Gold vs Silver vs US Stocks vs EU and Emerging Markets

As seen in prior postings, I’d called for a downturn in markets. Then some months later we’ve gotten it.

The question now becomes: What’s next?

Some charts and ideas

Here’s a couple of charts that sort of sum up the state of the world in a few easy pictures. In short, it’s time for a bear market and / or recession, the Fed (and global central banks) are at the end of their flood of Zero Interest Rates ( ZIRP or Zero Interest Rate Policy ) yet it has not reanimated the corpses… Japan is a mess, the EU is worse, Russia is in the toilet big time, the Oil Patch is moribund (largely due to the Global Warming driven political crap AND Saudi Arabia trying to run others out of production), and China has had a rather significant falloff of exports / sales. (It is hard for folks to buy things when they have no money to spend…)

So what does that look like on a couple of summary charts?

First off, lets look at Gold and Silver. I’ll be using the GLD and SLV funds as a proxy for the actual metals prices (since those are the tickers I can buy, anyway…)

Gold

GLD vs metals and stocks Feb 2016

GLD vs metals and stocks Feb 2016

Clicking on the chart will get you a larger easier to read version. This is a 10 year chart. I think it is important to know your context if you have not been watching things for a while, OR if you have been watching too closely and need a refresher on what the context looks like…

Here we can see the big Gold Bubble back about 2011. On this chart, Silver SLV is the gold colored line just below GLD (the main ticker on the price bars line) and you can see that it bubbles with gold, but more so each way (i.e. more volatile). Folks will remember that I “called the bubble” on Silver and that parabolic rise. ANY time you see a parabolic rise, prepare your parachutes and line up to bail out…

On this chart, the SMA (Simple Moving Average) stack is a 26 / 52 / 78 week set. That’s 1/2 year, a year, and 1.5 years. Prices seem to tend to ride the 26 up and the 52 (ish) down with only very occasional spikes over the 78 on panic days. (Panic in stocks, that is…) At that top we had a clear double peak “failure to advance” along with a ‘topping weave’ of the SMA stack and then a rollover with price below the inverted stack. That’s a classic top, folks. We’ve been scooting along more or less under the SMA stack since, with only tiny blips over.

Now look at the far right edge. GLD has spiked up over the SMA stack and further than other spikes. Does one panic week in the stock markets make a new Gold Bull Run? Nope. We’ve still got an inverted SMA stack and price can just as easily spike back down below it and continue on. IMHO a lot of that spike was just speculators closing out short positions prior to the holiday (and likely why stocks had an up day, too). It certainly isn’t enough to call a bottom, yet.

But it does set up for a ‘bottom watch’. We need to keep watching for the SMA stack to merge into a weave, and for prices to fail to penetrate to the downside on a down day. Yes, it is possible for prices to just runaway higher from here, but not very likely. It would take a fairly major Bad News Day for the world. For now, we know Saudi and Russia are in need of cash, and have a mountain of gold to sell each as needed. We also know Central Banks are not worried about buying gold at the moment and are more interested in flooding the world with paper and pushing negative interest rates.

That NIRP will tend to push some folks into buying gold. (Why PAY the government to take your money when gold has inherent value?) The problem is that gold is a volatile commodity and those folks are as likely to panic back out again as to buy more.

Now look at the RSI: Ambiguous at about 1/2 way from 50 to 80, but showing a local top likely forming (i.e. that spike is not going to last forever). The general context is wobble each side of 50, but look at the “run up” portion. That was wobble between 50 and 80. It is not yet saying “bull market”.

MACD? It is “blue on top” and headed up, so a tradable run, but still below zero, so not a bull market. It is saying “counter trend trade in a down market. Reversal possible.”

DMI is more interesting: Blue cleanly cuts out over red, screaming upward. Yet ADX the black line is near a moribund 15. We’ve got a screaming spike up, in a dead overall trend. Trade it don’t invest in it. Shift to a faster chart to trade…

Overall, not saying to me to buy gold and sit on it. Maybe trade it is all, for now.

