Stocks, Gold & Dollar Commentary March 2, 2020

Stocks

News of the rapidly spreading coronavirus into South Korea, Italy and Japan, gapped the market sharply lower at the opening of trading on Monday, leaving an ominous 13 day island, trapping longs, proving that Fed liquidity, though “fire-hosed” ready, and still ongoing, is no match for a bearish exogenous event. For 5 consecutive days, stocks in every sector, fell an astonishing 16%.This decline, though taking only 5 days, has exceeded both the Ebola decline of 7.5%, and the SARS decline which dropped 14%, and took multiple weeks. While it’s highly likely the high for the year is behind us (SPY 339.08), the question becomes: do stocks enter a bear market right away, or do we enter a protracted period of wide-ranging, choppy trading over several months, while stocks make a comeback, building the right shoulder of an enormous H&S topping formation? With the Fed likely to cut rates 3 times this year, (80% probability, although it’s no vaccine), we favor the “comeback” scenario. The key: whether the New Economy sector can lead, and re-establish new highs vs the Old Economy. In the long run it will not prevent a recession, but in the short term will provide “staying power”. SPY Fib support 276.86, 274.86. SPY Fib resistance 309.15, 320.54.

Gold

Gold met our projected price target (1670) on Monday (actual spot high 1689.60) – held relatively firm for 4 days -then when most vulnerable by end of month Cartel paper selling, in coordination with the unannounced raising of margin requirements by the CME, as Wall Street took profits where they could find gains (to offset market losses), creating the “perfect storm” to hammer gold, (-7.5%) and gold stocks (-19%) off their respective highs. As we said “A healthy correction may be forthcoming once targets are met.”  But, the amount of corruption and deception behind the precious metals markets is shocking. Support levels: GDX 25.12-24.78 (strong), GDXJ 35.35, GLD 144.29, SLV 15.30 Resistance levels: GLD 152.88, SLV 16.72, GDX 29.28, GDXJ 40.99, SIL 31.25, GOAU 17.19.

Dollar

The greenback, surprisingly, gave up safe haven status, and sold off with everything else, closing under our 89 line trendlines (UUP 26.53). Fib support 26.29 (strong).

Stocks, Gold & Dollar Commentary February 24, 2020

Stocks

Stocks fell 2.0% from a SPY all-time high on Wednesday 339.08 to a Friday low 332.58, as a tug of war raged between a liquidity driven market, fueled by repo market interventions, and rapidly deteriorating economic fundamentals, highlighted by escalating coronavirus infections, along with 6 year lows in the U.S. Composite Output Index. The important takeaway: Last week saw fresh all-time highs in the New Economy sector vs the Old Economy, followed by 3 week lows on Friday. SPY came close to initial support 332.18 (actual low 332.58). With momentum finally turning negative, we expect the market to bounce off SPY support, after a maximum decline to 327.26, before another attempt at new highs. It will be critically important to see if the New Economy sector can regain leadership on the next rally, or whether stocks are gearing up for a much steeper decline.

Gold

Spot gold rallied $59 last week, closing at a multi-year high on Friday (1643.30), approaching our important target 1670, led by the stocks (XAU) which gained nearly 9.0% (111.06). XAU 112 -113 is important resistance. A healthy correction may be coming once targets are met.  By mid-year to 3rd quarter 1800 – 1850 should be reached. Despite the metal’s strong gain, the stocks regained leadership registering a 7 week high vs the metal. Intermediate term targets for PM sectors: SLV 19.22, SIL 36.53, GDX 34.58, GDXJ 50.51. 

Dollar

For the first 3 days last week, the Dollar remained a safe haven currency, gapping over resistance UUP 26.88 before succumbing on Friday, ending the week little changed (UUP 26.83). Important support UUP 26.57. A Weekly close under 26.56 turns our 89 line trends negative.

Stocks, Gold & Dollar Commentary February 17, 2020

Stocks

Stocks continued there relentless push higher, gaining another 1.2%, closing once again, at all-time highs for both the Old and New Economy sectors of the market, on the slowest volume in 14 weeks (ex holiday weeks). With the Fed injecting massive amounts of liquidity through the purchase of T-Bills in the repo markets, a huge volume of corporate debt has been floated for the express purpose of buying back stocks. The result: A 20 year low in S&P shares outstanding. This has done very little for economic expansion, but has helped take stocks to nosebleed levels. It’s obvious this cannot go on forever –  with global economic growth the weakest in a decade –  helped along with the spreading of the coronavirus, there will eventually be a day of reckoning. Only, not now, as a recession is likely, at least a year away. So, expect more of the same, i.e. corrections of the 3% -5% variety, as bullish momentum continues to wear down. SPY near term support 332.18. SPY support 327.26.

Gold

Spot gold ended the week $14 higher (1584.10) after trading down to 1564.10, with the high on Friday 1585.80. After completing its mid-cycle consolidation, over the next 30 days we expect spot gold to touch 1670. By mid-year to the 3rd quarter, our price objective moves up to 1800 – 1850. An important correction will then be due, but at this point unsure whether it will come at 1670 or 1800 – 1850.The shares managed to close the week in the plus column, (XAU 102.01) though lagging the metal slightly. Volume continued strong, as the shares appear only days away from a significant break-out to the upside, with key Weekly closes GDX 31.20 and GDXJ 46.20, leading to intermediate term targets GDX 34.58 and GDXJ 50.51. Silver, the most undervalued of all the metals, will play catch-up, with an SLV target 19.22.

Dollar

For the 2nd week in a row, as the coronavirus spread to other countries, the Dollar remained a safe haven, and rallied 1% to UUP 26.78, inching closer to major resistance (26.88). With Chinese large caps actually rallying 2.0% last week, the market is saying the coronavirus will soon be contained, and the Dollar will soon come under pressure.