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Important Charts

The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, August 8, 2016.


 

No commentary this week it being the dog days of summer and interest levels are on waivers. (I'm taking a break.)

For those of you tuning in however, here are a few important charts and accompanying technical notes, to explain the big messages.

We would be amiss at this juncture not to point out the technical situation in the risk adjusted S&P 500 (SPX). (i.e. put against the CBOE Volatility Index (VIX).) At first glance you would think the SPX is a sell (volatility a buy), with the monthly SPX / VIX Ratio plot (see below) at significant sinusoidal resistance and VIX at substantial long-term support. (See monthly in Chart Room.) This is especially true if one is unfortunate enough to consider the fundamentals. They are abysmal and getting worse every day with present 'neoliberal policies' wrecking the economy. It's important to remember however; fundamentals no longer matter, including sentiment conditions, at least for now. (i.e. until the election is over?) (See Figure 1)

Figure 1
SPX;VIX Monthly Chart

That said, and because of the next chart, while inflation sensitive issues could fall faster than the broad measures of stocks in the next correction, which could be any day now depending on Trump's presidential prospects, if the Dow / XAU (Philadelphia Gold & Silver Index) Ratio is to bounce soon, putting a tail wind at the back of stocks – you shouldn't short them – especially with the status quo boys (bureaucrats, oligarchs, media, and fedsters) all working to get Hillary elected. As you can see below, indicators on the monthly plot have hit important targets that are sure to generate a bounce at some point relatively soon, given with the unprecedented stature of the decline so far, it could still fall a bit further before the bounce arrives. (See Figure 2)

Figure 2
INDU:XAU Monthly Chart

Again, if and unless it looks like Hillary is in trouble going into the election, expect the status quo boys to keep a bid in stocks going right into November, with no October crash allowed. If on the other hand, it looks like Trump will win, which is questionable given the degree of fiction in the poles, this is when the '87 scenario becomes possible as the status quo pulls their bids in an effort to make Trump look bad, conserve capital, and just generally confuse issues to match what's going on in their own heads. What's more interesting however, is if they keep pushing precious metals down into to such a scenario, then just the opposite can occur here, with gold and silver taking off to the upside into seasonal strength. (See Figure 3)

Figure 3
SPX:Gold Monthly Chart

So it all depends on what happens this week and next, running into options expiry, where strength in precious metal stocks near-term increases the odds of a seasonal inversion (weakness in September / October), and visa versa. That's really all you should be paying attention to at this point, because how things turn out in coming days will represent the totality of how the markets are reading what's important. If status quo price managers can tip over precious metal stocks this week, this would increase the probability of important lows running into month end off of apparent a – b – c corrections stroon across important sector measures (gold, silver, precious metal indexes, etc.)

Trouble is, with strategic hedging still occurring in GDXJ and NUGT (see here), weakness cannot be counted on, and that's for sure. It's a genuine crapshoot in this regard, so the only thing we can really do is sit back and watch. Friday's manufactured jobs report that sparked manufactured selling in precious metals was a welcome site from this perspective, however this is not likely the beginning of a trend lower with sentiment in the shares still guarded. The selling can get worse this week, and prices remain flat going into next, however wholesale selling is not likely unless they can knock silver below $18 on a closing basis.

So that's what I would watch. In fact, I wouldn't get too excited unless they can knock silver below $17.80 – watch that number for sure.

Good investing is possible in precious metals.

 

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