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/

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.

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.

Lower Rates Stop Working - What's Next?

Stocks around the world declined this past week, led by European shares.  US shares, despite joining in the sell-off on Friday, declined only slightly.

As mentioned last week, Silver was looking like it was ready to pop and sure enough, it did, rising more than 5% this week.

More European bond buying by the ECB appeared to be the stimulus for the sell-off.  They will begin buying corporate bonds in a continuing effort to stimulate the economy.

In the past, more free money boosted stocks but over time, the effects have been less and less.  This week, a typical European market looked like this:

More Central Bank meetings coming up next week, including one with the US Federal Reserve Bank.  What can be said about that?  Doesn't really matter what Janet Yellen says, computer trading programs react to any comment with buy programs boosting prices back up to the highs.  Usually the volume is so light that it leaves many scratching their heads.

Don't have the precise info in front of me, but reports have shown that Hedge Funds and Major Banks have been net sellers for the past 18 weeks, yet US stocks continue to hover close to the highs.  WHO'S BUYING?  is the big question.  Can't say that I actually know, but as mentioned last week, it had been reported that the group Anonymous hacked into the Federal Reserve trading accounts and found that it is the Fed that is accumulating massive positions in an effort to keep the markets up.  Other reports have speculated that should European markets continue lower, the ECB will be buying stocks aggressively.

It's wonderful when you "have money to burn."

We may never know until it's too late but if the Central Banks are truly buying stocks with money created out of thin air, can equities really have a value?

It is a bit disturbing if one considers the consequences.



CONTINUED LOW INTEREST RATES

There was a time when there was a correlation between interest rates and the stock market.  I first started blogging about it in 2005 when rates started moving lower while the market moved higher.

It got pretty crazy there for awhile but then rates and the markets did come back together and in a hurry!

Isn't it interesting that the SP 500 dropped dramatically to match up with the interest rate?  Notice the very strong correlation between the two until external forces began trying to repeal the market cycle.

"So where are we today?" you might ask.

It certainly looks very "discomforting."  Notice that rates are even lower now than when the market melted down in 2008-2009.

It seems to be understood that there will be "pain" when interest rates rise.  How much pain is hard to say.  Those who do not consider the fall out that will occur when rates do rise may suffer substantially.

While Central Banks fight the good fight to get things moving again, nothing really has seemed to work.  Many who study the world demographics will attest to the fact that many important populations around the globe are aging and are not spending at high enough levels to stimulate the economy.  Business formation continues to decline as increasing levels of regulation add to the cost burden of starting a business.  Yet just sitting on low interest rates much longer will have horrible consequences.  As we've seen recently, pension funds cannot operate in a zero interest rate world.  I read that the Teamster's pension amounts will have to be lowered to just $35 for each year worked, meaning that a worker who had put in 30 years will only be getting $1,000 a month in pension benefits.  Good luck with that!  Insurance companies cannot honor their obligations either.


INTERESTING TIMES AHEAD

As mentioned, the Fed will be meeting this week and then next week, the long awaited Brexit vote.  I can only ask, "what difference does it make?"  Not long ago, Greece held a vote to escape the clutches of the European Union and voted to exit.  What did the government do?  Nothing.

UK can vote to exit, but it won't matter.  The game will play on until one morning we wake up with the news.  GAME OVER!

The Charade Continues

I marveled at the markets this past week or so as prices on the Standard and Poor's 500 and other major indexes JUST WON'T GO DOWN!! 

It was almost humorous to see the big opening moves down each day over the past week and then see prices climb back for the rest of the day.

While I don't know for sure, it was reported last week that Anonymous hacked into the Federal Reserve trading accounts and discovered that the Fed owns more than 50% of many major corporations. 

https://www.superstation95.com/index.php/world/1384

Would anyone really be surprised?  I mean people who watch and study the market closely, not the average guy.  Most of us who have been involved in markets for 30 years or more see that nothing works anymore.  No level of technical or fundamental analysis works.  The markets reflect the activities of the central banks, to include the Federal Reserve's Plunge Protection Team (PPT) and their crony's the High Frequency Traders.  Many believe that Citadel is actually a pseudo-extension of the Federal Reserve.  And the game extends to our national elected officials who not too long ago rejected a bill that would prohibit them from buying stocks on the knowledge they have (i.e., insider trading).  For sure, why would they cook the golden goose?

So for my part, I have maintained a position in SDS and have more or less ignored it for quite awhile now.  We are back to the low points where I had done my last accumulations but have chosen to buy no more.  It is my contention that the Federal Reserve and their agents will keep the markets up at least until the election in November.  This seemed to have been confirmed when US President Barack Obama met privately with Federal Reserve Chairman Janet Yellen.  Of course no notes were taken of the meeting.  One can only guess what the President and Chairman might be discussing. 

WHERE DO WE TURN?

