk bonds were financing the stock buy back programs, this selloff in high yield bonds suggests that companies will be cutting back on their share repurchase scams (oops, I mean programs).
This monthly chart of the NASDAQ shows the potential for an upside move. This cup & handle pattern has a target of 8,600 points. Think about the tech-heavy NASDAQ index - these are the companies creating technology that will displace human beings from their jobs. While it makes sense that the index could power massively higher in coming years, is it really a good thing for our world?
The markets are at a critical juncture. They are either getting ready to break higher and make new highs or they are setting up for a dramatic move lower. As traders we can take advantage of either situation but there is no reason to get chopped to pieces while the markets flail back and forth. Remember that cash is a position too.
As we talked about last week, the markets are at an important inflection point. They are either going to break to new highs and continue this aging bull market (six years!) or they are going to move into a bear market and drop significantly lower - perhaps as much as 30-50% lower. Based on Friday's action, the downside move is looking more likely.