About those other tickers? Well, SLV has a bit of an upturn at the end too, we’ll have a distinct chart for it. JJC Copper and JJN Nickle are there to tell us general manufacturing strength and materials demand. They continue to reflect the China slowdown and global malaise. Not even a peep of an uptick.

Global Recovery is NOT happening as reflected in the low prices for key metals needed to make just about everything from computers to houses to cars and stainless steel.

The three stock tickers, SPY (S&P 500), RUT (Russel 2000), and QQQQ (Nasdaq 100) all show classical topped shapes. More on that in their own charts below. Simply put, the Fed raised interest rates an infinitesimal amount and markets croaked. There’s nothing “robust” in those prices and little support under them if The Fed takes a break. Even the (way overcrowded) FANG (Facebook, Apple, Netflix, Google – though sometimes Amazon replaces Apple) trade is faltering and the whole QQQQ is spiked down at the end.

Silver

Same chart as above, but swapping SLV for GLD. I’m just going to comment on the SLV particulars and the rest are ‘as above’.

SLV Sliver vs Metals and Stocks 10 year Feb 2016

SLV Sliver vs Metals and Stocks 10 year Feb 2016

First off, SLV didn’t even break the 78 week SMA line. It is NOT confirming gold so much as saying that the gold spike was specific to trade in that metal. There is a little sympathetic movement, but not a whole lot at this time.

Inverted SMA stack still in place, still a bear market configuration.

RSI is “middling” and MACD is about the same but a little worse than gold, just not a raging buy, and barely a trade.

DMI has a week ‘trade in’ with blue on top, but the ADX line says strength is just way too weak for it to be an easy money maker in a dominant downtrend. I’d stay away, but watch for a confirmed bottom.

Remember that some of this is the strong $US and in local currencies, gold and sliver have not fallen nearly so much, so can easily take more selling pressure. Be sure you are deciding to buy gold or silver on a trade, and not accidentally making a strong dollar trade instead…

Stocks?

These charts will look at the US markets (as the most strong and most inflated) and a simple comparison to the EEM Emerging Markets basket and EZU EU basket as rapid comparisons to the Rest Of World. IF the bulk ROW is bleak, the odds of finding something good inside a basket of dreck is pretty slim.

SPY is the S&P 500 exchange traded fund that is the benchmark to beat most of the time. While, lately, the Nasdaq 100 have been the bigger tigers, it’s not been doing that long enough to know if it is a bubble or a change. So here we look at THE benchmark, and what looks better or worse in comparison.

S&P 500 vs The World 10 year Feb 2016

S&P 500 vs The World 10 year Feb 2016

First off, notice that egg yolk colored line at the bottom of the graph. That’s the EU basket. It’s just horrid. Yes, a lot of it is the Euro being hammered, but… Let’s just say that the EU land has not had a thriving economy with great export strength, and not a lot of tourists have been interested in visiting Greece and Germany lately (what with riots and refugee camps and all…)

Oh, and I’m gradually working my way OUT of being a Mercedes fan. The newer ones are just not as well made (tank like) and the cost of repairs are just insane now. Add in that Mercedes no longer stocks parts for “almost forever” and it’s just not worth it anymore for me to ship a periodic bucket of money to Germany to keep the old cars going forever. (Likely target? Subaru… but maybe a Korean make.)

Next up from the bottom is the EEM Emerging Markets. They did a little better than Germany / France / EU until recently when the China Meltdown started. Now they are plunging faster. Not quite “emerging” anymore… Oh, and Brazil went back off the deep end with Government Corruption and Socialist Policies, but I repeat myself… as did they.

So the ROW looks like hip waders time, at best. Not going to be a lot saving the USA coming from their quarter. And, as we saw just a while ago, the US Consumer is NOT available to bail out the ROW either. Which brings us back to the USA tickers.

