Market Tactics For A Golden Smile

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Published : November 13th, 2018
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So far, the “traditional Thanksgiving rally” in the US stock market looks more like a rancid Thanksgiving turkey that belongs in the trash can.

Many investors appear to have bought the US stock market when it was peaking mainly because of their enthusiasm for President Trump.  They forgot about the business cycle and the Fed and are now paying a heavy price for that folly.

Defensive stocks were mostly unchanged or higher yesterday, while growth stocks again sold off with a vengeance.

While the year-end rally may be “on the rocks”, it can still happen.  This is the Dow Industrials ETF chart.

There is a nice inverse H&S bottom pattern in play.  It features a high right shoulder, which is quite positive.

Having said that, the market needs to begin rallying almost immediately.  That’s because many institutional investors are beginning to get quite concerned about the horrific start to their predicted year-end rally.  Further price weakness will only bring more concern.

What about gold?  Well, gold has performed decently in the face of the stock market meltdown, but gold price discovery is mainly related to physical market demand.

That’s been decent in India, but a bit weak in China.  The SPDR fund tonnage change is basically neutral.

Gold demand in China will strengthen in December as preparations for Chinese New Year begin.

Unfortunately, the weak Chinese stock market will likely keep a damper on gold demand until then. 

The price action in the gold market is really quite mundane.  It’s a perfect reflection of current physical market demand versus supply.

Most consumers in the West don’t want to admit they are horrifically addicted to debt.  It’s much easier to look for an external scapegoat like diligent gold-oriented Chinese savers.

Former Fed Chair Yellen “tells it like it is”.  The good news is that the G20 meeting is just two weeks away, and there could be discussion of the dollar at that meeting.

Trump may cancel plans to impose more dollar-positive tariffs on China.  He may also soon reverse some tariffs he imposed on Canada.

Global stock markets and gold could both rally if Trump throws in the white tariffs towel as I predict he will.  A G20 statement about lowering the dollar could send the price of gold soaring.

In contrast, if nothing changes with tariffs or the dollar, gold is likely to simply muddle along until Chinese New Year demand takes “centre stage” for price discovery.

This is the key GDX chart. There’s no question that GDX and most of its component stocks have performed admirably during the ongoing US stock market meltdown.  Most analysts thought a stock market crash would produce horrific GDX crash.  That didn’t happen.  In fact, GDX rallied on many days that the stock market crashed.

Having said that, a daily chart H&S top pattern is now in play.  The technical action is in sync with modest physical market demand for bullion that is a bit less than supply.

At my swing trade service, traders have been short GDX for about a week, and are now happily booking partial profits into the decline based on my key signals.

This is the disappointing SIL chart.

With tariffs and US government and consumer debt worship putting upwards pressure on yields, the dollar, and the stock market, silver stocks are taking it on the chin.

Swing trading, put option insurance, and lots of Aussie miners in the portfolio…  For most gold and silver stock enthusiasts, this is the most sensible approach to managing the current situation.  A positive G20 meeting could turn things around for gold, silver, and stock markets, but at this point a positive outcome is anything but a “done deal”.

This is the fabulous Evolution Mining chart.  Recent “Graceland System” buy and sell signals are highlighted.  Evolution is now Australia’s number three gold producer.  The price action is clearly outstanding, especially when compared to most North American miners (Barrick is a great exception that looks solid). 

With a calm view of demand versus supply, some great swing trades, put option insurance, and a portfolio weighted with key Aussie players, most precious metals investors should now be sporting a decent golden smile!   

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Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am-9am. The newsletter is attractively priced and the format is a unique numbered point form, giving clarity of each point and saving valuable reading time.
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