Saturday, March 28, 2020

Record Week on Wall Street





Stocks rallied sharply this week, bouncing off panic-driven lows that had recently saw liquidations in almost all asset classes, save for the dollar and bonds.

The advance/decline line in my stock universe expanded to 149-16.  Only one company was oversold.


The S&P fared well however International stocks outpaced the US as the dollar fell back as the Federal Reserve and US Government continued to add massive amounts of liquidity to maintain the fragile economic system, currently locked down due to the pandemic situation.

In various sectors, Utilities did the best bouncing  11.5%.


The chart of a Utility ETF XLU illustrates the effectiveness of taking on a position at or below a long term upward trending moving average such as the 250 week exponential average.  Another favorite average is the 40-month moving average.

Energy continued to lag however, it also eked out a normally respectable 4.4% gain.


REITs and Corporate Bonds outperformed, illustrating the powerful perceived effects of the stimulus package.  Boeing also rose sharply leading the Dow average.  Boeing rose some 66 points or 20% after dropping from recent dizzying highs exceeding 400 down to below 100.



What a beautiful top that formed prior to the fall.  No surprise here.  Prices are consistent with prices years ago.  I'm not sure that we are out of the woods yet on this so I'm not recommending any buys.

Over much of the past 10 years or so, we've had many V-shaped bottoms in the market.  Some are suggesting that now is the time to buy however I prefer to sit on the sidelines.

Historically, stock prices are still expensive.  I was looking at one really beaten down company as the chart looked compelling.  Then looking at the P/E ratio, I saw that it was at 15, despite the huge fall.  Back in the old days, a 15 PE ratio was a sell.  Will we see stocks fall to bargain prices like with a 4 to 6 PE?  Will we see stocks with price to book value under 1?  Thinking what were historically "cheap" prices, I pulled back in my thoughts of nibbling on stocks, choosing instead to continue building cash and trying to continue acquiring gold and silver.


A main indicator for me to start buying is my Size indicator.  This is my terminology although not technically correct.  I call it Size as it is the size of a standard deviation unit.  I look at it as a price moving away from the trend line at a faster pace than the trend line is expanding.  In other words, it shows the momentum of the price move.  As this indicator continues rising, I don't want to be bucking the trend.  When Size reverses, price will either regress to the trend line or catapult to the opposite extreme.    Size has only reversed on a 4-week time frame.  10, 20 and greater time frames show continued downside momentum.


Some that I follow have long suggested that we will go through some cycle that would include significant deflation, followed by hyper-inflation.  And so I look at what is occurring in the debt markets.  Seems that real estate and other asset prices will only come down as debt gets defaulted on.  Let's face it, over the years, the asset bubbles have been fueled by massive levels of debt.  Once the "house of cards" begins to tumble, one would expect massive liquidations.

I have believed this for so many years now and find myself in the perfect position to take advantage of such a situation.  But will it actually happen?  The massive stimulus package passed yesterday adding $trillions to maintain the system holds off defaults, for the moment.

But there is deflation if we know where to look for it.

Crude oil is at prices not seen in decades.  No one wants to touch it as international oil producers can't come to production agreements to pump up prices.  Gasoline prices fell to under $0.50 during the week.  Of course most never benefit that much as the tax burden on gasoline is now many times the actual price of the product.

I will be spending more time in the days to come looking at oil stocks that might survive.  I had recently purchased some OXY and XOM seeing prices fall to levels that screamed BUY in my world.  But the realities of debt have continued to weigh heavily on some of these companies so to get it right, one needs to delve into the area of actual financial analysis to figure out who has the best chance of coming out of this alive.

I do recall back in 2009, I just couldn't imagine that the banks would survive.  A term came up this week special investment vehicle for use in the current stimulus package.  Back in 2009, I was too aware of the special vehicles banks had to hold their riskiest assets.  Accounting for these entities did not have to be added to their financial statements.  I do believe that these entities still exist and remain the ticking time bomb in the banking system.  Anyway, the point is, bank stocks were at deep discount and I spent more time arguing with proponents of buying bank stocks than actually accumulating any.  What a mistake.  Even Bank of America and Citicorp, two that I was certain would fail, are still hanging in there going strong.  I had even rejected a job offer from Citi at that time fearing that they would fail.


