Precious Metals: Sentiment Low Precedes Acceleration?
Sid Klein | Sep 01, 2014 12:33AM ET
PRECIOUS METALS
iShares Silver Trust (ARCA:SLV)
The new London silver price fix was not ever going to ever be a blast-off day. It wasn't meant to be, judging by the problems cited by noted global experts, even in advance of the new fix's inception.
Firstly, that would have been too obvious.
Secondly, it would have confirmed a self-defeating message, namely, that one can expect that prices will go higher, now that there is new capital and commitment coming into the market at a different scale.
Thirdly, however, this is one of those situations that inspires future technicians to place an arrow on a long term silver chart around the low, with the accompanying notation: "New silver price fix begins."
To ensure an almost perfect notation, perhaps the pen used to draw the arrow will be a bit thicker, but that's about it.
Interviewing John Embry 3 weeks ago, KWN readers got a brief and timely fundamental summary of the drivers that must affect the silver market, short, intermediate as well as long term.
Separately, it seems that a causal link is being drawn between a worsening European economy and the crisis in the Ukraine.
If there is any doubt as to the need to distract from global economic woes by focusing on and blaming military matters, consider that a Russian envoy of 280 trucks carrying humanitarian aid to the Ukraine was referred in the Western press as perhaps being a pretext to invasion.
This is a market comment that is consistent with what I and other analysts have been warning about for a long time, regarding possible background news for market volatility and decline. Militarism could even be background news to rationalize Draghi's printing as being necessary to offset the Russian-caused economic difficulties in Europe.
As I have been writing for some time, the operative word in "currency war", is "war."
Fractal analysis continues after chart.
Last month, I had looked for $19.30 - $19.40 at the outside on the SLV, within the ideal bullish scenario.Given the latter view, short term damage was actually contained.
6-month SLV chart
I maintain the view that while anything is possible to extend a basing pattern, the more it is stretched, the more volatility collapses and, with all of that, the most explosive risk/reward potential of any asset class is driven to the furthest recesses of insanity and irrational gain at the "other end' when silver blows off some day.
Get The News You Want
Now please note the pattern above from the 2nd week of July to the last week of August.
To divine the timing of the end of silver's 2011-2014 decline (which is now nearly tied for being the longest decline since the secular bull market began 13 years ago), I consider fractal analysis and look at the September 2012 - June 2013 drubbing, which appears on the 3-year chart below.
We also see a weekly stochastic which has corrected more than enough to support an advance (I have discussed the fact that weekly stochastic have tended to be coincident indicators, while the daily one has tended to be far more useful in identifying turning points, due to plainly visible divergences).
3-Year SLV
Sentiment is supposed to be more bearish at the higher low than at the low itself. Based on premiums (VXSLV), which do not lie, this is the condition today.
VXSLV
''Volatility premiums are a key indicator of market apathy and complacency, which are typical of a an extreme. As well, it (VXSLV) suggests what strategies to employ.''
And so, perhaps acting as a telling non-confirming indicator, the 2-year VXSLV charthereunder shows that it did not make a new short term low this month with the SLV.
2-Year VXSLV
LONG BONDS (iShares Barclays 20+ Year Treasury (ARCA:TLT))
The trend has been relentless since the first day of the year, as institutions and others decided to make huge asset allocations to treasuries. The closer we get to yearend, the greater the tendency toward higher prices as allocations need to be spent (among other things for window-dressing later).
This fear-trend will migrate to precious metals, and so one should understand that once that trend begins, there may not be many easy entries for getting in board. There is no better example of that than the tenacity and acceleration of long term bonds over recent months, as illustrated below:
Precious metals will have been led by Treasuries.
1-Year TLT chart (Barclays 20+ year Treasury Bond Fund)
Dollar
Last month I warned that no recent peak has occurred without a negative divergence.
The move and divergence (1) did occur, though the final move from 21.7 could not be called minor, but it has (2) created a massive slow stochastic negative divergence, (3) while the latter has also rolled over.
Here too we may be viewing the conclusion a move, but of a lesser degree due to the Dollar's greater-than-anticipated-strength in August. Therefore, the uptrend could easily resume with nothing more than a possible pause, considering the Dollar's technicals, hence the possibility of a pause.
The Dollar has come into key long term resistance, the stochastic is lofty and it has rolled over (not shown). Remember, though: currencies trend farther and unrelentingly, compared to other asset classes.
Apart from these evident technical points, it is noteworthy that the powerful 2-month rally coincided with the 2-month move to new highs in the Dow. US assets were again deemed to be the "in" safe haven.
2-Year US Dollar Fund (PowerShares db USD Index Bullish (NYSE:UUP)) chart
So, when looking at trend commitments once they are made, be certain, the PMs will have their day in a very major way, buoyed by euro-printing.
The latter would perhaps also be the catalyst for the lesser probability alternate scenario of a Dow blow-off to 19,500, as discussed 2 months ago.At this time, we are 100% short; see Dow.
Has everything finally lined up in all asset classes and markets for the much discussed inflationary scenario? This is the major question of the day, from PMs to bonds, to equities, to real estate.
Euro
July 6, 2014
"Europe's easily forecasted printing spree will get the job done, as I discussed and illustrated early in the year when Draghi's intentions for the latter half of 2014 were made painfully obvious."
In 2013, I had forecast that the euro would continue higher "toward 140", before reversing to ultimately flush-out under 120, before reversing yet again, all over a period of 3-years, or so.
The event that will trigger the flush to under 120 will be Draghi firing the much-discussed bazooka that I had forecast for this period (excerpt above).
The strong move in the Dollar is telegraphing this, at a time when the crowd has lost confidence in Draghi doing what he promised in 2012.
PERFECT!
At the very peak in the yen, I warned repeatedly that the Japanese would definitely act, because the perma-wrong-about-Japan-Westerners had given up all hope for the Ministry of Finance's bazooka.
I repeatedly warned that the Japanese had merely been waiting their turn in the sequence (US, Brits, Chinese, Swiss), as part of the coordinated and manipulated management of the Dollar's levels.
I give you a better than-Joe Namath-guarantee that Draghi will fire the bazooka, likely this year! My recent years' track record in the currencies suggest to me that I should pay heed to this forecast, if I were to treat myself as an object of technical analysis.
Quite plainly, all of the asset classes are joined at the hip.
I reiterate from prior reports: European printing will have triggered the PM takeoff, as opposed to the US's printing scheme and its currency's decline, as has customarily been the case when gold has rallied.
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