Central banks, the stock market, and gold When the pillars of the asset category that must be defended the stock market begin to crumble, the central banks always come in with policy guns a blazin. And again, continuing with policies never imagined before QEs, ZIRPS, and NIRPS. Game s on. If you, as an investor or manager, thought CBs had plateaued in their policies of the recent decade, think again. Despite their academic nose-in-the air press conferences, the reality is that their stock markets must always remain inflated. Although couched in such language as data sensitive or Draghi s the persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets, the CBs message is clear. Rattle their stock markets and they ll intervene in asset pricing as best they can. And given the success of that artificial pricing over the past decade, they re no doubt confident they ll continue to succeed. And so do many investors. On the financial channels, investors and talking heads consider a likely renewal of easy central bank policy good for the stock market. No doubt President Trump is also pleased by Powell s sharp reversal. The CBs know they must push the pedal to the metal again. But the problem is that investors aren t likely to direct the flow into the inflated bubble that the CBs so desperately want to keep inflated namely, the developed market stock indices. The Fed, ECB, and BOJ know what will happen if those plaster and plywood skyscrapers crumble and give back their false pricing gains (especially from late 2011 to 2018). Such a downturn in that category will generate on-the-ground desperation and fracturing beyond anything seen in 2008. And they know that, though don t mention it in their press conferences. That s why the Fed raised its white flag so rapidly and with such little encouragement in December, thus rejoining the print into infinity policy. Nice. We know where they stand now. M a r c h 1 0, 2 0 1 9 But for those who do their homework, we know such periods of central bank panic don t always turn out like the prior cycle. Remember or go back and study the mid-1970s to early 1980s. Recall the 2001/2002 and 2008 collapses which occurred despite desperate the CBs monetary defense mechanisms being deployed. Their favored markets failed and investors went elsewhere. This time we argue it will be a similar investor preference shift, one that s already underway. We argue that the investor class will move in phases into value categories, into categories that are more down to earth (quite literally), and into gold and related. And, for the time being, into a few government debt markets that offer some yield, such as U.S. government Notes and Bonds though don t count on Major evolution in technical research since 1992 Momentum Structural Analysis, LLC. michaeloliver@olivermsa.com For MSA s history and an introduction to its methodology visit: www.olivermsa.com
03/18/2016 04/29/2016 06/10/2016 07/22/2016 09/02/2016 10/14/2016 11/25/2016 01/06/2017 02/17/2017 03/31/2017 05/12/2017 06/23/2017 08/04/2017 09/15/2017 10/27/2017 12/08/2017 01/19/2018 03/02/2018 04/13/2018 05/25/2018 07/06/2018 08/17/2018 09/28/2018 11/09/2018 12/21/2018 02/01/2019 03/18/2016 04/29/2016 06/10/2016 07/22/2016 09/02/2016 10/14/2016 11/25/2016 01/06/2017 2/17/2017 3/31/2017 5/12/2017 6/23/2017 8/4/2017 9/15/2017 10/27/2017 12/8/2017 1/19/2018 3/2/2018 4/13/2018 5/25/2018 7/6/2018 8/17/2018 9/28/2018 11/9/2018 12/21/2018 2/1/2019 MARCH 10, 2019 M S A PAGE 2 that category sustaining through the next bubble burst. We begin with gold. 1400 1350 1300 1250 1200 1150 1100 20% 15% 10% 5% 0% -5% -10% -15% 40 w k. avg. This line goes back to 2014, plotted through peak weekly closes. Gold weekly Bear market low at $1046 in late 2015 long-term : weekly ranges vs. 40-wk. avg Our metrics turned majorly positive in February 2016 just above $1140. But that s rehashing an old story a buy signal based on annual (charts not shown here). Gold then went into a massive threeyear-wide range, never threatening the bear lows at $1046, but undulating up and down from 2016 until now. Then, after last summer s selloff, MSA said to buy in the $1200s three times (the average of those three layered entry levels was just above $1240). The runup that came from the summer 2018 low drove north almost without a wobble into the mid-$1300s, once again visiting a chart trend line that traces back five years. Those who sold that line three weeks ago no doubt thought they d enjoy another major drop as occurred in late 2016 or last summer. MSA thinks that game is old and about to be rudely overturned. Last week s close was marginally up from the prior week, and frankly gold looks poised to soon make another push to the mid-$1300s. We argue that the major bullish technical that you should consider is that long-term is out above resistance, having earned its way in layers. Expect to soon overcome its resistance line, echoing its own long-term. Short-term: Expect the next few days to exhibit congestion action up and down without trend. After that, perhaps by later in this week or next, we ll expect further gains, but not early in the week.
