XME/GDX Ratio Says Bear

The 2008 and 2022 patterns are similar. The layered chart has them offset by two months. The 2008 top was at the end of June and this year was end of August. The meltdown started in mid-September. A perfect analog would be a mid-November meltdown.

Support Breaks Galore

Gold hasn't broken yet. Commodities are relatively strong today, I'm down on XLE, FCX and DOW puts. I bought 1 DTE GDX puts in case gold does break though.

Visa and Mastercard look like ServiceNow because they're all in the tech sector. I'm not sure if V and MA will pull tech down, or vice versa, but it's kind of a weird sector with two stocks tied to the consumer and interest rates in with tech companies.

Gold Analog Update: Bomb Bay Doors Open

Two weeks ago: Gold Screaming Deflationary Collapse

If the pattern proceeds as it did in 2011, inflation is going to die so suddenly you'd think it was vaxxed.

The top is now complete. The yellow horizontal added for the 2012 chart maps to the support broken today on GC. Last time, gold fell 14% in two days, including the break day. If the analog is strong, that suggests an extreme down move in gold is possible here.

Miners will follow if gold goes.

Gold Screaming Deflationary Collapse

You can tell me this time is different, but it looks the same to me. If the pattern proceeds as it did in 2011, inflation is going to die so suddenly you'd think it was vaxxed.

Gold miners are retracing the 2020 surge now.

Depending on how long gold bulls have held mining shares, there's either some strong support about 10 percent lower from here, or there arleady is no support if most longs came in after the summer of 2019 when the Fed ignited the gold market with its repo aka stealth QE program.

Gold

If it wasn't for the gold and silver price rising, and having better looking charts, I'd say buying here is bottom-fishing and borderline knife catching. There's still risk that miners get pummeled in a sell-off. Gold, unlike silver, might have made a higher low compared to the March 2020 low.

 

Trade Time

I don't know if the rally will end with a burst of bullishness or if it will lose steam and end with a consolidation pattern, but as I've said in recent posts, now is the time to be window shopping as a bear. Have targets ready in case the bear swiftly resumes.

I come into today with long yen, short oil, long gold miners (in addition to shorter term GDX and GDXJ, I have been adding NEM Nov 55 calls) and short Apple, plus a lot of cash. I will be looking to either day trade the market or buy TLT/ZB on weakness.

For yen, I want to see if we start getting some deflationary signals in the market. I you click the yen tag, you can see the gap between the yen and the spread between US and Japanese long-term govt bonds. If there is deflation that drives interest rates lower, the yen can theoretically return to form as a deflation winner. If inflation will kill the market, then the yen's run could peter out this month. Additionally, this relationship need not hold longer-term because it wasn't this strong in the past. The relationship between the bond spread and yen was tight this year because the move in bonds dominated financial markets.

I've talked about the oil analog before. A strong analog would have seen oil drop last week. Instead, it popped to $101, and now WTI tagged a $93 handle. As I'm typing, CL has reversed $8.39 per barrel from Friday high to Monday low. The waterfall decline starts below $90 per barrel.

Apple was mainly a tactical play on a market pullback. I could be out of it this morning. I will likely take a short position for the next leg down in the bear market though. I have it because I'm mostly in cash with little equity exposure either way right now.

I'm out of most TLT calls, but I think gold miners offer similar exposure here. I expect gold will rally with ZB, though it probably won't be step-for-step on most days.

Gold Bugs, Inflationists Body Slammed

What caused the spike from March 2020 to August 2020 in GDX? What caused the implosion since April 2022?

Is the bottom in for gold yet? No. All the gold bugs and inflationists think inflation is roaring. In reality, the economy in plunging into a deflationary abyss. They will panic sell when the deflation comes into full bloom. The gold mining shares will implode like Newmont did today. Selling will be relentless. There will be total revulsion. Then if you are smart, you will be buying. Days to weeks later, the Fed will make its major pivot and restart the economy's inflationary engines.

Related: 

Walmart Plunges, Drags Down Market, After Slashing Profit Outlook, Blames Fuel Costs

The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars. We’re now anticipating more pressure on general merchandise in the back half; however, we’re encouraged by the start we’re seeing on school supplies in Walmart U.S.” said Doug McMillon, Walmart Inc. president and chief executive officer.

The plung on the chart includes the 8 percent after hours drop. Whether it holds, we'll find out tomorrow.

A generalized rise in prices is a hallmark of inflation. A localized increase in food and energy that triggers collapsing spending on everything from gold to consumer items, is the hallmark of not-inflation. If your monthly bills are going up and you don't have more money coming in via inflated wages or inflated credit usage, then there is no generalized rise in prices. There is a giant "food and energy tax" on the economy. The Federal Reserve's answer is to tighten monetary conditions such that rising debt costs join fuel and food in soaking up spending. Eventually, the Fed will stop tightening, but will they ease? Not as long as oil prices remain high. The economy could well be on its own, at least until a deflationary collapse similar to 2008 causes an implosion in food and energy prices.

Long Gold Miners

I bought Aug $29 strike on GDX. Expecting a fast move. GDX bounced off a long-term horizontal support. Note: this very likely will move with TLT. Long bonds have not participated in the rally yet though.

Update: Here's an interesting buy signal: the GDX-GDXJ ratio. GDX would sink for another six months in 2015 though, and wouldn't rally off low until January 2016. That said, it did rally 22 percent immediately after tagging the line.

Buying Yen Like a Madman

Also buying Sept GDX $35 strike calls for 22 cents.

Took profits on TLT calls.

Took some profit and bought more USO puts, a little farther out of the money. My other puts are already in the money.

