Market Melt-up Brings Volatility to Metals

Our recent analysis bases on a previous report of the potential for a further run in the US markets based on a number of technical and fundamental factors leads to the question of “what could happen with Gold and Silver”.  A broad US market rally may put some pressure on the metals markets initially, but, in our opinion, the increase in volatility and uncertainty will likely prompt more potential for upward price action in precious metals.

 

As with most things in the midst of uncertainty and transition, the US Presidential election has caused many traders to rethink positions and potential.  As foreign elections continue to play out, wild currency moves are starting to become more of a standard for volatility.  Combine this with a new US President and a repositioning of US global and local objectives and we believe we are setting up for one of the most expansive moves in recent years for the US general markets and the metals markets.  This week, alone, we have seen a flurry of action in DC and the US markets broke upward on news of the Dakota Pipeline and other Executive actions.

 

As we wrote week or so ago, we believe the US markets will push higher in 2017 a business investment, US strategy and foreign capital runs back into the US equity market chasing opportunity and gains.  Additionally, we believe the strength of the US market, paired with continued strength of the US Dollar, will drive a further increase in global volatility and wild swings in foreign markets.  This volatility, uncertainty and equity repositioning will likely drive Gold and Silver to continued highs throughout 2017 – possibly much longer if the new trend generates renewed follow-through.

 

Our belief that the US markets will continue to melt-up while certain foreign markets deteriorate relates to our belief that currency variances will become more volatile and excessive over the next few months.  This, in combination with a renewed interest in developing US economic solutions, will likely drive the US markets higher while the metals markets will continue to become a safe-haven for US and foreign investors to protect against deflation and foreign market corrections.

 

S&P Futures are setting up a clear bullish pennant/flag formation that will likely prompt an explosive price move within 2~3 weeks.  This bullish flag formation is likely to drive the ES price higher by roughly 100+ pts.  Currently, strong resistance is just above 2275, so we’ll have to wait for this level to be breached before we see any potential for a bigger price move.

 

SP500 Weekly Chart
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SP500 Daily Chart

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GOLD is channeling in a very clear and narrow upward price channel and trading in the middle of a support zone.  The recent reversal, near the end of 2016, was interesting because GOLD trailed lower after the US election, but then reversed course just before the new year.  The interesting fact about this move is that this new upward swing in GOLD correlates with the beginning of the Bullish Flag in the S&P Futures as well as a decrease in volatility.  We believe as this Bullish Flag will prompt a jump in volatility and price action that will result in is a strong push higher in GOLD.

 

GOLD Weekly Chart
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Gold Daily Chart

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SILVER is setting up in a similar manner as GOLD.  Although the SILVER chart provides a clearer picture of the downward price channel that is about to be breached – and likely drive both SILVER and GOLD into a new bullish rally.  The support Zone in SILVER, between $16.60 ~ $17.40 is still very much in play.  SILVER will likely stay within this zone while the Bullish Flag plays out.  Yet, when the breakout begins, a move above $18.00 will be very quick and upside targets are $18.50~18.75 and $19.50~$20.00 (possibly much higher in the long run).

 

SILVER Weekly Chart
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Silver Daily Chart
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EUR/USD correlation to the US moves should be viewed as measure of strengthening US economy/USD as related to foreign market volatility and potential.  As the USD strengthens, this puts pressure on foreign governments and global transactions based in USD.  This also puts pressure on the METALS markets because billions of people around the globe consume precious metals as a “safe-haven” related to currency volatility.  We expect the EUR/USD levels to fall near “parity” (1.00) again and possibly dip below parity based on future foreign election results.  This volatility and uncertainty will translate to increased opportunity for GOLD and SILVER to run much higher over the next few months.

 

EURUSD Daily Chart

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USDMXN Daily Chart

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USDGBP Daily Chart

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Right now is a fantastic opportunity to take advantage of these lower prices.  We may see rotation near to the lower support zone levels as price rotates over the next few weeks.  The key to any trade in the metals market is to understand the potential moves and watch for confluence and volatility in other markets.  We believe the next few weeks/months will be very telling.  If we are correct, we’ll see new highs in the US markets fairly quickly and we’ll see a new potential bullish breakout in GOLD and SILVER.

