The US dollar is not taking up the hype on the retail sales beat that theoretically implies a still hawkish Fed. It resides where we last left it, testing objective #2, which is an important juncture. But the strong bounce in USD may have already done damage enough to keep asset markets in line. From here, our theme remains the same:
- If markets continue to weaken into a substantial correction USD can gain a liquidity bid and gold would rise in relation to silver. Everyone out of the pool.
- If USD fails back into the daily chart’s downtrend, anti-USD assets, especially, can rally.
Let’s take a quick look across the landscape for a general snapshot of a few areas:
S&P 500: Still in corrective consolidation after sentiment risk had become extreme. It has flagged down right to the SMA 50, which appears to be a decision point on whether or not the correction will become more robust. As a side note, the flag is seeing diminishing volume so it is possible it’s a bull flag. Just noting what I see.
Commodities: Judging by the ETF, DBC, the CRB index is back below the April high and thus, the breakout has failed, at least temporarily. Worse yet, the TSX-V index, home of the more speculative commodity/resource stocks is very weak and on the verge of breaking down. Junior mining enthusiasts should be on alert. It’s not broken but it does not look good and needs to gather itself promptly or it will be. Here is da ‘V’ (daily chart):
Again, the USD rally may have already done the job of cracking this stuff. It is a time for caution. In related areas I am tentatively holding two Energy stocks trying to get to the ex-div dates, and I am watching the Uraniums to see if the chart rationale for each holds up. If not, they may have to go.
Precious Metals: Holding my few positions and added WPM, but also prior to that I inserted the (2x Bear) DUST hedge. Considerations here are that the gold sector is in the hands of a heavy contingent of inflationists who will sell if the pain gets bad enough on the inflation trades. But in its true investment worthy form, the sector is for after inflation fails. This has been proven time and again, although most refuse to see. In microcosm it was 2008 and 2020 and if the macro really changes for a major new phase, the word investment could actually come into play. But that’s the theory for later. Right now, the sector is gripped by the same pressure as the other anti-USD stuff.
Gold/Silver Ratio: The GSR is still in bounds, so there is no cause for anything beyond normal caution as yet. In other words, let’s not hear alarms until they actually sounds. Our first caution point, if GSR and USD should start to rise together, is the little grimacing face. A major caution is if it gets by the poop face. Then the praying hands speak for themselves. So as yet, things are stable. But on watch.
Grimacing face. Poop face. Praying hands. Love it! You’ve finally dumbed it down enough that even I understand it.
If all those words weren’t coming out of me, I probably wouldn’t understand them either. But yeah, the poop face especially says 1000 words. :-)
Today China’s Central Bank lowered rates. Commodities sold off on the news. Normally, stimulus from China’s central planners would give a boost to commodities, but markets are wary that the situation in China might be more dire than previously assumed. China’s economy consist for 25% out of property, and as long as that problem lingers it will be tough to get China and the commodity markets going. The property issue in China boils down to local governments that make deals with property developers through special purpose entities, so that the central government can’t see what is going on. Beijing decided to step on the brakes last year, and the result is that a large part of China’s property business is currently paralyzed.
Good stuff, Bart. Thank you. If China continues to decelerate let’s sit back and watch all this dedollarization, commodity super cycle stuff evaporate.