Ha Ha, in the world of Fib retracements, BAC rallied to a .618 retracement level.  Perhaps my thoughts a decade ago will come true.  I always sucked at market timing but my analysis has usually played out correctly.



Another area to look at in the deflation game is commodities.



This is GSCI Commodity Index GSG.  Need to do more research.  Not sure if it is a leveraged vehicle or is a true reflection of commodity prices.  The thought is this, we are in deflationary times and there may be incredible bargains out there if one knows where to look.


Inflation has to be on the horizon.  Even hyper-inflation.



The money supply continues up and is sure to start moving parabolically as the Fed and Government appear to be merging to stave off the disaster that some see as inevitable.  As the old saying goes, a few trillion her, a few trillion there, before you know it, we are talking about real money.

And if doubling the money supply has no effect on the dollar or interest rates, surely stimulus packages of $10 trillion will soon be forthcoming.  We've got to find someplace to go with our dollars.

I welcome any comments, especially by trained economists who might have a professional insight into what is happening.  These are serious times and we must be prepared.






Sunday, March 22, 2020

No Place to Hide



Markets continued to collapse this week with stock prices falling 15%-30% as the new pandemic has swept the land.

I struggle with figuring out where to go from here.  I have gone through all mental gymnastics and conclude that the only possible investment to make at this point is gold.

I think that much of it may depend on how you view the political situation and the technicals.  If you are in the camp that we will recover from the current situation and rise from the ashes, then I put forth the above chart.  SPX prices can expect to find support at the 50% retracement level around 2,000.  Or prices may continue to fall as far as the 250-week Exponential Moving Average, 1,700.  This in the past has shown solid support.

But upon reviewing my thoughts and charts, the reality is much worse than one can imagine.  

As we move ahead, we see that the Federal Reserve has been adding massive amounts of money to the system to keep things afloat.  The Congress has also been putting together a package to provide cash to everyone to keep the system afloat.  This has long been termed "helicopter money" where the government drops money onto everyone to keep the system going.  This has often been cited as the precursor to a Venezuela or Zimbabwe financial situation and is doomed to fail.

While many applaud the Central Bank and government for these money adding policies, it does mark the beginning of the end of the fiat currency system that has dominated the world for more than 40 years.  The US Dollar.





The M1 money supply illustrates the growth of the money supply that has been required to keep the financial system afloat.  And now, we continue to see exponential growth in the policies being currently discussed.

But currently, we do not easily see the inflationary effects of this "money printing" in our daily lives.  While such dramatic evidence of inflation as illustrated in this chart shows may not be occurring right now, it's more than certain that it will be soon.

How does this expanding MI affect you?   As an investor, it may affect you in this way.  If you are an owner of stocks, you may be thinking that oh my, this downturn is wiping me out.  But the real truth is that the money printing has been wiping you out all along.



This view shows you what the S&P 500 looks like when divided by the money supply.  In the end, over the past 20 years, you have slowly been getting wiped out.  The worst is yet to come.  With this in mind, it's hardly worthwhile to recommend stocks for the long term.  Not sure that there is anything we can do to hold off the monetary expansion and what is yet to come.




Here is gold versus the M1.  It has fared much worse but appears to be more on an upward course.  I suggest that owning gold is a superior alternative to paper money.

One also needs to be aware that the price of gold in terms of paper dollars is not quite realistic.    Gold and silver prices plummeted in the past week as fears of deflation have taken hold.  And while one may think that all assets are alike so one should stick with stocks instead of the ancient relic that many claim that gold is.


Here is the reality.  SOLD OUT.  Those who claim that when the crisis hits, they will then turn to gold.  The truth is though that the gold and silver markets are tiny compared to the world of paper currencies and investments.  Paper financial instruments can be created at the touch of a keystroke.  Hard assets on the other hand are labor intensive and have real value.