QQQQ clearly ran away with the show for the decade. It also has a much harder downturn at the end. Very Crowded Trades tend to do that when they turn sour. I’d expect more, but we’ll look at it in a separate chart below. RUT is above SPY until lately, then crosses under it at the turn. Typical, as the ‘weaker’ stocks get more price move per hammer blow than the strong SPY stocks. That, too, says “top is in”. The gold colored DIA Dow Jone’s “Industrials” line is almost impossible to make out from the SPY line and can be effectively ignored. (It is mostly there just to show you can ignore it…)

Which leaves the main SPY ticker.

SMA stack has rolled over. Price is below it, cleanly. I’d look for a ‘return from below’ but sometimes that doesn’t happen. Especially now in the world of machine driven speculation driven markets, sometimes the “short” algo kicks in and it just gets shorted to oblivion (thanks to the removal of the ‘uptick rule’ that gave folks at least a little chance of getting out when shorts started a Bear Raid…)

MACD is cleanly below zero, red on top, and headed down. Bear market likely for a while and time to be short or out long term.

RSI is crossing to below 50 and likely to enter the 20-50 wobble of a confirmed bear market.

DMI is RED way on top and with ADX at 30 and climbing, it’s a strong bear market.

In short, the Fat Lady is singing her lungs out and “cash is king” for a while. Even crappy paper US dollars.

QQQQ a quick look

Just to see if the QQQQ is looking the same in detail:

Nasdaq 100 vs World 10 year Feb 2016

Nasdaq 100 vs World 10 year Feb 2016

Everything looks more or less like the SPY chart, even down to RSI, DMI and MACD, but the SMA stack is not fully rolled over (yet) and just in a ‘topping weave’. Since it has been the strongest, that makes sense as the strong lag the weak to the downside.

Still, it’s clearly saying “fun’s over folks, time to be gone”.

In Conclusion

Time to strap in and hang on, it’s gonna be a bumpy ride.

US having election turmoil, Obama and friends trying desperately to crash the global economy with Global Warming Fantasies, Soros and other speculators happy to drive markets to nothing and buy assets cheap (already started snacking on coal companies, a potential Socialist President in the USA in a year, and not much positive in the world. Oh, and a destructive Oil War globally and “regional” war from Libya to Ukraine with N. Korea and China seasoning the Pacific soup.

For now, I’m mostly in cash, looking for some potential bottom feeding trades / swing trades in resources (copper and coal and oil WILL eventually turn up, just make sure any company stock will not go bankrupt first or take on so much debt as to be functionally a bankrupt stock ticker…) and I’m also going to be doing a few short ETF trades on broad indexes. Nothing much, some of it just for the practice and getting myself comfortable with shorting. Bear market rules: Long cash and / or gold (IFF in an established uptrend), not in weak currencies; short when ticker hits the SMA stack from below, cover it if crosses and cover when below the SMA stack ‘enough’ and RSI is ‘near 80’ (or if volatility starts to die as that, too, drops the price of options under those shorting ETFs…) Only “scale in” to bottom fishing positions, and only after a clearly defined ‘bottom’ is called.

Duck and cover, mostly, and snipe at things that look like an easy target.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics - Trading - and Money and tagged . Bookmark the permalink.

19 Responses to Gold vs Silver vs US Stocks vs EU and Emerging Markets

  1. Larry Ledwick says:

    Pretty much matches with my expectations. I don’t trade stocks in the same sense you do, only via my 401K. Just before Jan 1 I switched all my 401k into the safest fund I could find. It was the only fund that gained value in the 2008-2009 period.

    It appears so far this has been a good decision.

    My decision was based on historical memory (what was about to happen the last time I saw this sort of situation?) and Lots of items in the news feeds that all seemed pointed in the same direction.

    As you pointed out about when things go parabolic (I prefer the more correct term exponential) but the other is the more popular term. You come back to the old investment axiom.

    If things can’t continue like this for ever, they won’t.

    it does not take much sophisticated math to figure out the consequences of exponential growth is almost always bad in the long run for the folks on the wrong side of the trade/investment.
    It quickly, like a loan sharks payments, gets to the point you can never get well again, and have to run as fast as you can just to keep up. That is where most of the world’s economy is now. All the players are just trying to survive and hoping they will be the last man standing, or the cleanest dirty shirt in the pile.

