Weekend Report Part II- The Coming Global Liquidity Crisis…The Kick Off of the Post Bubble Contraction

We have seen how the PBC has now begun and is making itself felt around the world starting at the periphery of the global economy, next moving to the senior markets of the world and eventually being transmitted to the core of the financial system.  As of now the US markets do not reflect any impact of the PBC, however there are signs it is fast approaching.

Tesla- Canary in the coal mine

So far US markets don’t seem to care what is happening in other markets around the world.  US Markets seem impervious.  A few months ago I pointed out that as long as Tesla stays elevated the US market should remain fine.  Call Tesla the canary in the coal mine.  Tesla continues to operate for one reason only- easy money. Remove the liquidly spigot and Tesla ceases to exist.  This company is so obviously a fraud on stock holders, yet it whistles past the graveyard with each outrageous act of its “nut job” CEO.  Simply put, as long as stock holders suspend reality in Tesla they are willing to believe anything.

Well, seems the end of this game is now upon us.  Looks like Tesla has now finished the process of knocking the religious believers out of their trance.  What the professional shorts have seen for a while now (Chanos, Einhorn etc.) is now finally being acknowledged by the masses.  I regard this process as a derivative of the mass psychology of the market in general.  Once Tesla goes the market in general can’t be far behind.

The Toxic USD Phase of the PBC

This is what comes next in the PBC.  As money rushes towards safety and global debts are serviced in US dollars the US dollar strengthens.  This is the end game of a multi year slow motion process we have seen playing out.  The below chart shows the flaw of the gold bug narrative.  As the US ramped up its money printing through QE the US dollar actually began to strengthen which is the opposite of what gold investors thought would happen:

The toxic phase of the US dollar rally starts when the current rally resumes and the USD breaks out of the heavy resistance zone.  That’s when things start to blow up and the GLC intensifies.

Gold Silver Ratio– Signaling the crisis is fast approaching

The gold silver ratio depicts the spread between the two metals.  It can be referred to as the metallic credit spread.  Like interest rate spreads, it is a leading indicator of stress in the financial system.  This is because gold acts as a monetary metal while silver acts primarily as an industrial metal.  As industrial activity decreases silver usage declines.  Simultaneously as stress in the system increases gold’s monetary usage also becomes more important.  In the past the GSR has reached levels of 80-100 in a crisis.  I have stated for years that in the next crisis these levels have the chance of being vastly surpassed perhaps blowing well past 100.

Here is a close-up of today’s GSR signaling trouble ahead in the form of a liquidity squeeze:

What I believe this is signaling is a liquidity crisis beginning at the periphery of the world’s economy.  Emerging market debts will not be paid therefore the reconciliation will be made in the currencies.  We see this occurring in Turkey right now.

Eventually this dynamic will show up in the senior reserve currency the USD.  World-wide currencies will be devalued against real wealth.  What is real wealth?  Houses, land, gold, oil, copper, this is real wealth.  Ultimately their price will shoot up as currencies become devalued as debts get reconciled.  But before this happens the illiquidity crisis will have to run its course and holders of these assets will likely get crushed because they will be thrown upon the pile to be sold in a search for liquidity.

Oil in the GLC

Crude Oil is of course the king of commodities and is typically the last to peak in an up cycle.  This occurred in 2008 when oil peaked at $147 in July 2008.  The stock market had peaked in October 2007 and the crisis was well underway when oil finally put in its top.  The same sequence appears to be playing out in the GLC. Oil now appears to have put in a cyclical top.  The rally in oil over the past 2 years was simply a cyclical bull within the context of a secular bear just like all of the other commodities.

Oil is not going away as some hope it will.  Just about everything is made from oil such as plastics etc.  It will remain an irreplaceable transport fuel for the foreseeable future and its use will become even more value added in the future.  So once the upcoming bear market runs its course, oil should begin its next long term bull market where prices could go to unheard of levels as it becomes more of a value added product and less of a transport fuel. Real assets such as oil will rise as a reflection of currency reconciliation.  This is when deep water offshore companies such as RIG will come back into its glory days. Natural gas value plays should also perform.

Oil puts in its top

The daily charts can take on a different appearance than the futures charts because futures trade 24 hours a day.  So the continuous futures chart can often be more revealing than the daily chart of WTIC.  This indeed happened over the past week as oil put in a prairie dog top.  Here we see this below:

Here we see oil poking its head up like a prairie dog and pulling it right back in during the wee small hours of trading with western markets closed.  On a daily chart oil shows a different view, a slanted NL H&S followed by an initial breakdown back test/head test. It dutifully punished the new shorts (me included) but fell out of its rising wedge.  It has now had an initial bounce off of initial support at $67 and now we wait for the decline to resume.