My final though for the week is Silver.  Silver got smacked down to multi-year lows and now the gold:silver ratio topped at 120 this past week.


I've heard miners say that the actual production ratio is now at 8:1 silver to gold.  This makes silver quite possibly the best investment opportunity available.  

Something has got to give here.  These are my best thoughts for the weekend.  Stay safe and good luck.





Saturday, March 14, 2020

Market Chaos - Across the Board

As suggested in the last posting, the market was in the process of topping.  I had anticipated a three-week test of the high but prices continued to overshoot for one more week before collapsing.  What has occurred since has shown some fundamental weaknesses in the system - and that is, too much debt.



Hardly any market instruments were spared any pain.  Stocks tanked while bonds soared, but then experienced extreme volatility.  Gold, considered to be the ultimate safe haven also gave up gains that took the metal past $1,700.  In my stock universe, 163 stocks declined while only 3 advanced.  83 stocks were below a -2 standard deviation on a 20-week average.  Statistically, there is only a 2.5% chance that a -2 reading may occur, in a normal environment.

Of the three stocks that rose, I'll add UPS to this posting.  It may rebound some 12 points from it's current 94 level before meeting serious trendline resistance.

On other positive notes, stocks and gold both held a .328% retracement level, generally indicating overall continued strength in both.  However the weekly stochastic indicators point to lower prices that might continue for some time.





In the SPX weekly price chart, we can also see that an important trendline, a 250 week exponential moving average that offered support in the past, continued to hold.



While that is encouraging, one rule I generally follow is that when markets go to oversold levels on a weekly basis, I look to my Size indicator.  General rule here is to stay with the trend until Size reverses.  As can be seen here, Size is soaring and it may take some time for it to turn.

Another important indicator is the Stochastics.  Here is the 20-week stochastic reading


Rule of thumb here is that one would hold off on buying until stochastics begin rising from oversold levels.  Clearly we are headed down.

And while my Cycle indicator shows that we are at Cycle lows now, the cycle can work its way over many weeks/months before heading higher.


From a value perspective, I was adding SPY and some stock positions at the 250 week average.  My philosophy here is that if you can buy at or below a long term moving average, at worst, at some point you will at least get "regression to the mean" should prices continue lower.  

And while from my perspective, it was an appropriate opportunity for me to deploy some cash, one always has to consider that market wealth has been proven to come from proper asset allocation.  Other factors such as market time, stock selection and other techniques fall short of the benefits of correct asset allocation.  Another thought as markets gyrate is periodic rebalancing, enabling me to sell things at high levels and add money to areas that have underperformed.

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Bonds, while soaring to dizzying heights, later experienced extreme volatility as well perhaps showing signs of lack of market liquidity.    


While I normally look at TLT and use it in my positioning, I am posting here a shot of the 10 year interest rate.  We can see that rates fell below a major support line and fell all the way to 0.66% before rebounding to 0.95%.

At the time rates were plummeting, seemed that the general thought that rates would go to 0.  The Federal Reserve entered the picture adding boatloads of additional liquidity.  While some commentary suggested that money was not going to create a vaccine for the current health threat, there may be other market stresses that are being ignored.  Many factors are causing stresses to the dollar supply and there appears to be a dollar shortage.  While don't have expertise in this area, my readings have shown that stresses in the oil market, as oil has sold off to $30 a barrel, have been one cause of concern.  


The DXY chart shows a big surge of some 3% this past week in the dollar.  But it's important to note that the long term trend is down and like the SPX in my last post, DXY is showing a similar three-week test of the highs, the failure leads to sell offs.  With lower interest rates continuing and massive amounts of liquidity, in my mind, the dollar is worthless.  Yet in the mix of world-wide fiat currencies, it is the "cleanest shirt in the laundry bag" so to speak.  Yet, it remains troubling to go to cash as it appears that the Fed may be "monetizing debt."  One would think that massive inflation is on the horizon.  But how can we protect against this?  I have no clue at this point.

I had, as many others, thought that gold would be the ultimate "safe haven."  


