The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, March 2, 2015.
The process of our sovietized democracy devolution continues to accelerate with the bureaucratization of the Internet in the US, which will have more profound effects on the population than most realize. (i.e. think 'thought police'.) Make no mistake, this is a power grab by the bureaucrats to regulate and tax the net, further enhancing their ability to control all important aspects of your life, liberty, and freedom - and nobody is doing anything about it. But what do you expect from an America that would elect the likes of Obama two terms in a row after being proven a pathological liar and fascist the first time around. Again, America will get what it deserves. You are better off living in Cuba, where you have increasingly democratic socialism - at least you are going in the right direction and most people are not out to screw anything that moves over for a few more tokens.
But this is not the only aspect of life that is accelerating out of control, as we have had somewhat of another blow-off in stocks during February, that could easily continue into March. Many are now looking for stocks to turn lower in March this year for various reasons, not the least of which being the parallel with the developing blow-off in tech stocks similar to that in 2000. (More on this below.) And if we have a continued acceleration in a tech centric blow-off into March, truly such an outcome would be difficult to ignore if the large bull flags in the Dow / Gold Ratio (DGR) and SPX / SLV Ratio were to breakout to the upside, either tracing out a full extension, or making noticeable failures - either outcome would do. Because if this does not occur, then the door would be left open for another turnaround later on - believe it or not.
How could this be? In order to understand, first one must be armed with the pertinent information. First of all, one must realize money supply growth rates are on the rise all over the world due to accelerated interest rate reductions and money printing, a phenomenon especially true in the EU (seen here), which is likely to become more profound once ECB QE kicks in this month. And while this is bound to create unintended problems for EU bureaucrats in bonds later this year, in the meantime further acceleration here could aide in continued said blow-offs in stocks into March. In terms of the DGR and SPX / SLV Ratio we had an expected seasonal related pullback last week, and now we are ready for a continued blow-off into March, which with any luck will provide some buying opportunities in precious metals. For stocks, look for the SPX to continue to crawl along up the previous long-term channel resistance pictured below in the weekly plot from the Chart Room. (See Figure 1)
Another piece of the puzzle that needs to fall into place before lasting turns in the DGR and SPX / SLV Ratio is the release higher of the bull flag in the SPX / VIX Ratio, which will also hopefully occur here in March as well. Most of the rise in the SPX / VIX Ratio will come from a falling VIX, however it should be noted this will become increasingly difficult with the open interest put / call ratio on the VXX shooting higher again. So while the picture for a possible failure in March is becoming clearer, where we will need increasing volatility in order to identify a definable topping process in the SPX / VIX Ratio (and SPX) moving forward, at the same time, it should be noted this ratio needs to finish at least one month at the top of the sinusoidal in order to have confidence all the energy for the larger bullish sequence has been expended, so March would need to not only see prices vex higher, but stay there running into April in order to provide any such signal. (See Figure 2)
And as we have been approaching all time highs in the NASDAQ we have had dimwitted traders think because this threshold marked a major turning point last time, chances are, this will happen again, and have been loading up on puts and shorting the indexes, as can be seen here. (i.e. nothing like before, bit the SPX is back to elevated levels.) So, they are loading up on tech stock puts again, as evidenced in rapidly rising open interest put / call ratios on MNX and QQQ. This should have the effect driving the NADSAQ past the 2000 highs before the present mania fades, a market feat never before witnessed in a previous widely participated bubble within such a short period of time. They won't get the NASDAQ / Dow Ratio to new highs, which in essence still means the present tech mania is not as extreme as 2000 (which is the feat that will not be bettered), but new nominal highs look like a 'shoe-in' at this point given it's just broken back into extreme bubble territory on a closing monthly basis. (See Figure 3)
So again, if we can get the markets / ratios aligned this coming month (and perhaps a few more), meaning the stock market to precious metals ratios, stocks to volatility ratios, and key broad market open interest ratios blast higher and top out, then, and only then, will one be able to reasonably say with any degree of confidence that the bubble tops for stocks are finally in, and you had better get prepared for the mother of all cyclical sell-offs starting at some point this year. Certainly that's the message long-term time-line analysis on the Dow is suggesting (see below), where an absolute top is witnessed this month or next, followed by high level chop into summer, and then a rolling over into fall. It should be noted that was the pattern in both 2000 and last time around in the 2007 / 2008 topping sequence. (See Figure 4)
