| The US stock market continues to gyrate wildly with many key Dow Index stocks staging truly horrific meltdowns.
This market is beginning to look eerily like the bear market that started in 1929. Instead of buying stocks while the business cycle troughed as Barrack Obama was elected, many investors appear to have bought maniacally after Trump was elected at the peak of the cycle.
Some of these investors morphed into frenzied price chasers as 2018 began and now they feel only pain. It’s a horrific situation. Can it be reversed?
 
Donald “The Golden Trumpster” Trump appears to have sold a lot of his stock market holdings in 2014-2015. He invested some of the huge profits in hedge funds that have little correlation with the stock market.
Unfortunately, most of his fans didn’t follow him, and they are feeling intense pain, partly because his freight train approach to tariffs is now pounding many of their stocks into bear market territory.
These tariffs are creating a surge in the dollar that is weighing heavily on US exporter earnings and causing the trade deficit to spike higher.
This is happening as US government debt soars like Icarus, which is putting intense pressure on bond market yields. The rancid stock market cake is being iced with a Fed that is ramping up QT (quantitative tightening).
Corporations are starting to abandon stock market buyback programs and workers are demanding higher wages. Of prime importance, modest goods deflation is set to be overwhelmed by service sector inflation.
Some mainstream money managers and analysts already appear to be terrified and are talking about “2008 again”.
They are using the Fed as a scapegoat, but they don’t seem to realize that the general US economy is still strong. It’s just the stock market that is incinerating, not Main Street, and rightly so.
Jay Powell and his “crew” at the Fed are not going to stop quantitative tightening. Jay is not interested in stopping rate hikes, especially with service sector inflation set to spike higher. Jay himself has stated publicly that he doesn’t pay much attention to the US stock market.
I predicted this bizarre disconnect between Wall Street and Main Street would happen, and now it’s here. This is the key daily gold chart.
Gold has once again proved itself as the ultimate safe haven while global stock and bond markets have collapsed. The next move for both stocks and gold will likely be determined by whether Trump can save face and get a trade deal with China…
Or whether China balks at any deal, and Trump is forced to unleash more tariffs that send the US stock market careening lower.
Even if Trump gets a trade deal, that really doesn’t matter because US corporate earnings are peaking. The bottom line: A trade deal would likely send the dollar tumbling, and a new round of tariffs would likely create another stock market meltdown.
Both scenarios are good for gold!
In the short term, I’m a modest gold buyer at $1185 and $1165 and a modest seller at $1245 and $1265.
In the short-term I’m looking for a bear market rally for the US stock market.
There’s a potential bull wedge pattern in play. Bear market rallies tend to be violent and stun many investors with their intensity.
A trade deal announcement and post-election calm could see the Dow rise towards its all-time high or even exceed it, but the Transports index is unlikely to follow and market breadth could be horrific.
As I predicted, GDX has performed incredibly well in the face of the intense sell-off in the US stock market.
There’s an upside breakout from an inverse head and shoulders bottom. A possible flag pattern formed but failed, and a pullback to the neckline area of the bottom pattern is in play now.
As long as GDX can hold above the left and right shoulder lows at about $18.15 the most likely scenario is that a rally to major resistance at $21 will quickly occur.
Nervous investors should hedge any buying of GDX or individual gold/silver stocks with GDX put options. Howard Cosell once said during a wild heavyweight boxing fight, “This is isn’t artistic, but it is slugging, the way the public wants it!” That’s the situation with all the major markets right now, and put options are the key to insuring that gold and stock market investors don’t get knocked out!
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