10/09/2015 2/24/2017 5/19/2017 8/11/2017 11/3/2017 1/26/2018 4/20/2018 7/13/2018 10/5/2018 10/09/2015 2/24/2017 5/19/2017 8/11/2017 11/3/2017 1/26/2018 4/20/2018 7/13/2018 10/5/2018 spread 10/09/2015 2/24/2017 5/19/2017 8/11/2017 11/3/2017 1/26/2018 4/20/2018 7/13/2018 10/5/2018 10/09/2015 2/24/2017 5/19/2017 8/11/2017 11/3/2017 1/26/2018 4/20/2018 7/13/2018 10/5/2018 spread MARCH 10, 2019 M S A PAGE 3 70% Gold versus S&P500 relative performance 65% 60% 55% 50% 45% 40% Gold weekly closes vs. S&P500 weekly closes 40-w k. avg. The backbone of gold s underperformance over the past few years was snapped on both charts with action late in 2018. Not only was the S&P500 selling off then, but gold s net was rising. Meaning the spread was working on both sides, favoring gold. The recent pullback is largely due to the S&P500 rally, not so much to gold s decline. But the pullback (and treat these charts as you would a chart) is to support. 15% 10% 5% 0% -5% -10% -15% long-term weekly spread closes vs. 40 week average Gold miners relative performance The situation echoes gold s: an emergent shift in long-term relative performance (the 40-wk. avg. as is equivalent to the 3-qtr. avg.) favoring gold miners. 1.6% 1.4% 1.2% 1.0% 0.8% GDX weekly closes vs. S&P500 weekly closes 40-w k. avg. 0.6% 0.4% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% -0.1% -0.2% -0.3% -0.4% long-term weekly spread closes vs. 40 week average
1/31/1975 7/31/1975 1/30/1976 7/30/1976 1/31/1977 7/29/1977 1/31/1978 7/31/1978 1/31/1979 07/31/1979 01/31/1980 spread 01/31/1975 07/31/1975 01/30/1976 07/30/1976 01/31/1977 07/29/1977 01/31/1978 07/31/1978 01/31/1979 07/31/1979 01/31/1980 01/31/1975 07/31/1975 01/30/1976 07/30/1976 01/31/1977 07/29/1977 01/31/1978 07/31/1978 01/31/1979 07/31/1979 01/31/1980 MARCH 10, 2019 M S A PAGE 4 120 115 S&P500 monthly (1975-1980) From the archive: Central bank, stocks and gold 110 105 100 95 90 85 80 75 70 The Fed fought the 1974/1975 recession with massive rate cuts (from 13% Fed funds in July 1974 to 4.75% by November 1976). Also, M2 rose 65% in just five years from January 1975 to January 1980. Meanwhile, the S&P500 went into an investor wasteland until 1982 (not shown). 900 800 700 600 500 400 Gold monthly (1975-1980) Fed policy created a river of easy money, but investors put it into gold and later commodities. (After all, stocks had enjoyed a massive upside from the 1960s until the mid-1970s, and that was probably also a factor in the investor preference shift.) 300 200 100 600% 550% 500% Gold monthly closes vs. S&P500 monthly closes 450% 400% 350% 300% 250% 200% 150% 100%
MARCH 10, 2019 M S A PAGE 5 Also, from 2000 to 2011, gold vastly outperformed the S&P500. This outperformance occurred despite the Fed s efforts to defend the stock market from summer 2007 through the 2009 bear low. And remember the beginning of QEs in late 2008 onward (forever?). At that point, after a 57% collapse, the S&P500 did finally respond to central bank policies. But even then through late 2011 gold continued to widely outperform the S&P500. It wasn t until gold s bull trend had matured and no doubt d itself, that gold began to give back performance gains. In sum, don t believe the popular wisdom that easy central bank policy is good for the market. It often has no noticeable impact, especially if the stock market has only just crested following years of upside. And even when stocks suffer major decline and are then technically ripe for upside, gold has still shown the ability to gain more from the river of easy money. We re on the cusp of another such period of market history. Renewed central bank low rate/easy money policy is Good for the gold market!
12/03/2018 12/10/2018 12/14/2018 12/20/2018 12/27/2018 01/03/2019 01/09/2019 01/15/2019 01/22/2019 01/28/2019 02/01/2019 02/07/2019 02/13/2019 02/20/2019 02/26/2019 03/04/2019 03/08/2019 12/03/2018 12/10/2018 12/14/2018 12/20/2018 12/27/2018 01/03/2019 01/09/2019 01/15/2019 01/22/2019 01/28/2019 02/01/2019 02/07/2019 02/13/2019 02/20/2019 02/26/2019 03/04/2019 03/08/2019 MARCH 10, 2019 M S A PAGE 6 3000 2900 2800 S&P500 daily S&P500 short-term MSA had been watching 10-day avg. and 3-wk. avg. for a daily/shortterm downturn in the market. 2700 2600 3-w k. avg. Our trigger numbers on both were pulled at Wednesday s close at 2771.45. 2500 2400 Again, that s a short-term negative indicator. 2300 200 150 100 50 0-50 We suspect that at least for this week resistance is probably up around the 2770 area and support just above 2700 (let s say around 2710). So if you re trading short-term, consider that. Whether this decline will morph into something larger, we re not sure. -100-150 -200-250 -300 weekly : daily ranges vs. 3-wk. avg. For a longer-term view, see the next page.
