Oil Bulls Reign, on Iranian Hard-Line Leader’s Victory

Oil bulls affirmed their grip on the energy market after macros showed a substantial pause on the resumption of supplies from Iran who sits upon 13% of global oil reserves.

At the time of filing this report, the British based oil contract, Brent crude futures posted gains of about 0.4% to trade near $74 a barrel while U.S. West Texas Intermediate futures traded near $72 a barrel, posting gains of about 0.5%.

Both major crude oil benchmarks have recorded four straight weekly gains amid soaring demand, continued supply controls by OPEC+ and U.S. shale producers suggest crude oil use is recovering fast, and nearly at pre-COVID-19 pandemic levels.

Negotiations to resuscitate the Iran nuclear deal went tough on Sunday, as macros revealed Ebrahim Raisi, a hardliner, placed on U.S sanctions won the Iranian presidential election, further added more complexity amid reports on the removal of such sanctions imposed on its leader before any agreement is reached.

Price patterns show oil bulls had earlier been under intense pressure in the early part of 2021 amid reports that a nuclear deal was imminent and Iranian oil would soon flood the fragile oil market with the third wave of COVID-19 hitting hard at key oil buyers like India and Japan.

Still, market pundits predict, pending crude oil supplies from Iran can easily be absorbed by the growing thirst for energy as social mobility and air travels rebound strongly on growing sentiments that energy demand will outstrip supply by as much as 1.5 million barrels a day by the end of this year.

Price of Gold Fundamental Weekly Forecast – Strong US Economic Data Needed to Support Fed’s New Outlook

Gold futures plunged over $100 last week, hitting their lowest level since April 29, after the U.S. Federal Reserve signaled it might raise interest rates sooner than expected. The news drove up U.S. Treasury yields and consequently the U.S. Dollar.

Rising yields tend to increase the opportunity cost of holding bullion, dulling its appeal as an investment. A stronger U.S. Dollar tends to weigh on foreign demand for the dollar-denominated asset.

Last week, August Comex gold futures settled at $1769.00, down $110.60 or -5.88%.

Federal Reserve Moves Up Its Timeline for Rate Hikes on Inflation Concerns

The Federal Reserve last Wednesday considerably raised its expectations for inflation this year and brought forward the time frame on when it will next raise interest rates, CNBC reported.

However, the central bank gave no indication as to when it will begin cutting back on its aggressive bond-buying program, though Fed Chairman Jerome Powell acknowledged that officials discussed the issue at the meeting.

“You can think of this meeting that we had as the ‘talking about talking about’ meeting,” Powell said in a phrase that recalled a statement he made a year ago that the Fed wasn’t “thinking about thinking about raising rates.”

As expected, the policymaking Federal Open Market Committee unanimously left its benchmark short-term borrowing rate anchored near zero. But officials indicated that rate hikes could come as soon as 2023, after saying in March that it saw no increases until at least 2024. The so-called dot plot of individual member expectations pointed to two hikes in 2023.

Though the Fed raised its headline inflation expectations to 3.4%, a full percentage point higher than the March projection, the post-meeting statement stood by its position that inflation pressures are “transitory.”  The raised expectations come amid the biggest rise in consumer prices in about 13 years.

Weekly Forecast

The steep drop in gold prices last week was clearly not what investors expected. The central bank is now signaling that rates will need to rise sooner and faster, with their forecasts suggesting two hikes in 2023. This change in stance rattled long investors since it waivers a little from the Fed’s recent claims that the recent spike in inflation is temporary.

Now that the Fed has tipped its hand and showed it willingness to adjust policy to meet current market conditions, U.S. economic reports take on greater importance. The reports are going to have to continue to show a strengthening economy in order to support some of the Fed’s reasons for shifting the next rate hike forward.

This week, traders will get the opportunity to react to Fed Chair Jerome Powell’s testimony on Tuesday at 18:00 GMT.

On Wednesday, traders will be eyeing the Flash Manufacturing PMI and Flash Services PMI reports. Durable Goods come out on Thursday. Friday is a big day with reports on the Core PCE Price Index, Personal Income, Personal Spending and the revised University of Michigan Consumer Sentiment report.

For a look at all of today’s economic events, check out our economic calendar.

Oil Price Fundamental Weekly Forecast – Traders Eyeing US Dollar, Potential US-Iran Deal;

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures finished marginally higher last week after being pressured most of the week. The markets were essentially supported by expectations of higher demand and the OPEC+ production cuts.

Prices retreated from a nearly 2-year high after the Federal Reserve moved up the timing of its first rate hikes on Wednesday. This raised fears that the move would slow down the economy and thus, demand for crude oil and gasoline. Traders were also becoming concerned that a U.S.-Iran nuclear deal would lead to increased supply from the rogue nation.

Last week, September WTI crude oil settled at $70.45, up $0.53 or +0.76% and September Brent crude oil closed at $72.73, up $0.62 or +0.85%.

Crude oil prices were also pressured as the dollar strengthened after the U.S. Federal Reserve signaled it might raise interest rates as soon as 2023.

At the end of the week, traders were eyeing fresh coronavirus cases from the U.K. Britain reported its biggest daily rise in new cases of COVID-19 since February 19 on Thursday, according to government figures which showed 11,007 new infections, up from 9,055 the day before.

Crude Inventories Drop, Gasoline Stocks Rise

Last week, both the American Petroleum Institute (API) and the Energy Information Administration (EIA) reported lower crude oil inventories and a rise in U.S. gasoline stocks. According to the EIA, U.S. gasoline supply increased by an unexpected 2 million barrels the week-ending June 11. Analysts forecast gasoline stocks would decline 600,000 barrels.

Weekly Forecast

The surprise last week was the jump in the U.S. Dollar With the Fed announcing a major shift in policy, crude oil traders were caught off-guard since central bank policymakers had been reiterating that rates wouldn’t move up until at least 2024, the rise in consumer inflation was transitory and the pace of the labor market recovery is still too slow.

A strong dollar won’t change the trend to down, but it could cap gains over the short-run while traders adjust their bullish positions.