Well, all is not lost.  A review of the markets to date shows the following:

It's clear to see that Silver and Gold have been the standouts this year.  And of course, it only makes sense with world central banks continuing to print more money to monetize debt.  I recall reading that some $10 trillion in sovereign debt now carries negative interest rates.  How unfortunate it is for us minions that we can't take on more debt and get paid for doing it.  It would be like being promised free gasoline if you buy a new car.  Imagine.

So paper currency is really worthless.  After all interest rates do reflect the cost of money and there is no cost.  Think about that when you are slaving away at your job and for what?  You get paid in worthless fiat currency.  What a delusion.  So for a few years now, I have been mindlessly buying physical gold and silver.  I do so with pleasure as I can't wait to unload the worthless fiat currency.  I have thoroughly brainwashed myself in this truth.  If I believe it, then it must be true, right?

Well I do have something solid that for the millennia has held value.  And I do love the idea that these precious metals were forged in the fires of some exploding super nova gazillions of years ago.  Also that all of the gold that was ever mined is still in existence today.  Who knows who could have handled some of the gold?  Perhaps Alexander the Great or Jesus?  Who can say?  It lasts forever.

So I could continue on about the value of hard assets that include real estate as well, but living in Illinois and even worse, Cook County, both virtually bankrupt entities, property taxes can and will grow to the sky to the point that the governments will eventually seize all properties due to tax delinquencies.  Imagine that, the Fed will own all the mortgages and the governments will be fighting for the title.  Anyway, I digress.

I do favor silver at this point and here are some charts to justify my thoughts.

This chart shows the Exchange Traded Fund that reflects the value of silver.  The price here is a little less than the actual physical silver because, well let's face it, this price reflects a digital entry or paper certificate.  Theoretically, there is supposed to be the actual commodity backing it, theoretically.  So it costs less than the actual stuff you can put in your pocket.  And rightfully so.  Gee, am I feeling cynical this morning?

It does appear that we have had a nice bounce after several years of downward movement.  Keep in mind that real buyers of precious metals feel that price is irrelevant since paper money has no intrinsic value at all.  Anyway, for those who do like to buy low and sell high, Silver has made a strong move up and the 20 week moving average is now trending higher.  The trend is your friend.


GOLD SILVER RATIO

For a long time now, for as bad as gold has been, silver has been even worse!  The chart above shows the gold/silver ratio.  Gold has been almost 80 times more valuable than silver!  This is extremely abnormal since silver and gold are mined together with a ratio of 15 ounces of silver to one ounce of gold.  By recent historical levels, one would expect a gold/silver ratio of about 30.  It got up to 80!

The chart shows that this ratio has broken down some and rebounded, but only to the moving average.  Let's see if it continues breaking down, as it should.


SP500/SILVER RATIO

This chart too is starting to break down meaning that silver is starting to outperform stocks.  This is a no brainer as we saw in the table that silver is up 18% on the year while stocks are just managing to keep their heads above water.

Could be that silver will continue to be the big winner, besting both stocks and gold.

A word of caution though, if you do buy physical precious metals, be sure to keep them close at hand and not in a bank safety deposit box.  If currencies do collapse (think of Venezuela, Argentina, Greece, Cyrus, etc.) you will not be able to get into the bank to access your valuables. 
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Bottom Line:  I'm curious to see if I'm right and the markets do stay up until the election.  This would go to prove just how rigged the system really is.

Three Week Test of High Next Week

As expected, markets closed down again for the second week in a row, setting up an anticipated topping formation, a three week test of the recent highs.

Should we fail this test of the high, expect some Central Bank to come out and goose the markets again.

They'll do everything that they can to keep it going until the system collapses.

As the table shows, it appears that the world might be in line with this thought.  Silver and gold continue to be the big winners on the year.  Can you guess why?

The move to the precious metals is the obvious conclusion in the world of manipulated paper assets.
 

Market Bids up Miners

Barrick Gold (ABX) Weekly chart - 18.77

 



After two years of cost overruns and sinking gold prices, 2014 has started off with a reversal in tactics for Barrick Gold.  Old management is on the way out and new management is coming in.  And while ABX earnings are still nearly four weeks away, it appears that the market is expecting some positive news for this gold and copper miner.  The fact that gold and silver prices are starting to come to life also help.

 

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Another item of note is the negative action of Emerging Market Stocks.  South Korea is already down 6% this year.  Russia, China, Brazil and others are also down.  Is this merely the results of a strong dollar?  Or is there a rotation in the works?

 



Perhaps a precursor of things to come?  Will the US markets ever crack?  Only time will tell what this means.  My guess however is that the Dow will rise stunningly before this comes to an end.  There are still trillions of dollars sitting on the sidelines.  One thing that over 40 years of market watching has shown me is that the market will find a way to take every penny you have.

 

When you see the Dow double or even triple from it's current level, sell everything.  Leave the country and go to some island that doesn't yet have CNBC or Bloomberg.  It's the only way you will be safe!

 

 

More to come. . .