02/12/2016 05/06/2016 07/29/2016 10/21/2016 01/13/2017 02/24/2017 04/07/2017 05/19/2017 06/30/2017 08/11/2017 09/22/2017 11/03/2017 12/15/2017 01/26/2018 03/09/2018 04/20/2018 06/01/2018 07/13/2018 08/24/2018 10/05/2018 11/16/2018 02/08/2019 02/12/2016 05/06/2016 07/29/2016 10/21/2016 01/13/2017 02/24/2017 04/07/2017 05/19/2017 06/30/2017 08/11/2017 09/22/2017 11/03/2017 12/15/2017 01/26/2018 03/09/2018 04/20/2018 06/01/2018 07/13/2018 08/24/2018 10/05/2018 11/16/2018 02/08/2019 MARCH 10, 2019 M S A PAGE 7 3000 2900 2800 2700 2600 2500 2400 2300 2200 2100 2000 1900 1800 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% S&P500 weekly 36-mo. avg. annual : weekly ranges vs 36-mo. avg. S&P500 annual : close up Here we look at long-term but only over the past three years. The uptrend that began at the 2016 lows was violated in October 2018. The consequent drop held at the 2016 oscillator lows (see the next page as well), and by avoiding touching our final trigger of 2311 in December, the market enabled this rally. And quite a rally it is. But it s under violated structure, and despite its stretch, it doesn t even approach the downtrend (immature, we should note) that s plotted through the January 2018 and the September 2018 highs. Note the negative divergence between and at those two highs. In any case, a negative situation despite the rally.
01/30/2009 07/31/2009 01/29/2010 07/31/2010 01/31/2011 07/29/2011 01/31/2012 07/31/2012 01/31/2013 07/31/2013 01/31/2014 07/31/2014 01/31/2015 07/31/2015 01/29/2016 07/31/2016 01/31/2017 07/31/2017 01/31/2018 07/31/2018 01/30/2019 01/30/2009 07/31/2009 01/29/2010 07/31/2010 01/31/2011 07/29/2011 01/31/2012 07/31/2012 01/31/2013 07/31/2013 01/31/2014 07/31/2014 01/31/2015 07/31/2015 01/29/2016 07/31/2016 01/31/2017 07/31/2017 01/31/2018 07/31/2018 01/30/2019 MARCH 10, 2019 M S A PAGE 8 3000 2800 2600 2400 2200 2000 1800 1600 1400 1200 1000 800 600 S&P500 monthly 36-mo. avg. S&P500 annual : large vista Three major up waves in annual is usually all you get. In this case, those waves are very clear. The number of years involved is what most observers note; we note the maturity in terms of the number of distinct waves. Breakage of the third wave to the downside has occurred, implying the last wave is finished. 40% 30% 1 2 3 The only technical point of breakage left is defined by the horizontal floor of readings going back to 2011. 20% 10% 0% -10% -20% We consider any monthly close below the perfectly horizontal trio of oscillator closes of 2011, 2016, and last December to be our final sell signal. -30% -40% -50% annual : monthly ranges vs. 36-mo. avg. We should note that the DAX Index and the Eurostoxx 50 Index (European blue chips) have already violated their versions of that red line structure. For the S&P500, our numbers are: Monthly close for March at or below 2517; monthly close for April at or below 2538; May at or below 2558 takes out the last slat of support, adjusting up by about 1% per month. MSA is monitoring and will adjust these numbers as needed (from April onward the numbers are estimated and thus subject to minor adjustment). Copyright 2019 by Momentum Structural Analysis, LLC Disclosure: There is risk in trading in equity, futures, options and ETF markets. Momentum Structural Analysis, LLC is not an investment advisor or a commodity trading advisor. MSA reports are based upon information gathered from various sources and believed to be reliable, but are not guaranteed as to accuracy and completeness. The information in this report is not intended to be, and shall not constitute, an offer to sell or a solicitation of an offer to buy any security, futures contract, option or ETF or investment product or service. Trading in any market carries risk. Moreover, the risk of loss in trading in futures, options or ETFs sometimes can be substantial, and you should consult with your financial advisors and carefully consider whether such trading is suitable for you in light of your financial condition. The leverage available to individuals trading stocks, futures, options or ETFs can enhance that risk, and can lead to large losses. Past performance of any product discussed herein is not necessarily indicative of future performance. You should be aware that securities and futures brokers and advisors typically charge fees for their services. Accordingly, it may be necessary for your account to enjoy substantial gains in order to realize profits net of fees. The information contained in this report is subject to change without notice. It should not be assumed that MSA s methods as presented will be profitable or that they will not result in losses. The indicators and strategies are provided for informational and educational purposes only and should not be construed as investment or trading advice. Accordingly, you should not rely solely on the information herein in placing any trades or making any investment. Nor should you assume that you will be able to enter or exit markets at s discussed in this report. This risk disclosure statement cannot disclose all the risks and important issues regarding trading equities, futures, options or ETF markets. You should always consult with your licensed financial advisor or other trading or financial professional to determine the suitability of any trades or investments discussed here.