This week, traders could be surprise by the announcement of a nuclear deal between the US and Iran. Prices could fall sharply if the deal allows Iran to bring its oil to the market. Analysts have said Iran could boost oil supplies by 1 million to 2 million barrels per day (bpd) if sanctions are lifted.

An acceleration in the number of COVID-19 cases in the U.K. could also weigh on prices. However, losses could be offset by a drop in U.S. gasoline stocks due to increased summer driving.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Price Fundamental Weekly Forecast – National Cooling Demand Expected to Ease This Week

Natural gas futures finished lower last week after a failing to follow-through to the upside following a test of a multi-month high early in the week. Mixed fundamentals were behind the volatile price action. It wasn’t necessarily bearish news that capped prices, but rather dampened bullish news.

Last Friday, September natural gas futures settled at $3.222, down $0.079 or -2.39%.

Weekly cash prices were higher amid scorching temperatures and strong cooling demand across much of the western Lower 48, highlighted by whopping surges in California, according to Natural Gas Intelligence (NGI).

Reuters reported that power and natural gas prices in Texas and California spiked last week to their highest levels in months as homes and businesses cranked up air conditioners to escape brutal heatwaves.

Early in the week, prices were also bolstered on news from Enbridge’s Texas Eastern Transmission (TETCO) pipeline that a recent flow restriction enforced by the Pipeline and Hazardous Material Safety Administration (PHMSA) will continue through the end of summer.

After the initial thrust to the upside, prices retreated and remained under pressure until the close on Friday as weather forecasts for the week ahead shifted cooler and a storm in the Gulf of Mexico (GOM) threatened to curb demand. Meanwhile, a record reclassification that altered the latest government inventory report, confused traders, forcing some to the sidelines and weighing on prices.

Energy Information Administration Weekly Storage Report

The EIA reported Thursday that domestic supplies of natural gas rose by 16 billion cubic feet for the week-ended June 11. The EIA said the data, however, included an adjustment to the week’s total to account for a reclassification of some gas stocks from working gas to base gas. Working gas is the volume of gas available in the market. The “implied flow for the week is an increase of 67 Bcf to working gas stocks,” the EIA said.

The EIA announced an implied build of 67 Bcf for the week, a few ticks below median estimates, but the reclassification created a huge headline miss that drove some traders to the sidelines.

Ahead of the report, analysts were looking for a lighter-than-usual storage injection with yesterday’s EIA inventory report. NGI’s model predicted a 74 Bcf injection for this week’s report. Last year EIA recorded an 86 Bcf build for the similar week, and the five-year average is an injection of 87 Bcf.

Total stocks now stand at 2.427 trillion cubic feet (Tcf), down 453 Bcf from a year ago and 126 Bcf below the five-year average, the government said.

Weekly Weather Outlook

The American and European weather models showed a pattern for Tuesday through Friday of the coming week “not quite hot enough,” one that could result in “only moderate national demand,” according to NatGasWeather.

National demand will ease in the final full week of June, the forecaster added, “as weather systems track across the northern and east-central U.S.” However, substantial heat is still expected over the Southwest, while a drought in California could continue to minimize hydropower and put upward pressure on gas demand.

Weekly Forecast

Looking ahead to this week, early estimates call for a modest build that reflects the intense heat cooking the western United States in June, according to NGI.

Bespoke Weather Services estimated a 72 Bcf injection for the week-ended June 18; the five-year average is 83 Bcf. “We remain on pace for a high-end hot June overall, ranking in the top five hottest in the historical record,” the firm said.

Forecasters, however, said cooling needs could ease some this week – after two weeks of elevated demand, NGI wrote.

For a look at all of today’s economic events, check out our economic calendar.

Post-Fed Markets. What To Expect Next?

Fundamental analysis

At the same time, the central bank lifted its growth expectations for 2021 to +7%, an outlook far above the anemic GDP growth rates experienced pre-pandemic. Bulls largely want to stay focused on the economic “boom” ahead, believing it will more than offset any near-term inflation headwinds that companies may face in the second half of the year. And there is evidence money may be shifting back into some of the mega-cap growth stocks.

I just worry that the move might be temporary in nature or perhaps just a knee-jerk and a place to park some money until they figure out their next move. The Fed’s more hawkish shift also seems to be providing a further boost to the U.S. dollar, which shot up nearly a full percentage point against a basket of six other major currencies in the ICE U.S. Dollar Index.

Keep in mind, many big-money players have been forecasting a somewhat softer dollar based on the Fed’s extended supports. Obviously, a stronger dollar is a headwind for commodities and that was on display last week with a sea of red across everything from grains to metals and oil.

Oil markets are also feeling some additional downward pressure from the coronavirus surge happening in the UK, which some worry could ripple across the EU and further delay other re-openings.

Data to watch

Housing is in the spotlight in the first half of the week with Existing Home Sales Tuesday and New Home Sales on Wednesday. The housing market has been sending some mixed signals lately as home prices continue to soar, inventories remain at historic lows, and builders struggle with skyrocketing input prices and labor shortages.

Other data includes Durable Goods Orders and the final estimate of third-quarter GDP on Thursday; and Personal Income & Outlays, and Consumer Sentiment on Friday.

SP500 technical analysis

sp500 analysis fed 20 june 2021

While last week SP500 posted a fresh record top at 4258.5 (4267.5 on Jun), bears have returned to the market, aggressively selling futures on Friday and for sentiment to end a sequence of higher weekly lows with losses of 118 Pts from the top. This is negative and with cycles pointing lower, we can see further decline. 4179.0 is an important level to watch if tested and rejected. The supports 4100.5, the May 20th open, 4046.0, the 5-week base, and 4020.0, May’s low trade.

Keep in mind that this could be just a jerk-reaction after the Fed. Also, cycles forecast a potential rally in 2 weeks.

Why The Dollar Matters (A Lot!)

With the recent rally this past week in the dollar, it is important for investors to understand why such a move matters. For those who love charts, this article is for you.

The most obvious and well-known correlation between the dollar and equities is the association of a weak dollar with the outperformance of most commodities and real assets. It is no coincidence the significant gains in commodities over the past 12 months have come during a period of a declining dollar. We can clearly see this inverse relationship in play by comparing the performance of copper and oil against the dollar.