But like everything else, gold took a hit this week.  The only positive is that it held the .318 retracement level.

One concern is that we appear to have completed a 5-wave up leg.  It's clear to see from September 2018 to recently, 5 well defined waves, three up and two down.  Many gold bears contend that this was merely part of a correction with gold destined to drop below 1,000. 


My Cycle chart offers no guidance other than that price is headed lower.  There are no other examples of the steep falling off of a cliff that we see in this chart.  One has to go with the Stochastics that are headed down in a more well-defined cycle.

As everything is going down, the general thought is deflation.  That is the worst news for the Fed, governments and corporations as the key way to get out of debt is to inflate it away.  This is not happening.  One can expect the Fed to be pumping more and more money into the system.  And while that should bode well for precious metals, there has been little logic to the metals market.  

A big cause of this deflation is OIL!


Oil prices dropped significantly as Russia and Saudi Arabia disagreed on production cuts.  Some have commented that some intent might have been to try to destroy the US Shale Oil industry which relies on higher prices to survive.  

Years ago, I had thought that the shale industry would be toast as they needed prices from $80 - $100 to survive.  Yet news of massive debt defaults in the industry never crossed my desk.  It had been mentioned that the industry gained efficiencies and in the end, Zombie, debt-ridden corporations can ride things out indefinitely when interest rates are near 0% and the government is intent on maintaining the industry.  I have heard that President Trump is taking advantage of the low oil prices to fill up the strategic reserves.  While I don't intend to be political, Kudos to the president for taking this action.  I recall when President Bush was adding to the strategic reserves, it was when oil was at $140 a barrel.  


Similarly, oil stocks have been "clubbed . . ."  You probably know how the rest of that cliché goes.

I had been buying some oil stocks in this decline.  Timing wasn't exactly spot on but seeing what I had considered to be quality companies going for well under what I had hoped to buy them at previously prompted me to take action.  

When I ran a derivatives department years ago, I mandated that my traders NEVER short oil.  Just too explosive a market to play with in my mind.  For the long term, it seemed like a good value proposition.  On the environmental front, I expect that companies will gravitate to clean energy as many have already been doing.  I don't think that the oil industry will go away.

Finally, on my stocks list, I mentioned that only three stocks were up in my universe.  


I took a look at UPS.  Don't know the fundamentals but I assume cargo continues to fly.


Looks to me that a bounce to the trendline could be possible.  Beyond that, one has to see how this market shake-out proceeds.

It rebounded nicely on Friday rising nearly 10% to close the week out with a slight gain.  Still at these levels, it appears to yield better than 4% on the dividend front.  Suppose that trying to buy dividends is also dicey (I had bought some OXY last week - ouch!!)  But what else can we do?  I don't have any answers.

In the end, the key is to stay diversified.  Again, our wealth is not accumulated due to market timing or stock selection, but asset allocation.  I'll try to dig up my presentations on this and add it to the blog site.  I'll also plan to add the risk assessment questionnaire to help you determine your risk, along with model portfolios based on your risk level.




Sunday, February 2, 2020

Intermediate Top Alert


Stock markets fell last week as concerns over a new virus swept the globe.  S&P 500 index fell nearly 70 points to close at 3,225.52.

Those who follow Elliott Wave counting have been looking for an end to the current wave up, so a down move has not surprised some.  For others, fear that the market's current stretch is overdone, has caused concern.

As the chart shows, price has dropped down to break through the stop-loss marker generated by the Wilder's Parabolic indicator.  a break below the stop loss indicator signals the investor to sell the position and reverse course, using a new stop indicator that begins to form stemming from the last high price.  A closer examination of this chart SPX Parabolic Chart shows that in sideways markets, it could cause one to sell at the bottom only to rebuy at the top.  


Looking at the daily chart, with a Bollinger Band, one can see that price has reached the bottom of the band, for some, that could indicate an oversold level and a buy.

When I look at such a situation, I begin tracking the standard deviation which can be seen in this chart on the indicator BBW.  This is the Bollinger Band Width.  As the Bollinger Band width increases, it tells me that volatility is increasing and I want to stay with the trend.

