Wednesday, August 2, 2017

Market and Gold Update

Dear reader, you are not going to like or agree with my market outlook, but I call 'em like the charts reveal them. For those who will mumble after reading that maybe I visited a Colorado "medicine" shop or something similar, the answer is no,...but I'd like too.
Market Internals
I start with the Transports. It is the second shoe in the Dow Theory. It was late to the market party of new highs, but it did attend in early July. This gave the overall appearance of a strong market and economy. The problem was it didn't stay long. It left immediately and the transports are down 500 points since then. Please note, it came down on high volume in this low volume market.
Speaking of volume, there is a serious disconnection between the overall market and its leaders. The starting five of the FAANG GROUP account for 25% of the market gains. This gives a misconception of the market strength. The rest of the market is quietly falling apart.
Consider MSTR:
This is an important tech stock. It was $195 on the 24th of July. Today, it is $139. This is an example of the breakdown in market internals. Remember all the hype about infrastructure and tariffs? Take a look at the steel stocks. One of the best is AK Steel. It was $9.25 in February. It was glowing not from the fires to shape steel, but the Trump inauguration. Now, it is $5.47 and falling. How about retail? It is the backbone of a consumer society. The XRT(retail)was $50 and now, it touches $39. Commercial real estate is showing strains. Look at the ETF, KIM. It was $32 and now, it touches $17. How about the auto industry? They are feeling it and this is no "it" girl. From slowing sales to delinquent buyers, the outlook isn't pretty. A huge return of leased cars won't help the picture. 
King Dollar 
One of the big reasons, but not mentioned in the media is the US dollar. It effects everything. There is something going down behind the scenes. The dollar touched 103 in early March. Now, it touches 92 and falling.
Part of me thinks this is a replay of the Clinton administration. He gets credit for a surplus and economic improvement. This is the shills talking, and sadly, they dominate the news. Slick "Willy" killed the dollar. This action resulted in high inflation. Yes, we sold more exports, but imports always glom exports. This social and financial engineering looks good on paper just like NAFTA until we realize that the imports have gutted industry after industry. The outlook isn't bright, unless we turn to  GOLD. 
For every drop in King Dollar, there is a corresponding rise in gold. At the moment, 88 cents is in play. Remember last month when I told you that a rally in the Euro was coming? The euro has risen from the talk of parity to 118 and rising. In addition, the dollar hit the "death cross" and with conviction. While the dollar walks to the place of skulls, gold hit the "golden cross." Oh, yeah, this is earnings season and the miners have been crushing more than rocks. They are over-achieving and looking real strong. The media hypes big winners, but never mention precious metal miners unless it is bad news. In this thin market, gold is acting like a growth tech stock of the 90s.
All good for precious metals. I see gold retesting $1300 and then, a move to test the last high of $1375 in July 2016. Silver needs to break $17.16 and then, we will have some action.
Good investing. Go Yanks! Go Irish! Practice those mock drafts 'cause the NFL is around the corner.