Dollar & copper
Dollar & copper

Dollar & oil

Dollar & oilAn extension of this relationship is how periods of dollar weakness coincide with the relative outperformance of equity markets sectors reliant on economic growth. As we have witnessed over the past year, the falling dollar has resulted in the outperformance of consumer cyclical versus consumer defensive stocks, as well as materials, industrials, small caps and energy stocks outperformance relative to the broad market. Likewise, this period of dollar weakness has seen the underperformance of defensive sectors such as utilities and bonds.

Consumer cyclicals vs defensive
Consumer cyclicals vs defensive

Basic materials vs S&P 500

Basic materials vs S&P 500Industrials vs S&P 500

Industrials vs S&P 500Utilities vs S&P500

Utilities vs S&P500Small Caps vs Large Caps

Small Caps vs Large CapsDollar & bonds

Dollar & bondsFrom a fundamental perspective, these relationships make sense. A stronger dollar is generally a function of a contractionary or disinflationary outlook. During deflationary shocks à la March 2020, dollars are in high demand and act as a safe haven or risk-off asset. Conversely, a weaker dollar is generally a function of economic growth and rising inflation expectations.

What this means is the dollar tends to appreciate when bond yields fall. This comes about due to the safe have characteristics of the dollar. If the economic outlook looks sluggish and appears to be slowing down, we tend to see money flow into dollars, and by extension, we see money flow out of the growth and inflationary dependent sectors and asset classes of commodities, small caps, cyclicals, industrials and materials and into those of a defensive nature.

Perhaps the most well-known implication of dollar strength or weakness is the performance of foreign and emerging markets relative to the US. Emerging markets in particular are inherently cyclical and dependent on the dollar. This is particularly the case for those countries with high levels of US dollar denominated debt or the commodity producing countries.

Emerging markets vs S&P 500
Emerging markets vs S&P 500

I detailed the dollar and emerging markets dynamic in depth in my article arguing the bull case for emerging markets, most of which is detailed as follows:

A rising US dollar causes the domestic currency of emerging economies to fall and inflation to rise amid weaker economic growth. Contrary to a developed economy whose economic growth is generally associated with inflation, being beholden to foreign-denominated debt reverses this dynamic. Higher inflation results in the central bank needing to raise interest rates and sell their foreign exchange reserves to defend their currency from hyperinflating, which acts as a further headwind to economic growth and exacerbates this dynamic in a self-reflexive manner.

These countries are unable to simply print money to monetize the debt, as is commonplace in developed countries whose debt is denominated in their own currency. The governments will then look to use fiscal policy as a means to stimulate, resulting in increasing budget deficits at the same time foreign and domestic capital flees the country for a safer alternative to preserve wealth, resulting in a negative current account balance along with a budget deficit.

Of course, these dynamics work in reverse too when the dollar is falling and create an economic tailwind that results in strong economic growth and asset price appreciation generally superior to developed markets. As the domestic currency strengthens, inflationary pressures fall, allowing the central banks to lower interest rates whilst the economy is booming, spurring lending and reinforcing growth.

At the same time, the governments are not required to run budget deficits, nor are the central banks required sacrifice their foreign currency reserves and run current account deficits to defend their currencies. You could almost think of a rising dollar as a form of quantitative tightening for most emerging markets, whilst a falling dollar could be considered a form of quantitative easing.

Therefore, for one to be willing to bet on the outperformance of EM relative to US equities, one must have a bearish outlook for the dollar.

Is this dollar rally sustainable?

In my view, the dollar has appeared to be in need of a rebound for a few months now. To be clear, we are far from seeing the start of a new trend higher in the dollar, but, as the consensus towards the dollar has been and remains almost exclusively bearish, it is not often we see price action conform to consensus.

Speculators are still betting heavily against a rally in the dollar.

Conversely, speculators are betting heavily on the relative outperformance of the euro. Meanwhile, commercial hedgers (i.e. the smart money) remain long dollars and short euros.

Technically, the coming weeks will be telling for both the dollar and the euro. With a potential head and shoulders bottom forming on the dollar index, and conversely a head and shoulders top for the euro, should these patterns follow through and the dollar move further to the upside, many of the “consensus” inflationary and growth orientated trades in which investors are all in on, may experience a period of underperformance.

A continued rally in the dollar over the coming months may well be a signal the inflation trade has gotten too ahead of itself. I have written previously how this may be the case. What’s more, the bond market also appears to be signaling a pause in this narrative for the time being, as I too mused upon recently. If the dollar does move higher, expect to see reflation trades dip and thus the outperformance of defensives, utilities, bonds and tech.

Regardless of whether we do see a meaningful move higher over the coming months, it is important for investors to understand the implications of such a move, as is the purpose of this article. Whilst a move higher would not bode well for risk assets, it would likely be unsustainable and thus brief.

With US debt to GDP at an all-time high of 130%, US net international investment position (NIIP) of -65% of GDP, lack of foreign investment in treasuries and an economy heavily reliant on the appreciation of equity prices, for mine, policy makers will understand the damage a dollar rally could cause. In the long-term, I do remain in the dollar bear camp. However, we need to see a rally and wash-out of the negative sentiment before the downtrend is able to continue.

Finally, I will leave you with this excellent chart by Julien Bittel, summarizing the relative return of the major equity sectors and asset classes to moves in the dollar.

Source: Julien Bittel, CFA
Source: Julien Bittel, CFA

Gold Drops Exceedingly; Fed Ducks Reality

190621_gold_scoreboard

Gold

Having settled the week exceedingly down 6.2% at 1764, Gold is now priced by the market at but 46% of its currency debasement value (as measured by the StateSide “M2” money supply) of 3870, even as adjusted for the increase in the supply of Gold (which today is 201,480 tonnes). Neither is Gold a discarded relic, nor shall it ever be supplanted by cryptocrap. Gold remains humankind’s sole de facto true currency as so shall it be even after we’re not around anymore.

