This mudder was a hair shy of triggering a conventional 'buy' signal at the green line when last week ended. My gut feeling is that the signal will ultimately produce a profit with a move at least to the red line. Why should Mr Market be so kind to us? Don't count on it. More likely is that although the futures will indeed reach the red line, this will occur on a gap through x=33.94 that leaves our bid choking on dust. Even so, we can always try to get aboard by outsmarting the s.o.b. _______ UPDATE (Jan 22, 11:12 p.m.): A gratuitous new low has brought the green line down to 33.92 and the red one to 34.53.
When forecasting stock prices, it helps to view the market as a crazed creature driven by fear, greed, and most of all, stupidity. Of course, everyone but the "theme"-obsessed chimpanzees who purport to manage your money understands that the stock market's heedless ascent into horrifying news is rock-bottom stupid. In this case, the very bad news coming is already known: Treasury borrowing over the next twelve months will dwarf anything that has ever been attempted before. "The volume to be financed in U.S. Government debt is staggering, historically unprecedented, and absolutely impossible," writes my colleague Jim Willie. Nearly $1.6 trillion will be needed to finance outlays for fiscal year 2024, and an additional $7 trillion of maturing debt must be rolled, much of it into paper of shorter duration. "That comes to around $800 billion per month, when $100 billion has been difficult on a monthly basis," Willie notes. It will occur at a time when sovereign buyers of U.S. debt, particularly China, have been dumping T-bonds. The extremely heavy auction calendar portends a sharp rise in interest rates that threatens to crush corporate earnings, create a tsunami of bankruptcies and trip the U.S. economy into deepest recession. The shock of it would be made worse by the brazen statistical lies The Guvmint has fed us concerning GDP growth, hiring and the supposed health of the economy. All have been egregiously overstated in an election year, gobs of bright lipstick on a pig. Triggering 'Stupid' This grim picture, in contrarian fashion, appears to have triggered the 'stupid' factor into overdrive, sending stocks soaring on Friday as though the U.S. and global financial picture were just peachy. How long can this gusher of mass hysteria last? Once again, I turn to a chart of Microsoft shares for the answer. It still
We'll need to be on our guard as the S&Ps frolic in the discomfort zone, just an inch above the then-record highs recorded at the start of 2022. The Mother of All Tops is very likely to come with a series of upward spasms, each of which creates a marginal new high. However, looking casually at this chart, the eye 'wants' to see one of those highs occur on a nasty and distinctive spike that presumably would disembowel the last remaining shorts. This may require a running start from below 4500, and if the futures were to fall to there now, I would still expect one last run-up. Meanwhile, Microsoft seems no less likely to reach the 430 target I've been drum-rolling as a bellwether, even if the process is as fraught as the one I've described above for the S&Ps.
A moment of truth, if not THE moment, likely impends as AAPL rises toward the green line. Assuming it gets there this week or perhaps early next, the stock would become as juicy a 'mechanical' short as we could hope for. If, instead, it gores bears with a move above the pattern's 'c' high at 199.62, that would surely be bullish, notwithstanding the head-fake possibility I've warned about in the ES tout (see above). A third possibility is that AAPL will fall to d=175.31 of the reverse pattern. That would create a bottom-fishing opportunity that we should not pass up, even if the expected bounce proves to be a short-lived last gasp for this aging bull.
Feb Gold's bounce from the green line took time to develop and is still not airborne. But the uptrend should at least reach the red line, validating the strong 'mechanical' buy signal that triggered on the pullback. We are used to disappointment in this vehicle, and impatient about when the long-term bull market will once again shift into high gear. When it does, the next target of consequences above the one at 2184.80 show in the chart lies at 2273.60, a Hidden Pivot resistance derived from a continuous monthly chart where A=681 in 2008.
Silver took a dump after triggering what had looked like a promising 'mechanical' buy at 23.80, the green line. Its February Gold counterpart has held up better and appears primed for a rally to a profit-taking level at 2086, about 35 dollars above Friday's close. Is Silver's recalcitrance a bearish divergence? I doubt it. It is probably just a variation on an all-too- familiar theme of jerking everyone's chain whenever possible. Let's cross our fingers and hope silver plays catch-up with gold in the week ahead.
T-Bonds have fallen moderately so far following a 100.57 top in this ETF vehicle that we'd anticipated precisely with the purchase of put options. The new pattern shown can be used to set up more trades now that TLT has tripped a reverse-pattern sell signal at the green line. There are two possible opportunities in prospect: 1) shorting near x=96.91 with a 'camouflage' trigger to reduce risk; and, 2) playing for a bounce from p=93.26. If you are interested in the more immediate opportunity, please let me know so that I can provide timely guidance in the chat room.
After triggering a conventional 'buy' signal at the end of 2022, this vehicle has gone nowhere as it continues to toy with the green line. If this were a Warner Brothers cartoon, Daffy Duck would stick a bottle rocket up GDXJ's posterior to get things going. Perhaps if we visualize this, something will happen. In the meantime, we'll have to accept the fact that GDXJ is bound to move less energetically than gold futures because, no matter how high bullion contracts go, someone will still have to labor mightily to dig gold out of the ground.
February Crude has been on a 'mechanical' buy signal since early December, when a pullback first touched the green line. The futures have since gone flat, dancing a jig a 'x' that suggests DaBoyz are in no hurry to let it loose. Geopolitical mayhem, including the targeting of tankers in the Suez, has had surprisingly little effect, and we hesitate to ascribe this to ordinary forces of supply and demand. But with China's economy weakening and the U.S. headed as always into recession, perhaps that is the explanation. Crazy world! In any event, the futures have pussyfooted at the green line for long enough that the buy signal, even if still theoretically valid, is no longer enticing. Look for quotes to fall below C=64.21 over the next eight to ten weeks, pulling gas prices down below $3 in most states.
Reader Scott Baker took issue last week with my unsettling prediction of a deflationary bust. The mountain of debts that I believe will cause this is really no big deal, says Baker. He quotes economist Michael Hudson to back him up: "Debts that can't be repaid, won't be." That certainly doesn't sound very menacing. So who will lose if a global banking system holding $2 quadrillion in hyper-leveraged securities implodes? According to Baker, the pain will fall mainly on supposedly sophisticated investors who failed to perform due diligence. And fortunately for them, the damage won't be nearly as bad as I've calculated, he says, since the value of all derivatives is probably less than half of the $2 quadrillion figure that is accepted widely, if not universally. Well, okay, I'll give him a little slack on that. But even if one allows that the size of the market is 'merely' $1 quadrillion, that's still nearly ten times as much as the world produces in goods and services. That can only mean that the collateral backing the market is dangerously thin. Baker believes the economy could survive the hit anyway, but for a reason that sounds like something Yogi Berra might say: 'Because derivatives are on all kinds of things...they literally cannot fail all at once.' A Debt Bomb The clock is ticking on this debt bomb, and optimism is not going to prevent it from triggering. Nor will any of us escape the effects. The late C.V. Myers, whom I've quoted here before many times, has provided the simplest explanation of why deflation is so likely: Ultimately every penny of debt must be paid -- if not by the borrower then by the lender. To understand why, you need only consider that if, say, students skip out on $1.8 trillion