    I have been trying to lock things down as best I can for the last few months. My car is almost paid off, trying to go all cash so I can get my credit cards paid down, making sure I have new tires on all the cars etc. Basically taking care of as many inevitable expenses and problems as I can, and setting up for that rough ride.

    I would love to have a small piece of land and a small home with an easily affordable mortgage payment of paid off, but the pressures on home prices and the forces which have made it pretty much impossible to buy or build a truly affordable home, have left me little option but to make the best I can with what I have. More than anything else just trying to keep as many options open as possible so once things start to implode you can dodge, duck, dip, dive and dodge well enough to avoid eating a wrench (homage to the movie Dodge Ball)

  2. Larry Ledwick says:
  3. hillrj says:

    Is there a good way to trade Lithium?

  4. E.M.Smith says:

    @Larry:

    His chart says the same thing as my graphs, I just aggrigate the exchanges more and have a longer timeframe view with more complicated indicators…

    I doubt the USA will have a wipeout just yet, but a repeat recession is likely. IMHO and as long as the Democrats lose…

    @Hillrj:

    None that I know of, but why would you want to?

    There is a lot of lithium in the world, and the major demand is for batteries, where potasium can be substituted (the batteries already exist and work fine).

    There is one south american mining company, but the stock trades in close sync with the other metals miners.

    http://www.mining.com/tag/lithium/

    shows some hype over the powerwall, and a herd of companies starting more mining all over the place. Typical story boom and bust setup.

    IFF lithium ever gets expensive enough to matter:

    https://en.m.wikipedia.org/wiki/Potassium-ion_battery

    will step in.

  5. tom0mason says:

    Sorry this is very O.T. but you may find this useful —
    From http://www.sciencealert.com/this-woman-has-illegally-uploaded-millions-of-journal-articles-in-an-attempt-to-open-up-science

    A researcher in Russia has made more than 48 million journal articles – almost every single peer-reviewed paper every published – freely available online. And she’s now refusing to shut the site down, despite a court injunction and a lawsuit from Elsevier, one of the world’s biggest publishers.

    For those of you who aren’t already using it, the site in question is Sci-Hub, and it’s sort of like a Pirate Bay of the science world. It was established in 2011 by neuroscientist Alexandra Elbakyan, who was frustrated that she couldn’t afford to access the articles needed for her research, and it’s since gone viral, with hundreds of thousands of papers being downloaded daily. But at the end of last year, the site was ordered to be taken down by a New York district court – a ruling that Elbakyan has decided to fight, triggering a debate over who really owns science.

    Don’t get us wrong, journal publishers have also done a whole lot of good – they’ve encouraged better research thanks to peer review, and before the Internet, they were crucial to the dissemination of knowledge.

    But in recent years, more and more people are beginning to question whether they’re still helping the progress of science. In fact, in some cases, the ‘publish or perish’ mentality is creating more problems than solutions, with a growing number of predatory publishers now charging researchers to have their work published – often without any proper peer review process or even editing.

    She also explains that the academic publishing situation is different to the music or film industry, where pirating is ripping off creators. “All papers on their website are written by researchers, and researchers do not receive money from what Elsevier collects. That is very different from the music or movie industry, where creators receive money from each copy sold,” she said.

    This appears to be where the new site has decamped to — http://sci-hub.io/

  6. Larry Ledwick says:

    Now members of the FED are making noises about breaking up too big to fail institutions.
    (note his comments about loading them up with so much capital that they can’t fail)
    Hmmm I wonder who would benefit from that huge capital reserve?

    http://www.bloomberg.com/news/articles/2016-02-16/fed-s-kashkari-floats-breaking-up-big-banks-to-avert-melt-down

  7. Larry Ledwick says:

    Venezuela finally bit the bullet and is taking drastic action on the economy. It will be interesting to see what echos and unintended consequences come out of this.

    http://www.theguardian.com/world/2016/feb/18/venezuela-president-raises-fuel-price-by-1300-and-devalues-bolivar-to-tackle-crisis?