Dollar

Its Index (by descending weight = the €uro, ¥en, Sterling, CanDollar, SweKrona and SwissFranc) gained 2.0% for the week, which of the 1,068 weeks millennium-to-date ranks 44th best (in the 96th percentile). Contextually, ’twas the Dollar’s firmest up stint since a series of weeks during the March 2020 depths of COVID, prior to which was the +2.3% week ending 14 November 2016. But as a valued member of our Investors Roundtable would say: “For the moment, the Dollar is leading the Ugly Dog Contest.” Shan’t last; it never does.

Gold and Dollar

Long-time readers of The Gold Update know that Gold provenly plays no currency favourites. As herein referred to a week ago, in 2014 on 04 September, Gold year-to-date was +4.7% and the Dollar +4.4% … “How can that be?” … Just because Gold tends to be priced in Dollars doesn’t mean squat as to how the Doggie Dollar itself is priced. Cue Fleetwood Mac from back in ’77: “You can go your own way…”And clearly for Gold, ’tis a long way up to go, the Dollar be damned.

The S&P

The mighty S&P 500 just lost 2.1% of its value in four days. Millennium-to-date that at best ranks as “noise”; ’tis not even in the bottom 10th percentile of four-day price changes. The “live” price/earnings ratio is at this writing an outrageously ghastly 53.5x, the yield a puny 1.359%, and the risk of ownership 100%. As we penned to our Investors Roundtable on Thursday: “My stock market fear has morphed into sheer terror. I used to take The Rud’s “50% correction” with a grain of salt. That now actually may be modest. ‘Tis merely about “The When”.” The stock market remains a losing game, (which is why most people on Wall $treet never make any real money).

The Fed

Here’s a simple equation: Late Fed + Dopey Media = Comprehensive Misconception. A time-honoured truth specific to the Federal Reverse is that ’tis “always behind the curve”. However, we wonder if this time the Fed in negotiating the curve has instead gone beyond the edge of adhesion and off the cliff. This past Wednesday, the Federal Open Market Committee unanimously voted to neither taper asset purchases, let alone raise its Bank’s rate, toward maintaining the ongoing 0.00%-0.25% FedFunds target range.

But more incredulously (this from the “Defying Common Sense Dept.”) the FOMC “penciled in” to raise interest rates by late 2023, (ahead of that initially considered). Accordingly, the fawning FinMedia — specifically the FinTimes — printed: “The Fed nailed it.” Nailed what? That they see two FedFunds rate increases the by end of 2023? How about by the end of this year? The Fed hasn’t nailed anything: rather, in ducking reality, ’tis The Fed that stands to get nailed. Are their two portended rate increases going to thus be 10% apiece? Just to catch up to inflation (er, uh, stagflation), you understand; (see 1976-1980). Honest to Pete and back again: if one still is in stocks and not in Gold, there’s not much more we can do. Facts indeed.

As for you valued readers who understand and take the Gold Story seriously, the following view of the weekly bars from a year ago-to-date at present doesn’t look that great. Or does it actually a buying opportunity make? Recall the late great Richard Russell: “There’s never a bad time to buy Gold”:

190621_gold_weekly

That noted, the parabolic Long trend certainly appears poised to flip Short in the ensuing week, price having completely hoovered our 1846-1808 structural support zone. And yes, our forecast high for this year of 2401 may be in jeopardy. Or (the French word for Gold): may the forecast in hindsight by year-end appear to have been modest? Recall 1977, 1978, 1979, 1980, 1982, 1983, 2006 and 2008. On verra, mes amis…

As for the near-term, Gold today at 1764 is within a structural support area of 1799-1755; should that bust, the next such area (with some wee overlap) is 1760-1677 (let’s not even go there…)

Rather, let’s go have a look at the Economic Barometer. It does have the beginning of that good-for-Gold “Game Over” look:

190621_econbaro

We read this past week that non-financial aggregate StateSide debt is now nearly one-half the size of the U.S. economy. (Again, let’s not even go there…) And as to our ongoing notion that the post-COVID economic boom “has already happened” as folks abandon COVID-time activities and replace them with those more apropos of “normal” times, spending data now indicates that large item purchases are “out” … and that eating out is now “in”.

To be sure, whilst May’s Housing Starts, Industrial Production and Capital Utilization all improved, Building Permits slowed as did Retail Sales. And for June, the New York Empire State Index, Philly Fed Index, and National Association of Homebuilders Index all fell short of their May readings. Up with inflation, down with the Economic Barometer/S&P 500, and hello stagflation. (“Tick…tick…tick…”)

Meanwhile, on this side of the pond, ’tis said so much COVID-debt was taken on by companies, that “life-support lending” is in vogue toward combating insolvencies. This has of course (and notably post-Fed) knocked the €uro from the podium in the ongoing Ugly Dog Contest, the Zone’s currency taking its biggest three-week tumble since COVID really kicked in during April a year ago. (And for those of you scoring at home with that European vacation in mind, the €uro’s present 1.189 level looks to erode by our purview to 1.173, even to 1.161). “C’mon Mabel, we’re goin’ to Rome!”

Now two weeks back when we could “see” some Gold setback — even just seasonally let alone technically — we perhaps ought have entitled that piece (instead of “Gold’s June Swoon”) rather as “Gold’s June Doom”. Indeed since Gold’s recent 1913 high on 26 May, price today is -7.8%, about its net change year-to-date (-7.2%). And per the following graphic on the left, upon Gold’s “Baby Blues” cracking the +80% ice back on 07 June, ’twas surely the real commencement of this swoon.

Note that on the right in Gold’s Profile for the last fortnight there’s been scant trading volume through much of the mid-to-lower 1800s, which for the “All gaps get filled” fans is encouraging for Gold to rebound, (and which common sense of course says ’twill):

190621_gold_profile_dots

Silver’s like +80% ice broke even sooner, back on 25 May as we seen below left. Should she not hold price here, her next structural support area is a full Dollar’s range from 25.68 down to 24.68. Sister Silver’s Profile below right matches sufficiently well with that for Gold, the Gold/Silver ratio now 68.2x running just a tad above the millennium-to-date average of 66.3x:

190621_silver_profile_dots

Whew! After a week like that (our outlook/review thereto), we can only finish up with something even more cuckoo. In her testimony this past week before the Senate Finance Committee, former Fed Chair Janet “Old Yeller” Yellen in sellin’ the Biden Administration’s $6 trillion budget presented it as a step to resolving “climate change” and “inequality”. We can’t wait: all of us equally poor under clear skies. “Got Gold???”