We can also see that the other times that price has hit this lower level of the bands, it rebounded and stocks continued along on their merry way, ever higher.  A difference that we may see now is that there has been real economic damage as a result of the virus.  China is being sealed off as neighboring countries close borders and airlines cancel flights to China.  The potential economic effects of the situation has not been lost on bonds which continue to rally towards the highs.



Bonds have been rip-roaring for the past two weeks and appears to be headed much higher.  That said, having a proper asset allocation in your investment portfolio should help you should stocks continue to fall.

Also, Gold has been a key performer.



And while I have been touting Gold and Silver for awhile now, few have gotten on board neither participating in normal market accounts through exchange traded funds such as GLD and SLV, or through outright physical purchases.  

Both bonds and precious metals have moved opposite of the market offering a balance in a diversified portfolio.


Lots more market action to come this next week.  How you want to position yourself depends upon your overall outlook.

Very Long Term Outlook SPX  This link takes you to my TradingView market charts page.  I encourage you to go there and follow my thoughts as we go through the market gyrations.  In this long term outlook, with prices going back beyond 1929's great depression, one might see that the market outlook appears to be on track to advance for decades to come.  

On the intermediate term however, the first SPX chart shows my expectations for the next week.  Prices should rally to test the weekly highs.  If we fail to exceed the highs, I expect that prices will fall back.  How deep the correction will be is hard to say but from past experiences with such tests of the high, a failure usually brings about a significant decline.  My first expectation is a move down to the 3100 level by March option expiration.  I will be planning to purchase put option spreads, through March expiration, to capture this expected move.  But as in the past, these setups have more often than not played out as events such as the Fed adding liquidity or the President pounding the table to buy have overshadowed normal expectations.

It's hard to imagine that the market will be able to get any traction on the downside, at least not until after the elections in November.  But considering that many investigations into Trump, culminating with an Impeachment trial have yet to get Trump out of office, perhaps the only way would be to destroy the economy so prevent his reelection.  

The president appears to be extremely vigilant though of this possibility and his immediate criticism of the Fed when they tried to raise rates shows that any actions by others to hurt the market are quickly addressed.  While this time may be different, I expect that news that an antidote for the virus has been found and off to all time highs - again.  

What do you think?  It will be an interesting week in the markets for sure.

Be sure to visit my Trading View site at https://www.tradingview.com/u/Glewis54/

Tuesday, March 27, 2018

More Volatility

After long periods of quiet market action, equity markets have come to life, providing newfound riches to active traders.  After dropping 16.15 points (SPY) last week, closing the week at 258.05, stock markets soared on Monday, rising more than 7 points to 265.11 on to give much of that back today, with the market closing at 260.76.



On a positive note, SPY continued to hold the 200 day average.  For many, this is significant so if we break below, we could see a waterfall event bringing price down to around 250 and perhaps even lower.

More details as we progress during the week.

 Another positive sign is a short term stochastics indicator.


On the bright side, this indicator is starting to turn up.  But it will need to go a bit higher before market players will take serious notice.  Usually a break above 20 can bring in buyers.

Stochastics is an indicator that looks at the ranges of the highs and lows for a recent period of time and shows were the current closing price is in relation to that range.  A rising indicator shows momentum building.

On the negative side of the equation, short term volatility is increasing.


When this SIZE indicator is increasing, you need to stay with the trend, which for the moment, is down.  When this indicator reverses, it is often a good signal to enter the market as the strength of the trend is starting to diminish.

Overall though, I continue to look for opportunities to build a position in anticipation for a possible rally to the highs, as soon as next month!


The monthly chart shows how I expect this to play out.  January marks the closing high point.  February was lower and March is a good bet to close lower yet.  But I expect that come the end of April, prices will try to move above January's high.  If it does, we can expect the market to continue on to much higher levels.  If we fail to make a new high, on the close, then I would be positioning for a decline, possibly very significant.