  8. Larry Ledwick says:

    Interesting question, is this:
    A legitimate investment to strengthen a company?
    An effort to shield wealth in China from the coming collapse of their economy as it unwinds bad loans?
    Another finger in the worlds IT infrastructure which will give China easy access to technology?

    https://news.yahoo.com/chinas-hna-buy-us-tech-firm-6-0-065701754–finance.html

  9. E.M.Smith says:

    @Larry:

    Remember the game of Go. Every stone serves many purposes. A defense is an attack, a block is a thrust. China is dumping $US while they are strong, before the fall. They are moving money into real assets with strategic value. (The Government must approve, remember…) It also lets them gather LOADS of information about what is selling, what is new, funnel hot products to copy shops, gather an enormous number of names and addresses…

    Oh, and yeah, it let’s their home grown companies take out overseas competition and replace them with something that answers to China, while increasing money flows to China.

    Per Venezuela:

    It will be interesting to see how long it takes, at 700%+ inflation, for the Socialist Workers Paradise to be in full riot lock down…

  10. Larry Ledwick says:

    Just showed up on twitter 11 minutes ago (7:38 pm mountain time)
    The Associated Press ‏@AP 11m11 minutes ago
    BREAKING: Chinese state media say Xiao Gang to step down as head of China Securities Regulatory Commission following market turmoil.

  11. p.g.sharrow says:

    I have great faith in the ability of Chinese Bureaucrats to crush their economy. They have been doing this for 3,000 years. Never fails, 2 generations up, followed by crash and then stagnation that ends with revolution. The party is over and smart money is fleeing. I certainly hope that the Wall Street types that have been bragging about investing in this “Nation of the Future” lose their money or at least have their investments locked up for a very long time.
    America is still the “Nation of the Future” but, we need to hamstring our Bureaucrats before THEY strangle us.
    We Don’t Need Them!…pg

  12. Larry Ledwick says:

    Another item on the Chinese foreign buying spree.
    http://www.businessinsider.com/chinese-outbound-acquisitions-concerns-2016-2

  13. Larry Ledwick says:

    Although this is not directly “financial” it would certainly be a powerful trigger for lots of financial pressures to go ballistic and rip the EU apart.
    http://www.cato.org/blog/britain-leaves-eu-will-implode

  14. Larry Ledwick says:

    Now the panic has started to set in as Chinese investors are starting to dump stocks and buy property to protect their wealth. This has caused 4% month over month price inflation in Shenzhen housing, and 52% increase over last year. Massive housing bubble here we come as the stock market gets ready to nose over.

    I need more popcorn — between the election comedy and the economy making groaning and popping sounds. I wonder what the final straw will be to pull down one of the major economies?

    http://finance.yahoo.com/news/chinas-stocks-plunge-15-month-015454378.html

  15. E.M.Smith says:

    @Larry:

    I’m pondering an explanatory article, but for now, do a web search on “Global Liquidity Trap”.

    That is what we are in, and when it sinks in to TPTB and they start a war on currency to try to force infation driven growth, listen for the popping sounds…

    Japan has been in it for a while, now joined by the EU and UK, and most recently by the USA (who tried a rate hike proforma and now wants to back out but can’t).

    I expect a SHTF moment just after the election (until then it is extraordinary resuscitation time).

    The big questions being if the oil economies can hold up that long or China implodes faster…

    Watch commodities and metals as measures of desperation or recovery..

  16. Larry Ledwick says:

    Here is an article which is flagging the approach soon of a cross over in the 10 and 20 month moving averages on the S&P 500 as a signal of the formal shift to a bear market.

    http://www.marketwatch.com/story/the-sp-500-is-close-to-flashing-a-bearish-signal-it-hasnt-displayed-since-2008-2016-02-29

  17. Pingback: 10 Month 20 Month Crossover in SPY | Musings from the Chiefio

  18. Larry Ledwick says:

    More signs that bad things are going on in the economy which have not risen to the general public’s attention yet.
    http://blogs.wsj.com/moneybeat/2016/03/03/number-of-troubled-companies-nears-2009-peak/

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