Cheers!

www.deMeadville.com

What Is The New Norm In The Stock Market When It Seems Normal No Longer Exists?

Yet when we look at the stock market charts they continue to go up.  We have bad jobs data – the markets respond and go up.  We have poor CPI – the markets go up.  The housing data misses – the markets go up.  It is like bouncing off Teflon.  What used to cause rifts in the markets now cause the opposite.  In this upside-down world, this has become the norm.

Since March 18, 2020 until now we have had the following gains:

  • S&P – 71% increase
  • NASDAQ – 97% increase
  • Russell – 90% increase
  • Dow – 64% increase
  • Silver – 120% increase
  • Gold – 50% increase
  • BitCoin – 385% (was as high as 767%)

So, we ask how in the heck is this happening?  How can it be that the markets respond in a positive way to the bad economic news?  The continued slow economic recovery.  The largest debt this world has ever seen.  What on this earth is fueling all this?  It took me a while to figure it out, but it is simple.

In short, these markets like the bad news because it forces quantitative easing and keeps interest rates down.  This is akin to the FED hitting the gas on the economy while driving on a sheet of ice.  Most would expect the Fed to proceed with caution but instead, they are going for broke.

So, every time we see bad numbers the markets respond positively, and bad news is good news.  We have seen this since the breakdown of the markets in March of 2020 and it has continued.  The problem is that we are creating another bubble and when that finally bursts, we are going to have to move fast and furious.  Nobody knows when that will be – next week, next month, or a year from now.  All we can do as traders is to be cautious and execute trades that have defined risk.

Take a look at the most recent recession in 2020 – where we saw the VIX climb as high as 85. At that price, the market is expecting extreme risk. Ultimately, the VIX is the industry standard to help traders and investors have a standardized view of market risk through implied volatility.

The VIX is useful because it can give us a hint at what the market is expecting since it is an example of implied volatility. Typically, IV is derived using an options pricing model, such as the Black–Scholes. Using these models, the theoretical value of an option can help guide us to the measurement of implied volatility at a particular point in time.

Traders and investors can use IV to find attractive options trades to hedge, enter or exit a position, or to speculate on a future outcome in the market.

HISTORICAL VOLATILITY

While the VIX is a measure of implied volatility, there are many historical measures of volatility that can be useful. One common example is the beta coefficient. This is a historical calculation measured by taking the returns associated with a security and comparing that the price action of the market over the same time period. A security with a beta less than 1 implies that the security is theoretically less volatile than the market as a whole. A security with a beta greater than 1 would be more volatile than the market.

For those that want to have a full picture of the risk of a security, the beta coefficient can help separate market risk with individual security risk. These types of measures can help you diversify properly with respect to your individual risk tolerance.

A historical volatility calculation like beta gives you a basic understanding of what the price of a security has done in the past. While past performance is not indicative of future results, historical volatility calculations can be used to help measure risk and ultimately help determine if a security is right for you.

THE VOLATILITY OF THE VOLATILITY – VVIX

To further confuse new traders there is such a thing called the volatility of the volatility or AKA the VIX of the VIX (VVIX).  No this is not an exercise on doublespeak if you are a subscriber you would have seen me talk about this before.  The VVIX is simply a measure of the change of volatility in the VIX volatility index.

The VVIX is the VIX of the VIX like the VIX is the VIX of stocks.  Ok if you are not thoroughly confused by now then congrats because this stuff can get pretty confusing.  Another way to put it is, the VVIX measures how rapidly S&P 500 volatility changes, and is thus a measure of the volatility of the index.  Investors can use the VVIX and its derivatives to hedge against volatility swings on changes in the VIX options market. You can hedge the hedge!

WHY YOU SHOULDN’T BE AFRAID OF VOLATILITY

All told, volatility is just a measurement that can give you insight into the potential risk of a security. It’s important to remember that actual volatility is almost always less than implied volatility. No measure of risk is going to be totally accurate, anything can happen in the financial markets. Even so, volatility measurements can offer a clear view of the risk the market expects.

If you want to learn more about how to trade options, about how to take all factors of options pricing into consideration, and about how to account for volatility in your options trading, please look into our Options Trading Signals.  We send trade alerts out weekly and do daily updates on our positions as to why we got in and out along with the factors to our strategies.  We trade proprietary strategies you will not find anywhere else.  Our goal is to make the market work for us and not try to work the market like everyone else.

We are also offering a live course tomorrow, Saturday, June 19th at 10:00 am with Neil Szczepanski, our Options Trading Specialist! Learning the basics of options trading is the foundation required for more advanced consistent income trading strategies.

You owe it to yourself to have the best tools and subject matter experts on had to ensure you are set up for ultimate success.  Don’t trade with one hand behind your back. Rather, expedite your learning curve with the Options Trading newsletter service.

Have a wonderful weekend!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Founder & Chief Market Strategist
www.TheTechnicalTraders.com

 

The Federal Reserve Starts the Clock at this Month’s FOMC Meeting

For the first time since the onset of the global pandemic, which began in March 2020, the Federal Reserve began dramatic steps to keep the economy from crashing and then create an accommodative monetary environment for the economy to recover once the vaccine rollout began. However, during the last year and a half, the Federal Reserve has remained extremely nebulous as to when they would begin to unwind the current rate of interest which is set near zero, as well as their asset purchasing program of $120 billion per month of mortgage-backed securities and U.S. debt instruments.

When questioned during former FOMC meetings as to their timeline to begin to taper or raise interest rates they answered that it was data-dependent and it is not time to even begin discussing rolling back the current monetary policy. That all changed this week when the FOMC meeting convened and released its statement. It conveyed a different tone and started the clock with a rough timeline as to when they will increase rates (with two rate hikes set for 2023). They also acknowledged that they have begun to talk about talking about tapering.

