It’s All About Buying Those Dips

GDXJ looks all but certain to achieve the 54.92 target shown in the chart. The gap opening through p=48.39 on January 30 was an encouraging sign, and the more recent dip below the red line (p=48.39) was also impressive. since it triggered a so-far profitable buy there. We usually initiate ‘mechanical’ trades at the green line, but when the trend looks especially robust, there’s a risk of missing the opportunity by not stepping up to the next level.

TLT has broken out with a stab on Friday that not only penetrated a major midpoint Hidden Pivot resistance at 92.04, it also closed above it. If the uptrend continues for another day or two, it will affirm the likelihood of more upward progress toward p2=95.62, the ‘secondary pivot’.  I was skeptical about the strength of the trend earlier because discrete thrusts were not exceeding ‘external’ peaks on the daily chart. But the uptrend’s resilience has been affirmed by a corresponding move lower last week (see my TNX ‘tout’ below)  in 10-year yields beneath a crucial support at 4.24%. ______ UPDATE (Mar 7):  The breakout was short-lived, but because it generated a true impulse leg by exceeding two prior peaks, one of them internal, the other external, bulls deserve the benefit of the doubt. If another strong leg is coming, this retracement should find traction at either 89.47, a few ticks beneath last week’s low, or at  88.08, my worst-case, smackdown low.  Here’s a chart to orient you. 

Time for a tone change. This is a tough call, since I’ve been a hard-core deflationist since the mid-1970s after reading a persuasive book by the late C.V. Myers, and later another, The Great Reckoning, by James Dale Davidson and Lord William Rees-Mogg. Myers’ thesis was that the endgame for the epic credit blowout of the last 40 years would feature a dollar so strong that all who owed them would be crushed by imploding debt. The implied tsunami of bankruptcies would be even more devastating than the 1930s experience, wiping a dozen zeroes from the global balance sheet. The resulting shortage of dollars would become the catalyst for a Second Great Depression from which it would take a generation or longer to emerge. I still believe this is how things must end. But not now. Trump, who is verging on political omnipotence, clearly favors a weak dollar, and this will hold the coming bust at bay for a while. But the chart suggests the dollar is tough enough to stand up to such moderate debasement as Trump’s patriotism and nationalistic pride can abide. I have adjusted my outlook for the dollar accordingly: Look for weakness down to the range 95-100; then, an explosive rally that will end inflation for 60 years.

Ten-Year yields have been pounding on a ‘hidden’ support at 4.430% for more than two weeks, presumably getting ready for a drop to exactly 4.242%. A tradable rally from that Hidden Pivot support looks like an 80% bet, but if it eventually gives way, look for a further fall to 3.959% or even 3.675%.  By all means, jot these numbers down if you care about where long-term interest rates are headed, since charts can predict them far more accurately than the dartboard guesses you’ll get from Bloomberg’s talking heads, The Economist, The Wall Street Journal, the punditry, Fox Business News, MSNBC et al. ______ UPDATE (Mar 1): Rates have slipped beneath my initial target at 4.242%, closing last week at 4.231% off a 4.214% low. This implies that the downtrend is taking hold and could accelerate to fulfill the second target at 3.959%. It has also made achieving that target more likely.  ______ UPDATE (Mar 7, 6:31 p.m.): Yields on the 10-Year Note took a strong bounce last week, but it wasn’t sufficient to power through the gap created by Feb 25’s downdraft. This will add to the downward weight of the chart, but I’d like to see a two-day close beneath the red line before I infer that more slippage to 3.959 has begun.