Cyclical Bull Market for Gold Mining
The following is part of Pivotal Events that was published for our subscribers February 4, 2016.
Signs of The Times
"Roubini: I don't expect a global recession or financial crisis."
- Business Insider, January 20.
"S&P last year downgraded 892 issues, representing 69 percent of all ratings. The most since 2009."
- Bloomberg, January 20.
"Russia's economy contracted by 3.7% in 2015."
- Reuters, January 25.
"In today's bond markets, there's plenty of hand-wringing about liquidity, or rather, the lack of it."
- Bloomberg, January 25.
"Bond sales by companies worldwide slowed to an 11-year-low in January as investors shunned risk."
- Bloomberg, January 27.
"The number of hedge fund companies started in 2015 dropped to 223, the lowest since 2002."
- Bloomberg, January 27.
On Wednesday and in some obscure publication we read the Deutsche Bank stock had plunged almost 26 percent in January. For perspective, the DAX index declined 10 percent. In the very same month, Citi fell 23 percent as the BKX gave up 15 percent.
Not a good time for banks. Particularly as Bloomberg reported this week that financials were the "most-favored" group amongst large-cap managers at the end of October. Since then, the BKX is down 20 percent.
Adversity for financials has been "on" since the curve and spreads reversed in June.
Our banks are a "Widows and Orphans" short of July 7th seems to be working out. The high close for BKX was 80.41 on July 21st. At 59 now, the "Widows" are laughing - well - all the way to the bank.
The Weekly RSI is down to 30, which is not yet oversold enough for a material bounce. Down to around 27 could prompt a brief bounce. It took four such oversolds from early 2008 to March 2009 to conclude that liquidation.
The Fed survey of loan officers suggests that tightening has made a cyclical reversal. The chart follows.
Going the other way, a "rotation" has been possible whereby mining and petroleum groups could set up a tradable rebound. The one in mining stocks was delayed by drama in crude.
The Oil Patch crude would likely be weak into December-January. This would be exacerbated by a firming dollar. Both could be changing.
XLE plunged to 50 in the middle of January where it was oversold enough to bounce to 58. The test could have been completed at 54 yesterday. Getting above the 58 level would suggest a rally to the 200-Day ma, which is at 67.
Base metal miners (XME) made it to 29 on last year's rotation into May. The slump was to 11.38 in the middle of January. The rebound has made it to 14, just below the 50-Day ma. It could make it above and aim for resistance at 19.
Rallies in these sectors would not likely setup a cyclical bull market. The gold sector is setting up for a cyclical bull market.
The January 13th Pivot noted that the action in the HUI/Gold and HUI/SPX was constructive. The other key point was that we had accumulated some gold stocks on weakness in December and would add to the position on the "next opportunity".
The quick slide into mid-January drove gold down to 1071, which support by the 50-Day worked. This was a successful test of the bottoming process recorded in January.
Gold stocks (HUI) plunged with the pressures in the big stock markets to the 100 level. It has jumped and with today's 6 percent gain it is at 142. This records a gap on the way to above the 200-Day. Such impetuosity needs a rest.
Gold stocks relative to the bullion price (HUI/Gold) have also jumped. Jumped right up to the 50-Week moving average which has stopped every rally since the fateful year of 2011.
It will take some work to materially get through the barrier.
Our other main point is that gold outperforming commodities is a long-term plus for operating margins. This is making new highs for the move.
The next cyclical phase of a great post-bubble contraction seems to be underway. This has been expected to launch a cyclical bull market for gold mining. On the longer-term, the gold/silver ratio can increase significantly. In which case silver stocks would underperform gold stocks.
Hong Kong House Prices
Shanghai peaked in June.
The index of HK house prices peaked in September.
Fed Survey: Loan Officers Tightening
Various measures have made a reversal.
It could be cyclical.
In which case, it could endure for around a year.
NYSE Margin Debt
Doug Short's reviews on NYSE margin debt are clear.
The recent feature (December number) shows that the attempt to expand margin is failing. The January posing will confirm this.
Note the similar failures in 2000 and 2007.
Credit Balances and the Stock Market
Negative credit balance in 2000 was outstanding.
In 2007 it was less, but all the features of a classic bubble were accomplished.
The level reached with this bubble is massive.
Policymakers may wish to deflate it slowly.
Mother Nature and Mister Margin recall that Japan's MITI was celebrated as the greatest policymaking body in history. Their 1989 Bubble could be "managed".
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