Long SPX, What Will 2Q GDP Bring and Destroy CL

I am long the S&P 500 Index here. Still short oil and long gold miners. My stop on the SPX is around 3900, the low of the day.

I wanted to make a note on GDP because I've talking about the high risk of recession with inflation rising. At the current Atlanta Fed forecast of 0.9 percent growth, that is within range of a negative print should inflation (via the BEA's deflator calculation) come in hotter than anticipated. However, there was another component to the GDP miss in Q1: a terrible widening of the trade deficit. Since imports are made overseas, the model deducts imports from final GDP. If Wal-Mart sell $100 of Chinese crap that cost $80 to import, only $20 stayed in the USA and qualifies as domestic U.S. economic activity.

I've talked about how inflation is dollar bullish because Japan and Europe and China import commodities. For the U.S., if consumers buy less imported consumer goods because they have to spend more on food and energy, most of which is domestically produced, that is highly positive for the exchange rate (not the currency's intrinsic value) along with GDP. 

Back in 2008, imports collapsed during the recession. All that did was hide the extent of the slowdown. If the economy doesn't repeat the 2008 scenario, then it is possible the plunge in imports already underway could keep GDP positive and avoid a recession print. That doesn't mean it still won't be revised into recession next year, but that is something that will depend on how crude oil behaves moving forward.

Finally, I have been banging on about oil all year and using CL as a cheat sheet for inflation, and here's David Rosenberg explaining it another way:

This is a great tweet for all the conspiracy-minded people out there who think the markets are manipulated by the Federal Reserve and the government. What is the obvious play here? Kill the oil market and inflation slides to around 4 percent. Look at where oil was a year ago and where it will be "a year ago" in September. A decline of 30 to 40 percent in crude oil will eliminate most energy inflation, as long as the bottlenecks in gasoline, diesel and natural gas also ease. Not a guarantee, but probable if oil tumbles. The Fed is about to implement QT2 at the near-maximum rate that QT1 ended on. Crude oil fell 44 percent when QT1 hit the $50 billion per month maximum.

Nothing is guaranteed, but there's a clear story for peak inflation if the crude price declines because signs of economic slowdown are everywhere. The Federal Reserve needs the guts to hammer crude oil with a tightening. They don't have the guts, but crude is already selling off on today's hot CPI report because the market expects the Fed will act more boldly. One bank already called for a 75 basis point hike. In sum, I see the 2022H2 trade of short energy as underway.

Finally, I mentioned long gold earlier. There is now a bullish engulfing candle on GDX. It has to close above $32.15 for this engulfing candle to hold, preferably it would close higher.

Time to Short Energy Again, Long Miners Again

The blind spot for stock bulls was the idea that the Fed would pivot or pause because of a recession. My position has been that inflation will cause the recession and the Fed will have to hike to stop inflation and the recession. This means interest rates go up no matter what the economy is doing, until inflation comes down. This moment of recognition is slowly emerging now. The asset class most exposed for a shift in sentiment is the energy sector and other high-volatility areas of the market. Fertilizers are topped or in a topping process and look prime to drop too.

XLE has been a juggernaut, but the turn is where the big money can be made. When it reversed, it will be a blistering and relentless plunge. I bought montly puts that expire next week, the $89 strike.

I added some July 70 puts on USO. Those are way out of the money, but that's the scale of the move that could unfold. I will dump those early if crude doesn't rapidly collapse.

I also added more Sept $35 GDX calls this morning. I had trimmed the position down to a small lot, and built it back up today. More of a hunch than anything else. The charts aren't looking good frankly, and there could be one more plunge left. There is some similarity between 2016-2018 and 2020-now, and that ended with a big sell-off in August 2018 ahead of the broader market's plunge-o-rama during QT1. Therefore, it could be that gold miners also sell-off here, but if QT2 hits like a Mack truck immediately, then gold miners might already be through the worst of the macro.

Update: I saw another trader looking at gold and oil. It is right where it was in September/October 2018 when QT1 hit like a Mack truck.

Cashed Up for the Week

I'm long GDX, TLT. Have some puts on AMR riding the Spruce Capital play. Otherwise mostly cash. Will be looking to add consumer finance shorts this week, DFS looking like my first choice. I keep going back to the well on MA, V, MCD, POOL those are all going to be beauteous shorts at some point. Eyeing XLE, SMH for sectors. Still like crypto carnage plays like SBNY. Also looking at adding ZN (futures) calls way out in December.

The S&P 500 could get to 4100 area. Not a forecast, but I'm watching to see how the market reacts. If the lows aren't taken out, odds of a bounce increase.

BTC could run to $40,000 in a general bounce.

The ES is lokoing diamondy this morning. The move out of this pattern should be a powerful one.

My read in the very short-term is the bears have to put up or shut up. They take out the lows and the bottom drops out on this market, or the bulls are going to meander this higher with or without a squeeze. It doesn't mean the low is in, only that this potential breakdown moment has passed.

Wacky Day

I'm mainly short via UVXY calls now. Still holding a position in TLT, started buying calls on GDX and down on those so far, but they are out in September. A capitulation sell-off should send VIX sharply higher. Otherwise, maybe I was only early on the rally and it comes in tomorrow.

More Calls, Closed Others

I bought GDX September $35 calls. I also have some lotto ticket calls on the SLV $20 for next week. I closed out IWM and AAPL.

Silver Miner Update

Back in February, I said the low was in on silver. The silver miner ETF (SIL) bottomed on January 28. The first candle below is from the day of the post.

Relative to gold miners, silver miners only started outperforming in April.

The big upside will begin when SLV clears $28 per share.