The stock market took a hit on Friday, following simply awful CPI numbers that came out Wednesday. JP Morgan reported disappointing earnings too, admitting that the “high” interest rates are hurting the amount of money it is making on deposits, so its stock had a tear drop dump.
The problem is interest rates are not too high when inflation ticks up.
The stock market took a hit too, posting it’s biggest one day drop all year on Friday.
It looks like it is in a bit of a corrective mode now, but it may just go sideways for a few weeks.
Gold also put on a reversal day on Friday, by at first soaring through $2400, to tap on $2450 and then falling back below it for a $100 point intraday swing.
I got a few emails from people asking if this is the end of the gold run.
I don’t think so, but it’s likely to now consolidate for a few weeks before going higher.
Take a look at the last two times that it had reversal days, which I have circled on the chart, to see how it is is likely to trade for the next few weeks.
In December, gold had a reversal day and then fell into the December Fed meeting, after which it went sideways until the end of February.
Then in the middle of March it had a reversal day, with an almost one hundred point swing, and just started up again in a few days.
Both times it traded in a one hundred point range, with $2100 as resistance and then $2200.
Now it looks like $2400 is the new price resistance level and somewhere in the $2250-$2350 range is likely to become price support.
I don’t think it’s going to pause for a few months here, like it did after that December reversal, but it’ll probably take more than just a week to make another big rally.
I’d guess 4-6 weeks, but we’ll see.
Gold is going to go up again, because the Federal Reserve is now trapped.
This week’s CPI report is so important, because it showed an uptick in inflation instead of a downtick, coming in at an annualized 3.5% rate, with so called “supercore” components well above 4%. The report made crypto gurus like Cathie Wood look completely foolish with her constant “Teslanomics” deflation predictions, which I’m sure she still won’t stop making, but unfortunately it has also put the Federal Reserve in a trap. It can’t raise interest rates anymore, because of the size of the growing government debt, and this report makes it so that it certainly should not lower rates either. Inflation simply failed to go down like the Federal Reserve predicted it would too, even at it’s last meeting in May. On 60 Minutes, a few months ago, Jerome Powell predicted that CPI would fall down below 3% for a few months, and then he would lower interest rates by “mid-year.”
Now that’s thrown out the table.
It creates a scary situation, because what if inflation gets worse and the Federal Reserve feels it can’t hike or if there is a real need to lower rates, with signs of economic weakness, and then inflation just explodes?
However, don’t forget that this years anticipated interest rates cuts have been pushed out into the future before and it didn’t stop the stock market bulls from buying.
I think it’s important to think about the big picture for gold, and not just the action of the past week.
Here is the current chart of the PHYS physical bullion ETF, which I have held a core position in for the past few years.
I had a 14% investment allocation position in my accounts going into the final day of February in gold and silver metals ETF’s, such as PHYS, PSLV, and CEF. In the last hour of Friday I boosted that and then on the first day of March dramatically added more, and also purchased a position in the GDX gold stock ETF, and multiple individual big cap mining stocks.
I did most of this buying in the two areas I circled on the above chart.
I bought BCIM in March too, which is an industrial metals ETF.
I still have a little over 50% of my money in bonds, CD’s, and cash, which gives me flexibility to do other trades or positions outside gold and commodities later.
I have done no more buying in gold, silver, or mining stocks this month and am not looking to do anymore trading in them for a long time. I did buy a small PALL/palladium position, but it doesn’t amount to much, more on that in a moment.
With Friday’s pullback, we may get a nice sideways consolidation period for a few weeks for people who do not yet have a position.
However, the fact that gold, silver, and the GDX have just recently broken above their upper 200-day Bollinger Bands, suggests that this move could be strong all year and last well into next year, and even maybe beyond that.
To see what I mean, gold may trade up like it did back from 2009 to 2011, as an example of how it can get going when it’s in a bull cycle.
Notice the area I circled was a breakout of the $1000 area on gold, which had been a key resistance point for it back then, just as $2100 had been one until recently – and $26 was for silver for almost two years.
Gold simply road up its 200-day moving average during that big rally, on this chart, which lasted for two years.
That’s classic stage two bull market behavior, and during bull markets the 200-day moving average often acts as a great long-term buy point, where you just buy when you get near it and put a 5-10% stop loss order in.
So, if you missed the recent entry points in gold, silver, and mining stocks I’d suggest you take a look at that 2008-2012 chart of gold for ideas on what to do now too.
And here is another example, with gold from 2001 to the end of 2008 to think about.
Also, I’d suggest taking a look at this post by Jordan Roy-Byrne where he looks at not just this 2009 trading pattern, but ones before it, including the 1970’s:
Gold Corrections After Major Breakouts – The Daily Gold/Jordan Roy-Byrne
I’d also grab a copy of Stan Weinstein’s Secrets to Profiting In Bull and Bear Markets.
I’m personally not worried about a gold correction here, because I bought at a lower level, with a good entry point, and am diversified, not on margin, or playing call options or futures or gambling with 2X ETF’s.
As you know, I was doing frequent Youtube videos since New Years telling people to buy gold, and to buy silver, do some silver stacking, below $26.00.
Now that precious metals and mining stocks have broken out and that entry point, in February and March, is gone, right now I have lost interest in doing Youtube videos for the time being and did a video Monday saying I am going away from the platform for awhile.
At this point, I’m actually better off not to look at its trading action very closely in real time, and started to think that right before I did that Youtube video.
I am just holding my positions and am putting myself in a mode of just looking over things every few days to find another great trade.
So, I’m going to slow down and take a little bit of a break in a sense, from looking at things closely and putting out as much content.
Last year, I took a break from July to New Years in doing any Youtube videos at all and only put out two or three emails during that time.
I wrote about two ideas recently – China and Palladium in a post.
I actually would prefer that they enter some sort of stage one basing phase before they really go up, one which goes on for a long enough time to cause the width of the 200-day Bollinger Bands to contract together.
If that happens, then I may buy more and really bang the drum on them, but it would take awhile for that type of setup to materialize, with the China idea perhaps taking into the end of the year or next year for it to really line up.
The China market took a hit Friday, so I may have been early on looking for it to break through its 200-day moving average.
It’s a situation I need to watch and study more.
There is a big “managed money” hedge fund short position on Palladium, but perhaps it can get even bigger if it just trades sideways here for awhile.
I’d like to see it do that for a few months, actually, and then I’d get excited about it.
It’s possible that could happen, because historically palladium has at first lagged the rest of the precious metals complex in past secular bull markets, and it has lagged on this metals breakout too.
As you can see, from the correlation indicator on the bottom of this chart, it has not been trading with the price of gold.
So, if palladium goes sideways for a few months I may buy more, and if it just goes up I’ll simply hold the small position I already have in it.
I’m also just watching the stock market for now and want to see how it trades out for the next few weeks.
I have no real opinion yet of whether we are going to get a simple pause in the big rally, that began last October, or the makings of an important top here.
If I see topping signs I’ll let you know, but I really don’t think much is going to happen for the rest of this quarter.
My guess is the market, may dip a little more here, but is likely to firm up by the end of the week and simply go sideways for awhile.
I took the phrase “The Federal Reserve is trapped” from this Youtube video interview of William Fleckenstein.
I suggest you watch it to understand what is going on in the big picture now.
Let’s see how things trade this week.
-Mike