Below we see how oil lags copper in its decline:

Gold- Making sense of it

Is gold and the gold stocks in a bull or a bear market?  I believe the answer to this is a bull market that began in Jan 2016.  Presently it is undergoing a violent shake out that feels like a bear market.  In the last report I mentioned that fresh new capital is actually flowing into the sector.  This doesn’t occur in a mature bear market.  So what explains the downside violent move?  I see it as analogous to the previous bull market in gold which lasted from 2001-2011.  In that bull market gold and the PM stocks got waylaid in the 2008 GFC, but it wasn’t the end of the bull market,  it was just an interruption.  In real time however, it appeared to be the end of the world if you held on to your gold stocks.  It seems that’s what is going on now.  We are in a bull market but it has gotten interrupted by the early stages of the GLC.  Two factors account for the decline in gold. First gold is acting as a liquidity bank to fund other short falls, Turkey being an example as it has sold most of its gold as a stop gap measure .  Second, gold underperforms as the senior economy remains in a bull market and the US market remains strong.

Gold’s decline does not appear to be over as is clearly evident through Rambus’ charts, but once the bottom is in,  the next phase of the PBC begins.

The Gold Bull Market Resumes its next leg-up

This next phase should begin when the FED ends its QT program.  The USD may continue to rise, but the message to the world’s markets will be unmistakable… that the great Keynesian experiment has failed,  as they must reinflate the system to prevent a collapse.  This is when the gold stocks will begin their advance.  Of course being a market they very well may discount this event and start to rise before this.

You have heard this before: Got to be in it to win it!

Golds Smash and Grab

We have all seen the COT numbers and the gold bugs are hanging their hat on them.  Gold has to rally since the commercials are now net long. Hasn’t happened in ages, yet gold continues to flounder.  What explains it?  Tin foil hats on please- gold is undergoing a classic smash and grab.  Stated differently there are elements of a bear raid going on here.  Don’t think for a moment that other informed big money players don’t see the things I have written about.  It is a great opportunity for big money to position itself for the upcoming bull market… a smash and grab.

Copper- The Doctor seems confused

We know that copper sniffs out economic weakness and it has clearly led the decline in worldwide commodities, but I thought the evidence is clear we have a world wide copper shortage looming on the horizon.  Exactly!, but this is the tricky part as it’s true the world will be woefully short the metal in future years once the “green” second electrical revolution gets underway.  There is no better sign of this than what happened over the past week with Zijin mining making a massive bid for Nevsun mining. The Chinese being long range strategic thinkers are attempting to grab this critical asset even though it is clear the Chinese economy is cooling.  They see the long range picture of copper being in strategic short supply in the next decade. Knights, one has to be able to think past the valley directly in front of you!

Nevsun holders if you held on you’re a hero:

Putting together a strategy

Let’s keep it simple and boil this down to a few basic concepts.  First off here is a question:

Question: Using valuation data from the past 120 years of recorded market history,  What is the projected annual rate of return over the next 10 years from investments entered at today’s current valuation levels?

ANS: 1% per year

But here is the catch, before you can arrive at that 10 year point odds are that you will have to undergo a 40% drawdown!

So why in the world would you hold on to your stocks at this time.  You would be far better off selling everything and waiting for a bear market to reenter on. Then you can look forward to average  returns of 10%+  over the next 10 years.  Honestly it’s a no brainer.

So that’s what we are going to do.  Go to cash.  Now I understand that like me,  you probably own some issues that you just don’t want to sell even though you are underwater.  That’s ok we will make a few exceptions.  But for the most part it’s time to sell and wait for the bottom to present itself.  In the mean time here is what I am doing:

1/3 cash

1/3 US Treasury bonds

1/3 the dogs I can’t sell, but feel will come back.

Everything else has got to go and the second you sell them is the second you will feel free again.

In the mean time we watch Rambus’ charts and we determine when the bottom gets put in, then we buy… pretty simple and painless actually.

 

Late Friday Night Charts…Some Long Term Gold and Currency Charts

Tonight I would like to update some of the PM charts we’ve been following to see how they’ve been progressing starting with the massive ten year H&S top on gold. Since the price action broke below the neckline several weeks ago it’s a week to week observation  to see how the backtest is playing out. The backtest to the neckline comes in around the 1225 area with this weeks high at 1212.70 so the backtest held for another week. What we need to see next for the current move lower to continue is to see a new weekly close below the previous weekly low.