Certainly the macro-fundamentals are calling for such an outcome, where were it not for exploding corporate buybacks, it could be argued the Fed would need to be in there with QE4 sooner rather than later. But perhaps we have our storyline with this knowledge, where stocks begin to sputter now with 'peak buybacks', followed by a reversal in the Fed's bullshit story later this year to finally crack the bond market wide open (because inflation expectations would skyrocket given everything else that's happening), followed by stocks once they figure out all the magic bullets have been used. (i.e. aside from direct and increasing monetization of stocks.) This is of course part of the reason gold stocks have been performing better these past months, and why once the Dow / XAU Ratio makes a bona fide reversal on the monthly plot pictured below, one should expect an explosion higher in precious metals shares. Of course if the collapse in short interest (see attached above) witnessed in the last reporting period is any indication, then this reversal is still a ways off. (See Figure 5)
This does not mean we can't have a failure in the near-term naturally, however, with neither open interest put / call ratios nor short interest in configurations that could be considered intermediate-term supportive for stocks, it's definitely difficult getting excited about a lasting turn in precious metals just yet. In fact, with the collapse in key precious metal short interest measures during February, we now have the proper sentiment backdrop for the DGR and SPX / SLV Ratio to trace out their bull flags, meaning a surprise drop in precious metals now has a much higher probability of occurring. The Dow / CRB Ratio pictured below shows the potential for one more surge higher before it reaches significant Fibonacci resonance related resistance (decades in the making), so the possibility of one more deflation scare prior to a reversal in the 'inflation trade' is definitely possible directly ahead. (See Figure 6)
Thus, unfortunately with this collapse in short interest across key precious metals measures, I'm afraid my bias must now be shifted to caution once again, because as long as the machines / algos rule, the probability of an aggressive sell-off has now moved up considerably. And while it's true rising money supply growth rates could keep things buoyant, still, one must now go on the defensive until this is proven to be the case, where many of those who did not heed our 'true sentiment' warnings over the years were buried. Remember, fundamentals don't matter in markets like this, where the programmers in New York will never program the computers to support precious metals - never. All the liquidity is aimed at tech stocks and junk bonds, or any other worthless crap they own, which is why most heavily shorted stocks are top performers these days. If speculators were shorting precious metals shares they would get pushed up by the algos too, because the way things are set up the computers can't distinguish - they simply hunt for shorts to squeeze. If speculators ever start shorting precious metals this would change, but by then it will likely be too late - World War III (WWIII) will be well underway and physical commodity prices will be zooming anyway. (i.e. making faulty and fraudulent Western markets redundant.)
Why will WWIII be underway? Because the longer present circumstances remain, with Western neo-fascists continuing to push their colonization agendas on the wrong people (think Russia), they will become increasingly emboldened, finally going too far at some point. The likely false flag shooting of a high profile opposition leader in Russia over the weekend is a classic example of this, where you would think the crazies in charge are so hard up to maintain power they are actually attempting to start a war. It should be realized low commodity / precious metals prices are part of the Western strategy to destabilize Russia, periphery economies, etc., which has the added benefit of aiding Western debt slave budgets in order to strengthen reckless banker balance sheets. The problem for sociopath-types in charge however, is even the periphery economy of the core economy is buckling despite historically low interest rates because of the big lifecycle factors (think demographics, etc), not to mention sheer saturation.
So again, unfortunately we must return to a more cautionary stance regarding precious metals now with the true sentiment backdrop deterioration witness this last short interest reporting period, where the risk of another Western central bank raid being successful has now increased markedly, allowing for above discussed technical trends to be played out. Therein, if you had asked me last week about the probability of a failure in the sector, I would have said it was moderate with both money supply growth and shorts at relatively high levels. Now, with the shorts gone, what's left of money flow will be steered to other sectors with shorts that can be squeezed like in tech, which is why the NASDAQ can continue above 5000.
Be careful out there - aggressive positioning in precious metals is not recommended at this time.
Mission accomplished for the Western status quo once again - preying on common folks sensibilities.
See you next week.