Currently, I have several positions working for me.  As the market has been volatile, it has provided good opportunities to buy call options, for possible moves higher, and put options for possible moves lower.  With the level of volatility we are experiencing, if one is paying attention to the squiggles of the market, it's possible to take positions at good prices, for both market directions.  And the kicker is, no matter which direction the market moves, if volatility is high enough, one could profit.  More on these details in the future.

Bottom line here, as SIZE is increasing, I expect lower prices in the near term but expect to test the highs next month.



Sunday, March 25, 2018

Market Prices Fall


Markets fell sharply this week.  SPY, an Exchange Traded Fund that mimics the SP 500 index, fell 16.24 points (-5.92% on the week).

While the downturn appeared severe, technically, the damage appears minimal so far with support coming in at the 40 week average, just as previous downdrafts did.

For trend buyers, buying at or below a chosen long term trend is a good strategy.


From a cycle perspective, the timing of this decline is similar to the previous decline.  Not to say that the decline is over, but Size, my view of volatility over the past 20 week period, continues on a downtrend and is easing to the moving average.  Further declines and an increase in this indicator would push me to reevaluate my current thinking, that we are at or close to the bottom of this wave.


On Thursday and Friday, I began purchasing call options.  On Thursday, I purchased options with an early May time horizon, anticipating that SPY will make a three-month test of the recent highs.  The test occurs at the end of April.  Throughout this bull market, prices easily cut through the previous highs.  Not saying that this is what I expect, but I am positioned for it.  Should price meet with resistance and it fails to make new highs, at that point, it would be a good time to begin positioning for a downturn.

Analysis, that I will present at a later time, shows that the wave 5 can run for quite awhile, like longer than a year.  More to come.

Wednesday, November 9, 2016

TRUMP WINS

Now let's get back to work.  For those who have been paying attention to the market, it's been a long, drawn-out, flat market.  When President Barrack Obama met with Federal Reserve Chairman, Janet Yellen, some months ago, although no notes were taken ;-), it seemed pretty obvious that the message was 'don't rock the boat' until after the election.

The market called Trump's victory well before the electorate did.  Equity Markets plunged limit down when I tuned in, around 1:30 am Central Time.  Obviously, the market saw the impossible occurring.  Within the next hour, the verdict was in.

Futures have since eased up and the "black swan" effect that many predicted, should Trump win, has not yet occurred.  Precious metals continue to be up strong.

As reported months ago, there was no reason to be posting any further until after the election.

At long last, it is history.  It's back to work now with new analysis.  The Status Que is no more.  Will Trump take the Federal Reserve out of the game and let the markets trade freely?  Without back door play by the Central Banks to keep the markets propped up?

Good things to come if you are a trader.  Perhaps the markets will go through their cycles and they are meant to.

New update and outlook ahead this weekend.  Stay tuned.

Saturday, July 9, 2016

Jobs Data Delights All

STOCKS SURGE

The Bureau of Labor Statistics (BLS) reported employment gains far exceeding even the most bullish expectations Friday.  Preliminary numbers indicate that payroll employment increased by 287,000 in June.  US stocks climbed to highs on the news with the Standard and Poors 500 index closing at 2,129.90.



BONDS SURGE

US Bonds surged to all time highs Friday on BLS reports that the number of unemployed individuals in the US increased by 347,000.  The Unemployment Rate advanced 0.2% to 4.9%.

The 30 Year Bond Yield Index (TYX) closed at 21.10 (2.11%).  Levels not seen before.  Exchange Traded Fund (ETF) TLT, an easy way to trade bonds on the stock market, closed at an all time high of 143.60.



PRECIOUS METALS HIT MULTI-YEAR HIGHS

Not to be left out of the party, precious metals, although they sold off initially when the employment news was released, quickly reversed and closed at multi-year highs.


SLV, one of the ways to trade silver on the stock market,  ended the week at 19.22, up $0.48 or 2.6%.


All in all, most things did well with the exception of European and Latin American stocks and commodities (not including precious metals).




