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.

Bear Pill on Yuan: CNY and XME

After China's revaluation in 2015, the currency weakened despite a general rise in commodities. Since 2017, the currency again was correlated with commodities. A weaker yuan is yet another reason to expect a bearish turn for commodities...or if you expect more disruptions that keep prices high, perhaps the Chinese yuan is finally headed for its big revaluation...

Here is the same with China's FX reserves and some notes.

Darkest Before Dawn? Charts Start Screaming Inflation Again

Is there a similar pattern elsewhere? Yes, in December 2017. XME had formed a small base and then broke out to the upside. It would go higher in January, then chop sideways before falling with the market in the autumn, continuing its slide into the March 2020 low.

My outlook is the same: the broader stock market is in bad shape no matter which way this chart resolves. XME is 40 percent steel, 14 percent aluminum and 18 percent coal and consumable fuels. Gold and silver are only about 17 percent of the fund. This is an industrial ETF sensitive to the economy.

Below is GDX divided by XME. QE has been negative for gold relative to industrial commodities, while the end of QE and has often marked a relative low.

The fact that gold has been looking relatively strong of late tells us what "the market" is starting to price in: another bout of monetary volatility. The pattern since 2008 has been inflationary melt-up followed by deflationary bust and a new round of monetary stimulus. The direction of XME in the coming month or two will tell us if that pattern holds or not.

The Most Important Breakout from Last Week, Maybe

Copper. The base isn't complete yet, but it broke resistance. $3.30 is the next resistance, and then the big one at $3.47, call it $3.50. Once that is gone, the all-time high is in play. I bought jr copper miners/exploers on Friday based on the breakout. However, big warning here: until copper goes through $3.50, it's very possible this move is a repeat of the 2015-2018 move. The global economy is in bad shape. A lot of inflation has been assumed, the dollar bear market has been assumed.

The broader market is experiencing extreme positive sentiment while failing at long-term resitance. I went short utilities last week and my Nasdaq short is still positive, still below the November 8 overnight high in the futures market. It's also hasn't exceeded the September all-time high.

What I'm not sure of today is whether a top in the market will be inflation driven or deflation driven. If inflation, it's possible short Nasdaq and long copper miners will produce two winners. If deflation, copper miners will reverse. If the "goldilocks" of Fed printing amid a depression keeps working, copper works and bearish trades fail.

On the fundamentals, inflation arguments have failed for 9 years. It has been a bear market for commodities. The death of dollar has been happening for the past 20 years. I've always maintained those arguments will be proven correct eventually, but there are only hints of it happening right now, not reality. Almost all the people arguing for inflation are making the same argument they've made before, while the real economy is stuck in the same trap. Credit growth is not rising outside of government. Supply disruptions are not inflationary in the long-term unless there is money creation backing it up. Without money creation "monetizing" the price increase, it causes deflation. The potential change is politics. If the governments of the world continue running up fiscal deficits that are monetized via the central bank, then there may be inflation moving forward. Private credit growth will turn higher with inflation or governments will run ever rising deficits as the economy collapses amid currency devaluation. Forecasters of high inflation are putting the cart before the horse though. In the U.S., the Republican Senate is back on an austerity kick now that deficits aren't funding defense and tax cuts. Any negative hit from "austerity" will hurt Biden and because voters tend to vote straight tickets more than before, if voters want to punish Biden in 2022, they'll give control of the House back to the GOP.

The other piece of the puzzle is the most important chart in the world, the U.S. dollar. A breakdown in the greenback will fuel price increases whether they're fundamentally warranted or not.

XME Another Look

Threw down a hoirzontal at $29.28. A dip towards former resistance around $25 or support at $23 would not invalidate the potential inverse head-and-shoulders pattern.

Emerging Markets Reversal at Top, SPY Fails Again, XME Looking Shortable Soon

Last week I posted the failures in major indexes. I missed emerging markets, the EEM fund also reversed lower after breaking its old high intraday. SPY has failed again. More interesting is XME because if it fails around $30 it will signal the inflation narrative is taking damage. Copper is also a failed breakout at the moment. Of the major indexes, I'm mostly short the Nasdaq, specifically the NDX via QQQ, with a small short in the Russell 2000.

Copper Miner Reversal Or Doom

If the copper miner ETF fell out of the triangle pattern again, a termination of the move after a loss of about 10 to 15 percent would opent the door to another inverse H&S pattern similar to the one in 2016. However, the broader mining ETF is threatening a move more on the order of 40 percent if it can't retake the horizontal.

After All That We've Been Through, It All Comes Down

Well, here we are again
I guess it must be fate
We've tried it on our own
But deep inside we've known
We'd be back to set things straight

Another Breakout Chart: XME