This sent into motion a virtual meltdown in the financial markets, including the Dow, as well as the commodity markets, with the precious metal markets being hit extremely hard. None of the precious metals were immune to the selloff with gold, silver, platinum, and palladium all losing serious ground in the last three days of trading. Palladium, for example, has given up $339 in the last two days of trading and with today’s decline of $47.70, is currently fixed at $2,464.50. That is an 11.964% drop in two days of trading.

Gold futures basis the most active April 2021 Comex contract traded to a high on Wednesday of $1,865, and after factoring in today’s $10 decline is currently fixed at $1764.40 over $100 of losses accumulated in the last three days of trading. While dollar strength had a definitive influence on gold going lower, it was selling pressure from market participants that had the greatest impact on this week’s losses.

gold june 18

For the third consecutive day, the U.S. dollar index has gained tremendous value and is now fixed at 92.32. The dollar has gained almost 2% (1.97%) in the last three trading days, and a year-to-date gain of roughly 2.2% accounts for almost all of this year’s dollar strength.

USDX june 18

The key to this dynamic change was that for the first time since the beginning of the pandemic, the Federal Reserve announced a nebulous timetable, but a timetable nonetheless, in essence, starting the countdown or clock to when the Federal Reserve begins to roll back components of its very dovish and accommodative monetary policy.

Increased selling pressure was added today when voting Fed member James Bullard, President of the St. Louis Federal Bank, said he expects the central banks to raise their benchmark Fed’s funds rate in 2022. In an interview with CNBC today, James Bullard said that it was “natural for the fed to tilt hawkish at its meeting earlier this week given recent strong inflation readings.”

Although when the Fed will begin to roll back some of their aggressive monetary stances is still not crystal-clear the first steps to developing transparency and notifying the public. They have started the clock announcing their intent to roll back the current accommodative interest rates and quantitative easing and filled in possible timelines being considered. This month’s FOMC meeting was unlike any other FOMC meeting over the last year and ½, and like it or not, the Federal Reserve clarified a rough timeline for the first time since the pandemic began over a year ago.

For those who want more information, please use this link.

Wishing you, as always, good trading and good health,

Gary S. Wagner

 

Silver Price Prediction – Prices Close Near Session Lows Following Dead Cat Bounce

Silver prices attempted to move higher in tandem with gold but could not gain traction and closed near the open of the trading session. The trend is downward sloping. Silver prices closed down 7.23% for the week.  This drop followed Silver prices tumbling on Thursday, breaking through support levels. The dollar continued to rally following the Fed’s more hawkish than an expected commentary on Wednesday, as 7-Fed governors now expect the Fed to raise rates in 2022. The Fed’s Bullard did an interview with CNBC today where he said that the Fed’s comments were meant to be hawkish and believe there will be a rate hike in 2022.

Technical Analysis

Silver prices attempted to move higher but failed and broke down and are poised to test lower levels.  Support is seen near an upwards sloping trend line that comes in near $25.07. Resistance is seen near the 50-day moving average at 27.02. Short-term momentum has turned negative as the fast stochastic generated a crossover sell signal. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) index generated a crossover sell signal. This occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses below the MACD signal line (the 9-day moving average of the MACD line. The MACD histogram is printing in the red with a downward sloping trajectory which points to lower prices.

The hawkish tone of the Fed was reiterated on Friday as the St. Louis Federal Reserve President James Bullard told CNBC that he sees an initial interest rate increase in late-2022 as inflation picks up faster than previous forecasts. Bullard at several points, described the Fed’s moves this week as hawkish or in favor of the tighter monetary policy.

Silver Weekly Price Forecast – Silver Markets Have Broken Down Towards Trendline

Silver markets have gotten hammered during the course of the week, as we continue to see a lot of volatility. The $26 level is being threatened, that being said, the market looks as if we may have to test this uptrend line underneath, or maybe the 50 week EMA. However, the market is likely to see a lot of noise in this area, so it will be interesting to see whether or not the area holds. I think the next couple of weeks will determine where we go for the next several months, as the commodity trade has taken a punch to the face.

SILVER Video 21.06.21

The strengthening US dollar course has been a major issue, as of course the commodity is priced in that currency. However, if the US dollar starts to fall a bit, that could be reason enough for the silver market to rise. There is the strong likelihood that demand for silver will increase, so that is something worth paying attention to as well.

All things been equal, I think that longer-term traders will probably be rewarded for waiting a couple of weeks, trying to figure out whether or not the market will eventually rebound, or if something much more difficult is on the horizon for silver buyers. Ultimately though, I do think that what we have is the potential for an explosive move, and I also believe that the market will make it very obvious if and when it comes.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Weekly Price Forecast – Crude Oil Markets Continue to Drive Higher

WTI Crude Oil

The West Texas Intermediate Crude Oil market has rallied initially during the course of the week but gave back some of the gains late in the week but at the end of the day we are still very likely to continue to see bullish pressure given enough time. The $70 level should be supportive and most certainly the $67.50 level will be as it is the top of the overall ascending triangle, and the measured move suggests that we could go looking towards the $77.50 level. I think we get there given enough time, but a short-term pullback might be in the cards as the US dollar has been acting out.

WTI Oil Video 21.06.21

Brent

Brent markets have also rallied a bit during the course of the week, reaching towards the $75 level. At this point time, the $75 level is of course a psychologically important figure, but based upon the measured move of the triangle, we should be looking at a move towards the $80 level. I think that any pullback that gets close to the $70 level will be bought into, and just like the West Texas Intermediate market, this may be more or less a function of the US dollar strengthening, thereby making less of those dollars buying a barrel. On the other hand, if we can break above the highs of this candlestick, then we should just start to inflate to the upside very rapidly. Nonetheless, I have no interest whatsoever in trying to short this market, it is far too bullish and of course demand should continue to pick up going forward.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Weekly Price Forecast – Natural Gas Continues to Test Resistance

Natural gas markets have been a bit interesting over the last couple of sessions, as we are focusing on a tropical storm forming in the Gulf of Mexico that could come into play. Slowing down short-term delivery is of course going to be an issue, due to the fact that natural gas markets are already exceedingly expensive for this time year. With the overall commodity boom, natural gas has seen a bit of a “knock on effect” with money flooding into the market. All things been equal, I think that this is very likely going to continue to be a choppy market, but if we can clear the $3.40 level, it is very likely that this market really takes off to the upside.