This all comes as no surprise.  As mentioned last week, the jobs number didn't really matter.  Central banks, unable to get any kind of inflation going, are desperate to stimulate the economies and continue to print more and more currencies in an effort to do so.  It's not really working but the extra added juice sure does some good stuff to the markets.

For a few years now, I've been accumulating physical gold and silver even as I watched prices fall, seemingly forever.  It's not easy for most people to look at physical things like precious metal bullion coins and not think of them in terms of their worth in dollars.  The trick in the understanding is to realize that since 2008/2009, the Federal Reserve has increased the money they have created from around $800 billion to over $4 trillion, nearly a five time increase.  Local banks, through the fractional reserve system, create additional multiples of this amount.  When you understand how much new money has been created and then consider that there is absolutely nothing that backs this currency, a prudent person would be thinking "I've got to turn this worthless currency into a hard asset as soon as I can."


A CHART TO THINK UPON

As I am always talking about gold and silver to people, the one thing I hear all the time is, what good is it?  You can't eat it.  They can't conceive that the US Dollar could be as vulnerable to devaluation as the Russian Ruble or the Mexican Peso.  The truth is, any paper currency is only worth what others accept it to be worth.  If a dollar crisis were to occur, something similar to what continues to be happening in Greece, one needs some form of money to transact daily business with.  Who knows how it can or will play out.


Throughout much of civilization, silver has been used as a currency and perhaps someday, it will again.  If it were today, and the stock market was priced in silver, this is how it would look.

So while the stock market may be going up and even making new all time highs, remember, when we are looking at price charts of the market, it is soaring based on purchases made with paper money that has no real value.  It was created from nothing, with no assets backing it up and is being used in unlimited quantities to keep pushing stock prices higher.  But the stock market, when priced in terms of something that has an intrinsic value, like silver, is in a Bear Market.


BONDS (TLT) PRICED IN GOLD (GLD)


Looking at bonds in terms of gold, this is breaking down as well.

Don't let surging markets influence your buying decisions, Central Bankers can create the illusion they wish to create.  If we do our homework, we can catch a glimpse of reality.


Saturday, July 2, 2016

Markets Soar


Markets surged this week, quickly rebounding from last week's sudden melt-down after the UK populace voted to leave the European Union.  While US markets fared well, with the Dow and SPX rising more than 3%, bigger gains came in most European shares.  Latin America shares also outperformed.

The star of the week though was Silver, which soared 11% on the week.  Silver also starred on the monthly returns list, rising 17%.

Notice the stellar year-to-date returns for Silver and silver and gold mining shares, Silver Wheaton (up 99.5% on the year) and Barrick Gold (up 200% on the year).


STOCKS REBOUND


Surprise, surprise!  Another V-shaped rebound.  Just look at past attempts of the market to sell off.  Each time, markets quickly rebounded and climbed back to the highs.  It was clearly evident last week when after the Brexit vote, it was immediately announced that the ECB (Euopean Central Bank) would add 250 Billion Euros to shore up the system.  I.e., more quantitative easing.  Other central banks also added that they were at the ready to print more money.

I had recently provided a story about how the hacker group Anonymous had hacked into Federal Reeserve systems and found that the Fed owned more than 50% of many large US corporations.  I have seen no additional news regarding this nor had Anonymous, to my knowledge, released the files that showed this.  Yet it's not surprising that The US Federal Reserve would be buying stocks to "stabilize" the market.  Other central banks have released information showing their US stock holdings so why wouldn't the US be in the lead on this?  Even if the US Federal Reserve is not holding large stock positions, other Central Banks are and of course, they are too "SYSTEMATICALLY" important to allow their assets to fall.

Well, perhaps this game is over.  And the sudden surge in SILVER could be the evidence.

SILVER SURGES


The breakout in silver was as unexpected as ever.  Many have suggested that the prices of gold and silver have been manipulated in the futures markets where institutions sell futures contracts to artificially suppress prices.  This can be easily accomplished in the futures markets since seldom does delivery of the actual physical commodity occur.  And, should anyone actually try to corner the market and buy more silver and gold than is available for delivery, the contracts may be settled in cash.  As a result, the laws of supply and demand go out the window since supply can be created just like our paper money is created, with a key stroke.  There is nothing real that supports it.

