Market Update

Wax On (US Jobs), Wax Off (China Trade Data)

Friday’s and Today’s global markets give a clear picture of cyclical (stock markets) vs. counter-cyclical (gold).

Friday was US ‘jobs’ at +257,000, above expectations.  The stock market was positive for much of the day until it reversed.  Gold got hammered.

Today’s driver appears to be China’s trade data.  Its trade balance increased to 60B despite a drop in exports of -3.3% (vs. forecast of +6.3% and a previous reading of +9.7%).  So that is bad enough, but the trade surplus was driven by a massive drop in imports (-19.9%).

While exports to the US increased 4.8% (strong USD), they dropped 4.6% to Europe (weak Euro) and over 20% to Japan (weak Yen).

There are a lot of moving parts in the global trade picture, including dropping prices for imports and currency exchange rates.  But it is clear that global economic contraction is in force, as we have been noting since gold began out performing commodities.

Stock futures were positive on Friday, with gold and silver getting clocked.  Futures are opposite this morning.  Despite the volatility of the moment, at least things are making sense to our preferred stance, which is predicated on global economic contraction.

So, What Can Be Concluded?

Technically, the US market will either drop into an actual moderate correction (simply looking for SPX 1900 if the recent up/down ‘swing’ consolidation fails to hold) or hold the positives it showed last week and rise to set a new bull phase in motion (watch the Bank index and its bounce to the moving average resistance and the Russell 2000 and its bounce above 1200, as two leaders, among others).  If a moderate correction comes about we would then gauge for further bear potential at that point.

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The downward reversal on Friday kept open the potential of another swing down to the recent lows (shaded area) for the general market.  For SPX that would be the 200 day moving average.

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Only a breakdown from there would break the ‘swing’ and get more intense bearish stuff going.

As for the precious metals, we noted in NFTRH 329 that gold and silver pretty much had to hold current support levels to avoid breaking down.  They are positive in pre-market on the China data (acting nicely counter-cyclical) and I suppose some noise coming out of Greece (if so, to the degree these inflammatory knee jerks are in the mix, they are not a healthy component of a bull case, beyond the flash point).

Big picture, we continue to pivot toward an environment that is positive for gold and especially gold mining operations.  Shorter-term, there remains much static (to be updated weekly).

Europe is down and could be heading for a potential buying opportunity as noted by support on the Euro STOXX 50 charts in #329, for those who would be bullish on Europe’s QE operation.  A failure of that support would be very bearish, however.  So if the breakout is tested, consider that level as a ‘stop loss’ if you want to try bulling Europe.

Back on China, this could be an important test for the China 25 (FXT) and the breakout we have been following.

Final Thought

Bringing it back around to the US, a big part of #329’s theme was that there are signs of deceleration in US manufacturing, but there could be a lag in the general economy because a) manufacturing led the economic rebound (ISM was gearing up before the mainstream media became pervasively positive on the economy) and b) manufacturing is a small part of the ‘jobs’ picture and the giant ‘services’ related economy now has the ball.

So while things could get corrective in the markets in the short-term, and while manufacturing and exports could continue to weaken, turning the ‘services’ battleship could take longer.

It is hard to be definitive on timing however, because the policy hoses (in one fashion or another) have been spraying the magic fairy dust non-stop for over 6 years now.  That’s a lot of distortion to an economy.  This is a financialized economy, not a normal cyclical one.  The gear down could be rapid, when it starts.  But thus far, things have moved in slow motion.

Unlike what went on in Q4 of 2008, when it was easy to identify and capitalize on a new phase in macro markets, the thing going on today is moving at least a hundred times slower, requires constant check ups and involves many whipsaws (wax on, wax off).

I am trying to identify both near and longer-term parameters to all of this and if anything is unclear, as to time frames and the views associated with those time frames, please let me know.  Also, if you see anything illogical in my assumptions and thought processes, I am all ears.