Below is a weekly bar chart for gold that goes all the way back to the beginning of the bull market in 2000.

Next is the 50 year chart for gold which puts the ten year H&S top in perspecitive.

This next chart for gold is the weekly line chart which shows its 2011 bear market downtrend channel. Our current impulse leg down actually began in April of this year when the price action touched the top rail of the 2011 bear market downtrend channel and the top rail of the 2 1/2 year triangle. Currently the bottom rail of the 2 1/2 year triangle and the 65 week ema intersects at the 1270 area which would be maximum resistance.

Next is a short term daily chart for the GDX which shows the impulse move down from the February bearish rising wedge.

This next chart for the GDX shows three dominate chart patterns starting with the 2016 H&S top reversal pattern, the February bearish rising wedge we just looked at on the daily chart above and the 1 1/2 year triangle consolidation pattern. These three pattern are building out the 2016 downtrend channel we’ve been following. The black arrows show the 1 1/2 triangle as a halfway pattern with the first led down off the 2016 top and our current 2018 impulse leg down moving at the same angle lower so far.

It’s hard to believe its been 8 weeks already since we looked at the breakout below the bottom rail of the year and a half triangle as shown by the red circle which showed a nice clean breakout. In 2015 when the GDX bottomed it built out a double bottom reversal pattern with the double bottom hump at the 16.25 area which might come into play as initial support. The HUI is already testing its 2015 double bottom hump currently.

I wasn’t going to show you this last chart for the GDX because I don’t think the bottom rail of the 2011 bear market will ever be hit but the 2011 bear market downtrend channel is still firmly in place. The bear market began with the perfectly formed massive four year H&S top as shown by the neckline symmetry line. The breakout and backtest to the neckline was short and sweet with the infamous 2013 runaway gap showing up several weeks after the backtest was completed.

Initially we were looking at a possible bullish rising wedge that was forming on the US dollar. That pattern failed when the price action traded back down below the top rail which was disappointing, but there was still a good chance that we would see some type of rising pattern because the initial pattern was a rising wedge. The morphing process is still taking place which now looks like a possible bullish expanding rising wedge building out. Note the small H&S bottom building out at the 4th reversal point which should give the US dollar the energy it needs to at least rally back up to the top of the trading range.

Here is what the possible bullish expanding rising wedge looks like on a longer term daily chart. I know it doesn’t feel like it right now but we know that when a pattern slopes up in the direction of the uptrend it shows a stock to be very strong. If this pattern plays out it’s telling us the US dollar is going to be very strong.

If gold has been trading in a bear market downtrend channel since 2011 then there is a good chance that the US dollar has been trading in a 2011 uptrend channel which this combo chart below shows.

This last chart for tonight is a daily look at the USDU which is a more equally weighted index for the US dollar. The last time we looked at this chart the price action was building out a triangle above the neckline which was completed with a big breakout gap above the original top rail which is the black dashed line with a backtest. It now looks like the triangle is morphing into a bigger bullish rising wedge consolidation pattern. We’ll know more when the USDU trades up to the top rail and how it interacts with it. With most of the other important currencies of the world breaking down from their respective large consolidation patterns it makes perfect sense that the US dollar will have a strong impulse move to the upside. Have a great weekend and all the best…Rambus

 

 

 

BLOCKBUSTER CHARTOLOGY

Attention Members

Rambus Chartology has had a strong relationship with Catherine Austin Fits for several years. We all met in the Ozarks ad have stayed in contact ever since.

Catherine is editor  a very unique website  The Solari Report.

Catherine and her incredible story are well know to many in the Gold Community :

“My talk with Catherine Austin Fitts former assistant secretary of housing under George Bush Senior. Catherine talks about her own breakaway from the psychopathic, corrupted Government money system, and her wonderful work now at www.solari.com where she is helping people to understand our system, and move towards a more symbiotic one, based on empathy, morals, truth and co operation”

 

Rambus does a Quarterly report for Solari Report.

Catherines new website has finally gone live .