It will be interesting to see how far the silver rally can go.  Many have felt that silver and gold prices were suppressed so that people would continue to have faith in the paper fiat currencies that we use.  Surging metals prices would indicate that people are losing confidence in the fiat system

So where might silver go?


This chart is a weekly chart of paper silver (SLV) if you wish to trade it.  We can see the multi-year selloff after a big run-up.  Included in this chart are Fibonacci retracement lines.  After a move, traders often refer to these Fibonacci retracement levels to project where price might go.  Common retracement levels are 38%, 50% and 62%.  There could still be some decent trading profits to be made should these projections play out.

Then what?  Some believe that prices will then fall back and even hit new lows.  They believe that we will be experiencing a long period of deflation, similar to Japan, whose economy has stagnated for 20 years already.  Others believe that the massive amounts of money printing that have occurred will cause hyperinflation.  Perhaps we are already seeing signs of that in the food we buy.  Hey, even prominent fast-food burger joints are using "sawdust" as filler in their burgers.  Certainly my 1/2 gallons of ice cream are no longer 1/2 gallons and even my one pound package of hot dogs are now shrinking to 12 ounces, although the price remains the same as the one pound package (in better days).

The government cannot show that there is inflation as this would result in higher interest rates, higher social security payments, etc.  With the US debt at $19 trillion, interest rate shocks would certainly cause a lot of pain for the government (and taxpayers).

The deflation story also used debt levels as a cause.  We've all learned early on that when you borrow money to buy something today, you are borrowing from the future.  In the future, you will have to pay back the loan.  So with governments borrowing so heavily these days, we are consuming today what we would have in the future.  Therefore, there will be little growth.  Another cause for deflation is demographics.  As the populations of many developed countries decline and the birth rates slow, spending cycles will decline.  That makes sense.  If we build enough houses to suit the baby boomers, when they die off, will there be enough people to sell these houses to?  Not if the future generations are smaller than the previous ones.  I think that this might be one of the reasons why the government is so pro-immigration, even if it is not done legally.  We need more people here to be working and paying taxes to support the social security, medicare and other benefits to the elderly, who are living longer than ever.

Whatever happens, I believe that the massive amounts of money printing that have taken place over the years provide reason enough to be an aggressive buyer of precious metals.

WHAT ABOUT STOCKS?



Looking at the totality of the market move since 2009, we can see that if markets are topping now, the Fibonnaci retracement levels show the potential for pretty good downside moves.  Again, we are talking 38%, 50% and 62%.  Such moves are unheard of for many people but these are normal market moves.  Could it happen?  Yes.  Will it happen?  ???  Someday.

While we have made a huge move, a move that has been largely supported by central banks around the globe printing more and more money in an attempt to make their economies more competitive.  It is truly a house of cards.  But even as I say that and continue to position myself for a major move down, it's possible that the game can continue with higher prices still.  This past week, the European Central Bank indicated that it would continue to print even more money and buy securities in the European markets.  Japan is all in on this and many suspect that even in the US, the next move by the Federal Reserve will be to lower interest rates and do more quantitative easing.  Certainly this will catapult market prices even higher.  Where else can the banks go with the money in a world of negative interest rates.



As mentioned last week, I was eying EWL, a Swiss stock fund, at 28.  I bought it there and it nicely rebounded along with other European stocks.



I also jumped on Royal Dutch Shell (RDS.B)  Wanted to get a piece of the oil game.  Both did well on the week.


Next week, we will get the jobs numbers on Friday.  They tend to be meaningless.  If they are weak, it will just support the current thought that interest rates will continue to go lower, even negative, in the near future.  This will cause stocks, bonds and precious metals to continue rallying.  Bad News is Good News.  And even if the jobs numbers are good, the feeling is that the Federal Reserve will use the turmoil in Europe as a reason not to raise interest rates this year.

So might as well play the game for as long as it lasts.