The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, May 2, 2016.
The problem is, if you're a wicked money printing central bank, busy debasing our entire society, you can't stop the music because everybody would lose purpose quickly - with all falling down - like Humpty Dumpty. Nope - there's no rest for the wicked - our wicked central planners - because you can't taper a Ponzi scheme. This self-evident truth was confirmed this past week when the Bank of Japan (BOJ) disappointed stimulus junkies and didn't ease, sending the Nikkei down 600 points in just a few minutes. And this is especially true, which central authorities and price managers are finding out on this side of the world as well, with gold and silver becoming increasingly difficult to manage as the markets attempt to discount future dislocations.
And precious metals were strong right into month-end, implying the hedge funds 'just gotta hav'em'. (i.e. for month end window dressing.) And in examining key precious metal sector specific open interest put / call ratios (see here) Friday, it appears the 'wall of worry' is still very alive, so there's no telling what's coming in the near-term. Do we get a 'healthy pullback' in spite of this, or do prices keep powering higher, spurred off the wicked ways of central planners? Common sense would dictate caution at this point, however the powers that be generally exercise little restraint these days, which is especially true for the Fed given their predicament. (i.e. will Trump audit them?) So on this basis; so far, fortune continues to favor the bold.
The question of the hour now is, 'was that the high on Friday, in April'? Because we don't want the high in May from historical / Fibonacci count perspectives, as discussed previously, however given this thing is so out of control, who knows, maybe precious metal shares go up every month all year - a Fibonacci 13-months. Nobody with an ounce of common sense would ever expect such a thing, however the important thing to realize here is as long as sentiment remains cautious (negative), as is the case right now, anything is possible because guess what - machines have no emotion. They will simply read the headlines and then squeeze the shorts - that's what they do - with no measure for value, overbought - no such considerations.
Because the whole move down in precious metal stocks was overdone - but possible in a deep (larger degree) wave 2 - so who is to say they don't rebound as quickly as they fell. It all depends on the dollar($), and we know from last week that the Fedsters are scared of losing their jobs to The Donald, so with earnings crashing they have no choice but to let it fall if they don't want stocks to crash. The $ finished on the lows last week, and what could be classified as 'last ditch' support before it goes into free fall, so believe it or not, this crazy move in precious metals could get crazier this week, signaled by the Philadelphia Gold and Silver Index (XAU) blowing right through significant resistance Friday, seen here.
And it doesn't stop there. The positive technicals just keep coming. Perhaps the most important, and something that does in fact suggest the party in precious metals is just getting warmed up, is the close below the monthly 'swing line' and trend-line support in the $, seen below. This is big news if not reversed immediately in the beginning of this week. If not, the $ could literally collapse as both foreigners and domestics alike see the need for speed in US currency debasement rates due to fantasy earnings finally coming home to roost in a collapsing economy; and again, because of a panicked Fed due to Trump, which is looking more certain every day. This makes results in the Indiana primary tomorrow very important; because The Donald is drawing ever closer to the 1236 delegates he needs to secure the Republican nomination. (See Figure 1)
So again, even admitted by Cruz, tomorrow will decide the GOP race, where a strong showing by Trump could send the $ reeling. This is why a falling $ may not be good for the stock market initially, because if plugged in people think Trump is going to collapse Wall Street, they will likely be selling $'s too (along with stocks), as the Globalism dream goes up in smoke. Because one thing can lead to another, where those watching from overseas follow suit, like those voting on a Brexit, and viola, we have a self-fulfilling set of dominos that just keep falling, that in fact bring about a great deal of (currency) volatility (expect a bounce in the $ in June.); but in the end, signal an end to the American Empire. In looking at the weekly Dow / Gold Ratio (DGR) plot below, while a bounce higher (one more 5-wave affair) is possible, still, the big message is it's at resistance right now, so one would likely do better betting for a drop than more rally. (See Figure 2)
Bolstering the possibility we do see a sustained correction in the inflation trade beginning soon, something that might be signaled with a poor showing for Trump in Indiana, is the crash in the Gold / Silver Ratio (GSR), seen on the weekly plot below, where although it could obviously keep crashing, still, a correction higher in carving out some sort of a head and shoulders pattern is also possible; again, something that could largely depend on how the Indiana primary turns out tomorrow. As seen on Friday however, where gold gained twice that of silver, a correction higher in the DGR doesn't necessarily translate into weakness in precious metals, not unless we see an equally violent giveback today in being a leading / trend reversal indicator. So far the Trend Definer (in purple) is holding support, but again, after a correction, one would likely do well to expect further declines once Fibonacci related support is breached. (See Figure 3)
So we want to keep close tabs on precious metal shares today because again, any strength here could signal continued strength because of implication associated with the count. For the Gold Bugs Index (HUI), Wave 1 was 90-points, wave 3 was 45-points, roughly half of 1, and so far wave 5, of a possible 5-wave affair, has been approximately 30 points. Thus, any strength past 45-points (245) would mean this count is obviously wrong, signaling the possibility of further gains before a correction arrives (in June because of Brexit?). Given the current affair is the strongest impulse in recent history, stronger than anything last decade (including the impulse coming out the November 2000 low), betting on further gains is most likely not the best course of action, however these hedge fund managers these days are 'special people'. Of course economic, political, potential war, etc. circumstances are far direr today than back in 2000, so maybe this move is justified. (i.e. not too mention the selling got carried away on the downside.)
Thus, it will be interesting to see how precious metal shares trade today, because if Friday's melt up was just mostly month-end window dressing related buying, then this week could see some serious give back. And if there is to be some give back, with open interest put / call ratios still highly supportive of firm pricing, it should be seen this week because options expiry is approaching on the 20th, which will make a correction far more difficult to envision unless hedgers start bailing on their positions. Personally, I see the potential for additional gains, however I would be stupefied if the HUI didn't go back down and test the large round number at 200 before continuing higher. This is the strongest rally I have ever seen, and is in fact the strongest based on select measures since the 60's - yes the 60's - over 50-years ago.
That's a long time - no? That means even if a large part of what's happening right now is because of crazed traders on both sides of the formula, still, what's happening is epic in scale, which in turn means - it's big. And it is big. The status quo is doing their damdest to screw you out of every penny you have, the weary are attempting to protect themselves, and then there's everybody else who are determined to remain on 'ignore' - or 'snore' - hoping they can go back to their wicked ways of over-consumption and materialism one day. So who's going to win in the end? Answer: Nobody. And you should not think in these terms. You should be thinking of protecting your wealth from the rabble via time tested and prudent methods - not making billion $'s so you can date Russian supermodels - which I understand is the number one goal amongst male hedge fund types - you know - the guys in control of all that money.