Silver Entering Ludicrous Mode

July 26, 2020

Weekly Market Outlook

By Keith Schneider


blank** This week both Mish and Keith reviewed the big picture together. Market Outlook video contributed by Keith.  

Equity markets stalled with all the key US indexes closing down, reversing a strong start for the week. The sell-off was led by the NASDQ 100, down -1.49%. The one exceptional move was in precious metals which broke free of its shackles of trading in lockstep with equities, led by silver that rose + 17.7% for the week. It was the biggest weekly move in over 40 years!

This sort of reminds me of the days on the floor of Comex during the start of the Hunt Brother’s attempt to corner the silver market.  It is the wakeup call of a decade’s long slumber. The core fundamental drivers are even bigger and more powerful than what happened back then.

Fed/Central Banks easing and global fiscal policies are at extremes (the ultimate outcome ending with the concept of Modern Monetary Theory) that could make the 70’s inflation look tame.

If one extrapolates just based on recent history, (not the 1970’s but 2011), silver could be 7 times higher than its current price relative to equities. If the belief that the Central Banks have lost control (or their minds) becomes a given then “Katy bar the Door” as there will be no stopping those Robin Hood traders from loading up on precious metals which will make the run-up in Tesla look like a practice session.

In the world of large cap and tech stocks, Friday was an interesting trading day.

Lots of those stocks touched down on their 50-DMA.

To name a few: JD.com JD, Baidu BIDU, IQ, Netflix NFLX and Microsoft MSFT.

With sentiment or risk on/off gauges flashing bearish, these big guns are at make or break points for Monday.

Any of these could leave more distance between them and their 50-DMA.

Or they can easily break them and lead the whole market significantly lower.

After enjoying a week or so of low volatility, the past week ended with fear returning, thereby forcing traders to pay more attention.

The dollar declined even further, while the metals-gold, silver, palladium, copper, and platinum held gains or posted more gains.

The 20+ Year Treasury Bonds also rallied, however right into key resistance.

Bonds may not turn out the traditional safety play one would expect given the turn up in commodities and the turn down in the greenback.

And also noteworthy is that Junk Bonds JNK, rallied Friday closing above the 50-week moving average. This is the best example of “Don’t Fight the Fed!” (especially ahead of the Fed meeting)

Yet, quietly, reliably and clarifyingly, our Economic Modern Family will help us decide what to do this coming week. A week by the way, with lots of earnings on tap.

Before we get into the Family, I did two sessions for StockChartsTV last week.

Your Daily Five goes into the Robin Hood Traders and some of the list of stocks they have bought. Plus, I cover the growing megatrend of Socially Conscious Investing.

On Friday, I did a session called, Suffer from Fear of Missing Out? 

The segments are as follows:

Buying Late to the Party
Buying a Falling Knife
Managing a Stop Loss
Managing Profit Targets
Deciding on a Trailing Stop

Now back to the Family.

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Granny Retail is doing the heavy lifting, which is amazing considering XRT (mainly brick and mortar) has lagged for years.

Granddad Russell 2000 IWM failed to close above the 50 and 200-WMAs. It will come down to who is stronger for the whole market, I believe. Can XRT drag IWM up or vice versa?

Big Brother Biotechnology IBB proves the harder they are, the harder they fall. However, unless it breaks below the channel line, this is a healthy correction.

Prodigal Son Regional Banks KRE gave the market a pass by not breaking down completely. The question now though, is can banks hold the recuperation phase and move up further?

Our Tran, Transportation IYT, touched but could not clear the 50-WMA on a closing basis for the week. But it was an inside week. That means there is a lot of room down, and if Granny and the big gun stocks hold, a potential for it to clear the last 2 weeks highs.

Sister Semiconductors SMH did exactly what I wrote about a week ago-“The top of the channel comes in at 165-168 serving as resistance… if SMH gets to the top of the channel, cannot clear, and begins to turn lower, I would have no issue going short into failed strength.”

It seems relatively simple to me.

Watch Retail. Watch the NASDAQ stocks that retraced to their 50-DMAs. Watch JUNK bonds and the dollar.

If they all hang in there, do not get sucked into the headlines.

If the dollar falls much further, or any of these others cannot hold, perhaps the punch has truly worn off.

This week’s highlights are the following:

  • Risk Gauges Flipped to Negative
  • NASDQ100 closed at 3-week lows as its market internals weaken
  • XRT (Retail Sector) held up well with leading sectors IBB (Biotech) and SMH (SEMIS) losing steam
  • Weekly Momentum in 3 out 4 US Equity Benchmarks hit Resistance
  • IWM Closed under key weekly moving averages
  • Precious Metals diverged from Equities and closed on multi year highs
  • US Bonds quietly gathered steam for a blow off rally
  • Dollar is on verge of a major breakdown on weekly charts
  • Volatility held lower trading bands and bounced (Bearish)


Stay Safe and Best Wishes

Keith

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