The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Monday, August 22, 2016.
The stock market was basically flat last week, which is understandable given present circumstances. The status quo is doing their damdest to keep it elevated going into the election, and everybody else knows this and is allowing them to continue slowly inflating the bubbles. And again, as pointed out some time ago, this can continue right up until election time given the right circumstances – to a point the longs feel comfortable the status quo will be maintained. This is of course why Hillary's health, has become such an important issue up until then. If she falls sick to a point she can no longer function, meaning show up to events, front runners will sell, and October could be an interesting month considering sentiment conditions.
This is why interested parties are willing to offer $1 million for her health records. Because this issue is that important. Therein, even if she does make it through the debates to election time, which is questionable at this point, it would still be proper for voters to know about her true state of health given the job lasts four years, not four weeks. And you are never going to get this from the mainstream media (MSM), at least when it matters. And we will probably never get them period given what happens to people who play with the Clintons and political establishment. These people are the most desperate on the planet, so let's hope for a Trump landslide, because if it's close, they will steal the election again.
Unfortunately, it wasn't a flat week for gold and silver last week due to COT conditions, however the shares faired relatively well due to ETF / index open interest put / call ratios. With expiry behind us this week, things could change in this regard, however will know more about probabilities by Wednesday, when our monthly sentiment study will be presented. The big concern right now is the COT situation, because as you can see in the attached above, open interest in both gold and silver have been contracting, and now they are at 'tipping points' again. Given the right conditions, such a set-up could cause unexpected losses, triggering more selling in the shares without options related support this week. (i.e. post expiry.)
And sure enough, we now have the set-up for more selling in precious metals this week, where again, with ETF options expiry now past for the month, Comex paper gold and silver contracts are the next hurdle for the markets to digest. As you will read below, $18 on silver is now support, so this is where prices could fall to in the coming fortnight. In terms of precious metal shares, we have now had a Fibonacci 8-months of rally (the high this month), giving rise to the possibility of a correction going into next month, which will also be derived from the Fibonacci sequence. (i.e. the correction could last 1, 2 , or 3 months, all Fibonacci numbers.) Again, as alluded to last week, this could bring the Gold Bugs Index (HUI) down into the vicinity of 200 to 220, which would equate to approximately 90 to 95 on the Philadelphia Gold and Silver Index (XAU). (See Figure 1)
As you can see above, the XAU is at major resistance, meaning it will likely need to pullback in order to gain the energy required to punch through this significant resistance node, and it might take several attempts to do it. What's more, you can see it's also intersected a time line, and Rate of Change (ROC) is topping out. So a pullback is in order. Switching to the sentiment side of the equation for just a minute, and something we will go into more detail on Wednesday, it should be pointed out over the past 8-months DUST is down 90%, so those using this thing for hedging purposes have lost all their money, just like those using the other leveraged ETF's right now will do as well. At some point, hedging will dry up because of this, and then precious metal shares will be in real trouble again, for a while. We will have more to say on this subject matter on Wednesday. (See Figure 2)
Until then, it will be instructive to see if last week's corrective price action continues early in the week, or we have one more surge higher. Certainly the broads look like they could surge one more time, so maybe the dollar($) will be allowed to fall this week in order to facilitate another surge in the larger equity complex. The monthly Amazon plot above delineates this potential, where the momo stocks might be gamed higher one more time. What's more, the sentiment picture allows for one more surge as well. Just look at the Zero Hedge head lines: 1) Irrational Exuberance Back and Even Fed Worried; Seven Signs Deeply-Dysfunctional Market Why Citi Warning Surprising Sudden Intense Tail Risk; and, Investor Complacency Smashing Records. Until these guys stop littering their pages with this bearish hype every day, there's always the possibility of further gains on the backs of marginal players who will act on this sensationalism. (See Figure 3)
And I wanted to say a few words on silver centered on the monthly plot above. As you can see, silver could bounce between $21 and $18 for a year carving out an 'inverse head and shoulders pattern' before taking off. The Gold / Silver Ratio might have something to say about this thinking however, because although it's been correcting higher for over a month already, which is sector bearish, this also reduces the time needed to fully re-energize the sector. This means a short but intense correction could occur instead, like in a general equity crash this fall, clearing the baffles far more rapidly than a drawn out affair. The thinking is if Hilary wins the equity complex won't collapse this fall, however this assumption could of course be wrong given technical conditions, with US stocks in the clouds relative to the rest of the world.
If she wins, you would get selling after the election, and next year is a year ending in '7', which have a tendency to be volatile. So it's a before or after scenario – but the point is – the selling is coming. What's more, with Trump likely to be a landslide victor unless the establishment attempts a coup, there could be other reasons for selling stocks next year, like civil war, or at least mass secession(s) across the country, destabilizing (if not destroying) the economy. So again, in terms of silver's path, it will probably depend on the election to determine the outcome. It (the correction) will be short and sweet with a Trump win (a crash); or, more drawn out if Hillary (the status quo) attempts to take the White House. Obviously, once silver clears the $21 Fibonacci resonance based resistance, it will be off to the races.
Trump is way ahead in the polls – although you would never know it given MSM. Fixed polling samples and any other trick they need to employ are being used to affect public opinion, but it won't work. The people are angry at being lied to and disenfranchised from the 'American Dream' – so like Brexit – they will vote that anger. So it's constructive precious metals are correcting into the election because if all hell breaks lose afterwards, they may finally act the way they should instead of how the status quo prefers. We can only hope in this regard, because as you would know in following my work, they are presently positively correlated to the broad stock market, with emphasis on the shares. So let's hope for a change here once the correction in precious metals is over.
So you want to watch $18 on silver. Because if it breaks to the downside substantially, call it a close below $17.50, something really ugly could be brewing, not your garden-variety correction. I am not suggesting this will happen, but it's possible. That said, those looking for a pullback to accumulate, a move to the $18 is a buy no matter what – even if the correction gets worse. Because although a spike lower could occur, it won't last post the election – even if general liquidity conditions deteriorate. Sure enough, as one can see this morning, gold and silver have gapped down overnight, where again, if Comex speculators follow through today, precious metals could have a very bad day, week, and month possibly.
Lookout below – HUI 200ish – here we come? Maybe not, but 250 is definitely within the realm of possibility – that's for sure – and somewhere between 200 and 250 (225?) as well.
To end today, we want to bring your attention to this excellent piece at Corbett Report dealing with Turkey and implications associated with its potential pivot towards Russia, the possibility such an outcome would result in World War III (WWIII).
This is coming down fast, and most in this side of the pond are completely oblivious because of a MSM blackout. Germany can see the writing on the wall, which is why it's telling its people to stock up on food and water. However American's – oblivious.