You can follow our weekly analysis and trade ideas at www.TheMarketTrendForecast.com

Chris Vermeulen & John Winston

New Highs For 2017? Yes, But When Do I Enter?

When the SPX breaks out above its’ current resistance level, it will be the next leg up in this bull market. We are currently in a consolidation period. The SPX seems to be resting for now!  The “Bollinger Bands Squeeze” is now taking hold and will result in a powerful move in either direction once broken.  I do have a new BULLISH trigger for members to enter into during this amazing “melt up” that will only be shared with my ‘elite members’.   I can assure you that you will want to be invested in this next BULLISH leg of the SPX!

 

The Next Move UP!

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‘Bollinger Bands’ are one of my most preferred tools of technical indicators:

The “Squeeze”,(http://www.investopedia.com/articles/technical/04/030304.asp?lgl=bt1tn-baseline-below-textnote)  occurs during low levels of volatility as the ‘Bollinger Bands’ narrow. These periods of low volatility are followed by periods of high volatility. Therefore, a volatility contraction of the bands can foreshadow a significant advance or decline.  This is one of my best kept secrets of technical analysis, until now!

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Financial markets are now awaiting what the new Trump Administration has in store. These markets do not like “uncertainty”. So far, President-elect Trump has announced a direction of deregulation and lowering the tax bracket for corporations and repatriation of all corporate money (http://www.investopedia.com/terms/r/repatriation.asp) that is held overseas in foreign bank accounts.

The ‘ISI Research Study’ revealed that the “U.S. S&P 500 companies now have $1.9 trillion parked outside the country”.  Most likely, said funds will be applied so as to continue the stock buyback program thereby pushing the SPX to new levels that are ridiculously overpriced. Hot money ‘continues to be supporting the rise in equity markets. I share some of these hot money sectors and stock on my StockCharts.com public list!

 

Trump’s Victory Speech on November 9th, 2016:

“We are going to fix our inner cities and rebuild our highways, bridges, tunnels, airports, schools, hospitals. We’re going to rebuild our infrastructure, which will become, by the way, second to none. And we will put millions of our people to work as we rebuild it. We will also finally take care of our great veterans”.

 

Chart of the SPX “melt-up’:

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Are there too many happy investors?

The U.S. stock markets have been on a run since the U.S. Presidential election last November 9th, 2016.

U.S. stocks continue to see signs of “optimistic extremes”. The risk of buying on emotional decisions is still currently high.

There is no interest in shorting. The number of shares sold short, in hopes of buying them back at a lower price, has collapsed. The SPY fund (https://us.spdrs.com/en/product/fund.seam?ticker=SPY), short interest is the lowest since the summer of 2007.  Individual stocks are also showing a lack of short sales which, in turn, removes a pool of potential buying interest. A “de-trended” version of the short interest ratio has dropped to a level that has led to negative returns for stocks which will happen, but likely not for many month yet. The market is likely to grinding higher before a big correction takes place.

A new high presented itself on a day that the jobs report missed expectations. On January 6th, 2017, the jobs report came in less than what economists’ expectations were.  However, the SPX powered to a new high of 2276.06.  This may seem like good news, but during prior times that this occurred, stocks usually pulled back over the following weeks.

Stocks have drifted higher even after optimism reached an extreme. ‘Dumb Money Confidence’ exceeded 80% but the SPX has added on more gains without any kind of pullback. This type of buying pressure, after an extreme optimism sentiment, has previously occurred only a handful of times. It has usually led to losses as the late buyers became “exhausted”.

 

Investor confidence is so High they see no need to hedge their positions:

The Equity Hedging Index has declined to its’ lowest level in nearly two years, showing a lack of interest in the various ways that investors use to protect themselves from possible market declines.

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This chart is a contrary indicator. The higher the Equity Hedging Index, the more likely it is that stocks will rally going forward.  The lower the Equity Hedging Index, the less likely that stocks will rally.