NATGAS Video 21.06.21

All that being said, it is very likely that we will continue to see a lot of back and forth at this point in time, but if we were to break down below the $3.15 level, then we probably go looking towards the $3.00 level, and then maybe even down to the $2.90 level. After that, then we could go looking to fill the gap which is all the way down to the $2.65 level. Ultimately though, this is a market that I think is trying to determine whether can break out, or if it will simply go back and forth in the overall consolidation region.

There is a tropical storm forming in the Gulf of Mexico, so that might be the reason to kick this thing higher, at least in the short term and we could see some type of significant move rather quickly. Whether or not it holds might be a different question altogether.

For a look at all of today’s economic events, check out our economic calendar.

Gold Weekly Price Forecast – Gold Markets Get Hamered for the Week

Gold markets have had a very rough week as the Federal Reserve has suggested that typing could be coming much quicker than anticipated, as the market reacted very poorly with the US dollar strengthening. The US dollar is like kryptonite for the gold market when it spikes the way it has, as we have seen gold drop below $1800. At this point in time, we are approaching a significant uptrend line, and therefore it is very likely that we are going to see more support in this general vicinity.

Gold Price Predictions Video 21.06.21

However, if we break down below this uptrend line, it is very possible that we could go looking towards the $1700 level and the “double bottom” that sits just below there. Breaking down below that opens up the floodgates for much lower gold prices, opening up the possibility of a move all the way down to the $1500 level rather quickly. If the US dollar continues to strengthen in general, that could very well end up being what happens. I believe at this point, the next week or two will be the most important ones to watch. If we can find some type of stability, then we could keep up the uptrend, but it is obvious to me that the buyers are most certainly in a lot of trouble at this point.

Ultimately, I do think that eventually there will be a great time to buy gold, but right now I just do not see it. At the very least, I would be very interested in what happens over the next two weeks or so, because I believe it will dictate what happens for the next six months.

For a look at all of today’s economic events, check out our economic calendar.

Crude Oil Price Forecast – Crude Oil Markets Continue to Build Base

WTI Crude Oil

The West Texas Intermediate Crude Oil market pulled back just a bit during the trading session on Friday but continues to see plenty of support at the $70 level. This is an area that previously was important multiple times, and of course will attract a lot of interest by traders just due to the psychology of it. The ascending triangle underneath actually is found at the $67.50 level, where we had broken out of. Ultimately, it is not until we break down below there and the 50 day EMA that I even worry about the market. That being said though, the market probably goes looking towards the $77.50 level based upon the “measured move” of the ascending triangle.

Crude Oil Video 21.06.21

Brent

Brent markets pulled back just a bit during the course of the trading session on Friday as well, only to turn around and form a bit of a hammer. Ultimately, if we can break above the $75 level it is likely that the Brent market goes looking towards the $80 level which would fulfilled the measured move of the ascending triangle underneath. The 50 day EMA is racing towards the $70 level, and that of course comes into the picture as well. The Brent market of course is looking at the reopening trade with the demand picking up just like other markets and grades of crude oil are. I have no interest in shorting this market, nor any other energy market in the short term. If we break down below the bottom of the ascending triangle, that could change things, but I do not see that happening anytime soon.

For a look at all of today’s economic events, check out our economic calendar.

Gold Price Prediction – Prices Whipsaw and Fail to Gain Traction

Gold prices consolidated attempting to move higher but unable to gain any traction and closing near the open at the session’s lows. The price action with a doji day finish and a long upper wick shows a rejection of higher prices. The U.S. 10-year yield continued to move lower, but the 2-year remains firm. The dollar index rallied sharply and finished the week up nearly 2% which paved the way for lower gold prices.

[fx-broker slug=fxtm]

Technical analysis

Gold prices were nearly unchanged but the failure to rise should be seen as a negative. Prices are poised to test the November 2020 lows of 1,764, and then the weekly upward sloping trend line that comes in near 1,730. Resistance is seen near the 50-day moving average at 1,830.  Short-term momentum is negative as the fast stochastic generated a crossover sell signal. Prices are oversold. The current reading on the fast stochastic is 3, below the oversold trigger level of 20 which could foreshadow a correction. The RSI is also oversold printing a reading of 28, below the oversold trigger level of 30 which could foreshadow a correction. Medium-term momentum has turned negative as the MACD (moving average convergence divergence) as the MACD (moving average convergence divergence) index generated a crossover sell signal. The MACD histogram is printing in negative territory with a declining trajectory which points to lower prices.

Bullard See Rate Hike in 2022

CNBC is reporting that St. Louis Federal Reserve President James Bullard told the media outlet that he sees an initial interest rate increase in late-2022 as inflation picks up faster than previous forecasts had anticipated. Bullard at several points described the Fed’s moves this week as “hawkish,” or in favor of tighter monetary policy than what has prevailed since the onset of the Covid-19 pandemic.

Wall Street Smart Money Is Accumulating Physical Silver Ahead Of New Basel III Regulations And Price Explosion To $44 An Ounce

Recently, Gold and Silver have somewhat stalled after a fairly solid upside price trend in April and May 2021.  Looking at the longer-term Weekly Silver chart, we believe Silver is ready to pounce with a big move higher.

The second half of 2021 will welcome BASEL III (likely) and a renewed focus by the US Federal Reserve (and Global Central banks) working to contain inflationary aspects of the recovering global economy while also attempting to support continued growth objectives.  I believe precious metals, in particular – Silver, have shown a very unique “Accumulation Phase” over the past 12+ months that may lead to a big upside breakout rally when it breaches the $28.50 level.

SILVER WAITING FOR THE OPPORTUNE MOMENT TO POUNCE – ARE YOU READY?