 

 

                                                                                                              Conclusion:

Hopefully, Trump’s business experience will translate well into his new position. It is certainly my hope that he is as successful as possible. Even during the campaign Trump spoke about how stocks were in a giant ‘bubble’.  This euphoria that we have felt, since his election victory, has made that ‘bubble’ even larger. Throughout U.S. history, every ‘giant financial bubble’ has always ended very badly, and this time around will not be an exception. Trump may get the blame for it when it bursts, but the truth is that the conditions for the coming crisis have been building for a very, very long time.

I expect the stock market to stall out mid way this year in June/July at which point things could turn south. If you want to follow me live at StockTwits.com

Join my free trading newsletter at www.TheGoldAndOilGuy.com

Chris Vermeulen

Stocks and Commodities Going Up & Up

Chris Vermeulen is a very savvy trader and even he was taken by surprise by the stock market’s Trump rally. Especially by its strength and ferocity and he sees no immediate end in site. It could go on and on. But it won’t necessarily be bad for commodities and precious metals. He’s seeing very bullish signs in those markets as well. So are we living in the best of all possible worlds?

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Trade Alerts @ www.ActiveTradingPartners.com & www.TheGoldAndOilGuy.com

U.S. Bonds Bounce?

The Commercial Hedgers are considered the smart money. The Speculators are considered the dumb money.

The rise in yields corresponds with the decline in Treasury prices.  A bounce is ahead of us in 2017.

Commercial traders have built up their most bullish position since February of 2013.

Commercial traders are now long 50% more long than they are short. This is the most bullish COT Ratio reading since July of 2011.

The speculative side of this trade have built up their most concentrated short position since February of 2013 and their largest net short position since March of 2012. The speculators are usually wrong. They set their recent COT Ratio high two weeks before the market topped out. The concentration of their short position should give pause to new short sellers.

The technical picture suggests a bounce is due.

 

BOND RISK LEVELS

Latest Value(s):

  • Last Reading: 2.0 December 27th, 2016

Extreme Values:

  • Excessive Optimism: 8.0
  • Excessive Pessimism: 2.0

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BOND OPTIX WEEKLY

Latest Value(s):

  • Last Reading: 33.0 December 23rd,, 2016

Extreme Values:

  • Excessive Optimism: 70.0
  • Excessive Pessimism: 40.0

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The Treasury prices are oversold on the March 30-year Treasury Bond futures.

The evidence is displayed with the buyers of US Treasury Bonds. I side with the commercial traders. The dramatic imbalance in positions between the commercial and speculative traders suggests a bounce higher is imminent.

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My Elliot Wave Of Bonds – TLT:

Elliott Wave 2 Theory

Elliott Wave (2) is the first correction against the new trend

Elliott Wave (2) corrects wave (1), but can never extend beyond the starting point of wave one. Typically, the news is still bad. As prices retest the prior low, bearish sentiment quickly builds, and “the crowd” haughtily reminds all that the bear market is still deeply ensconced. Still, some positive signs appear for those who are looking: volume should be lower during wave two

Elliott Wave 3 Theory

Elliott Wave (3) is usually the strongest and longest wave

Elliott Wave (3) is usually the largest and most powerful wave in a trend. The news is now positive and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to “get in on a pullback” will likely miss the boat. Trading the Wave (3) is usually the most profitable.  This will be a muti-year rally!

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In Conclusion:

The new year of 2017 will not be a good one for global economies.  There will be a big slowdown throughout the global economies. The equity markets, as well, will be extremely negative in 2017.  The next yearly closing should be at a low level. The low of 2016,1800 in SPX, may be breached. The analysis is trying to say yes!  Be prepared to exit your long stock positions at the midpoint of 2017 and enter “safe havens”. See my gold forecast – Click Here

Bonds should start to rise and hold up through 2017. But will only rally in a big way once there is a major global event/crisis or the later stages of a bear market in US equities. Either way, likely not going to happen till late 2017 or beyond.

Get my swing trades and long-term asset positions at www.TheGoldAndOilGuy.com

Chris Vermeulen