This Weekly Silver Futures chart highlights the On Balance Volume Accumulation Phase as well as our price cycle analysis suggesting Silver is stalling just below resistance near $28.50.  My team and I believe the new upward cycle phase, in addition to the massive Accumulation taking place, suggests that Silver is currently lying in wait – ready to pounce on a big upward price trend once the $28.50 level is breached.

ADL MODEL SUGGESTS $40 TO $44 UPSIDE TARGET IS REAL

Our proprietary Adaptive Dynamic Learning (ADL) Price Modeling system suggests a continued bullish price trend is likely on the Monthly Silver chart, shown below, and that a peak is likely near $40 to $44 near December 2021.  This bullish price dynamic is based on the ADL’s ability to map out unique price and technical setups in the past, then align those unique price DNA markers with current price setups.

What may happen over the course of the next few weeks is that Silver may continue to attempt to consolidate below $28.50 as the markets react to the FOMC announcements and other market facets.  Once the markets digest the real factors related to inflationary concerns, what the US Fed and Global Central Banks need to do is to address these concerns, and the future expectations related to forward monetary policies and expectations. Personally, I believe Silver will move above $28.50 sometime in July (or shortly afterward) and begin to move dramatically higher – targeting $40 or higher.

My team and I believe the end of 2021 and nearly all of the next 2 to 3+ years will be full of incredibly big price trends for traders to take advantage of.  This setup in Silver suggests we are only starting a multi-year bullish price rally phase in precious metals (very similar to the 2003 to 2007 rally in Gold/Silver).  If you have followed precious metals long enough, you understand the biggest moves in Gold and Silver happened after the 2006~07 stock market peak.

That means that we are just starting to see an incredible opportunity in the US stock market and precious metals related to volatility, trends and price rotations. Now is the time you should start preparing for what is to come and learn how to take advantage of these incredible opportunities.

Want to know how our BAN strategy is identifying and ranking various sectors and ETFs for the best possible opportunities for future profits? Please take a minute to learn about my BAN Trader Pro newsletter service and how it can help you identify and trade better sector setups.  My team and I have built this strategy to help us identify the strongest and best trade setups in any market sector.  Every day, we deliver these setups to our subscribers along with the BAN Trader Pro system trades.  You owe it to yourself to see how simple it is to trade 30% to 40% of the time to generate incredible results.

Have a great Friday!

For a look at all of today’s economic events, check out our economic calendar.

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

Silver Price Forecast – Silver Markets Get Hammered Again

Silver markets have initially tried to rally during the trading session on Friday but have given back quite a bit of the gains as we continue to see a lot of negativity out there based upon a strengthening US dollar. That being said, the market is likely to continue to see noisy behavior in general, and therefore I think we are probably more likely than not going to see a serious fight near the $26 level, and of course the 200 day EMA and the uptrend line underneath. Those both could offer significant support, so I do not have any interest in trying to short this market quite yet, but I am the first to admit that this is starting to get a bit precarious.

SILVER Video 21.06.21

If we were to break down below the support levels, then it is of course would be a very negative turn of events, showing that the commodity trade may be somewhat close to ending. Ultimately, this is a market that I think you need to be very cognizant of what is going on with the US dollar, which course has been hurting silver at a big way. However, if that support underneath holds, there is a huge gap between $27 and $28 above that will need to be filled. With that being the case, if we get some type of supportive candlestick underneath, it could end up being a great trade that would be very profitable. Until then, I am essentially sitting on the sidelines and waiting to see a little bit of stability. Trading massive volatile swings is very rarely the smart thing to do.

For a look at all of today’s economic events, check out our economic calendar.

Natural Gas Price Forecast – Natural Gas Markets Turn Around Again

Natural gas markets have initially fell a bit during the course of the trading session on Friday but has turned around to show signs of support again. Ultimately, we did up forming a bit of a hammer and therefore I think what we are looking at is a scenario that perhaps traders will continue to focus on the upside, but there is a lot of resistance above.

NATGAS Video 21.06.21

The $3.40 level is an area that I think will continue to be paid close attention to as it was a major barrier and breaking above that could really get the natural gas markets rocking to the upside. The question now is whether or not we can sustain the type of bullish pressure, because we are at extreme highs in what is typically a cyclically weak time of the year, although there is a huge commodity boom going on right now that is having its effects felt over here. Furthermore, there is a tropical storm building in the Gulf of Mexico, and I think that is a major influence as well.

Having said all of that, if we break down below the lows of the last three days, that would be a very negative sign and could send this market reeling towards the 50 day EMA, which is currently sitting at the $3.00 level, an area that obviously has a certain amount of psychological importance built into it. With that being the case, I think that we have a couple of clear areas that we can trade from, and between these two areas we basically have consolidation just waiting to happen in a confused yet bullish market.

For a look at all of today’s economic events, check out our economic calendar.

Gold Price Forecast – Gold Markets Continue to See Downward Pressure

Gold markets have tried to rally a bit during the trading session on Friday, but then gave back the gains to show quite a bit of negativity yet again. Ultimately, gold does not look healthy, and I think we are going to continue dropping towards the $1750 level. Quite frankly if we could not hold on to any type of recovery, this tells me that there is simply no demand. I think at this point, it is very likely that the market will break down below there and perhaps go looking towards the double bottom at this rate.

Gold Price Predictions Video 21.06.21

There is a double bottom just below the $1700 level, and if that gives way it could really start to send this market into a tailspin. I do not necessarily think that happens, but at the US dollar continues to strengthen, that could very well be what ends up being the endgame. On the other hand, the US dollar finally comes down, we could see this market turn right back around so it is going to be very important watch the US Dollar Index.

As far as buying is concerned, if we can break above the $1800 level it is a sign that perhaps will go looking towards the gap above to fill it as we see quite often in the futures markets. One thing is for sure though, this is a very negative looking market all of the sudden, and it certainly looks as if the selling pressure is going to be very difficult to overcome based upon the massive gap and the relentless pressure that we have seen multiple times over the last several days.

For a look at all of today’s economic events, check out our economic calendar.