Here is the Quarterly Report from the 2nd Quarter. This nicely ties in with Rambus Wednesday Report which will be out tonite.

https://home.solari.com/2nd-quarter-2018-rambus-blockbuster-chartology/

$TNX : Curveball Update

Over the last several months or so I’ve been writing about the bond market throwing us a possible curveball. Instead of continuing rising interest rate we may see falling rates. Today the $TNX, 10 year treasury yield finally broke below the neckline we’ve been following that started to developing back in January of this year. I’ve labeled the H&S top as an unbalanced H&S top as the price action formed a second right shoulder that was a small H&S top. A backtest to the neckline would now come into play around the 28.65 area.

A longer term daily chart.

The weekly chart shows the $TNX has been rising for the last two years building out a possible bearish rising wedge with the H&S top forming at the top. That H&S top is strongly suggesting the bottom rail of the black rising wedge is going to give way to the downside. The curveball has almost reached home plate.

Below is a combo chart which has the $TYX, 30 year bond on top and the $TNX 10 year bond on the bottom.

Weekend Report…Impulse Moves in the Currencies

For the last several months or so I’ve been showing you that many of the important currencies that make up the US dollar have been breaking down from large 2 1/2 year trading ranges. If you want to know what the US dollar is going to do the first thing you need to do is look at the important currencies that make up the US dollar as the US dollar is just a derivative of those currencies. Most of the time a stock, or in this case the currencies that make up the US dollar are trading within a reversal pattern, consolidation pattern, or are in an impulse move. It’s that impulse move that you want to be aware of and the earlier the better.

Tonight I’m going to update most of the currencies we’ve been following over the last several months because I believe they’re in the process of beginning an important impulse leg down which can have a profound affect on the PM complex and commodities in general. These types of moves don’t come around all that often, but when you begin to see an important setup maturing it’s usually worth the risk to try and take advantage of what the market will give you and impulse moves are what I live for as an intermediate term trader.

I’m not going to go into a lot of detail as we’ve been following these different currencies pretty closely for the last two or three months. It’s important to understand that most of the currencies we are going to look at have been in a bear market since the 2011 H&S top in most cases. From the initial breakdown below their respective necklines their impulse move really got underway even though it actually started at the previous high, which was the top of the right shoulder.

Lets start with the $CAD Canadian dollar, which formed a massive H&S top in 2011 with the first impulse leg down starting at the right shoulder high. Confirmation of that impulse leg is when the price action broke below the neckline. Like with so many things realated to the currencies, PM complex and commodities in general, 2016 marked an important low which finished up a very large impulse move down. As you can see it has taken the CAD dollar 2 1/2 years to consolidate that massive leg down. For the last several months the price action has been in breakout and backtesting mode to the bottom rail of that 2 1/2 year bearish rising wedge which I’m labeling as a halfway pattern. Also keep in mind that Canada is a natural resource country.

Another natural resource country is Australia with its currency looking very similar to the Canadian dollar, but is actually a little further along in its impulse move lower as it closed last week at a new low since the breakout from its bearish rising wedge. Again you can see the massive H&S top followed by the first impulse move down followed by the 2 1/2 bearish rising wedge consolidation pattern with the possible next impulse move down already underway.

Next is the $XBP, British pound, that is setup a bit differently than the two currencies above as it built out a smaller, but just as effective as the one year H&S top in 2008. That impulse move ended in 2009 where the British pound began to consolidate that leg down by building out a massive six year morphing triangle consolidation pattern. In October of 2016 the XBP began to consolidate the impulse leg down forming a year and half rising flag formation. Early this year the rising flag formation broke out to the downside and made a new low for this move.

I’m going to show you the monthly chart for the British pound as it shows you a good example of how support, once broken to the downside, can turn into resistance when tested from below on a countertrend rally.

The $NZD, New Zealand dollar, topped out in 2011 but then went on to build out a large multi year triangle reversal pattern which led it its first bear market decline into the middle of 2015 low. Last week the price action broke down from the blue 5 point expanding triangle reversal pattern. It’s a reversal pattern because it formed above the 2016 low.

The $XSF, Swiss franc, had a parabolic spike into its 2011 all time high with the first impulse move down reversing symmetry into the January 2012 low. From that point it’s been on pretty much a sideways chop with a possible rectangle forming since the low in November of 2016 just over 2 1/2 years.

The monthly chart for the $XJY, Japanese yen, ended its bull market by building out a H&S top reversal pattern in 2011 followed by a strong impulse leg down which finally bottomed in January of 2015. From that January 2015 low the yen has been constructing  a large triangle consolidation pattern with a breakout to the downside early in July of this year.

The $XEU euro, is the biggest component of the US dollar and actually topped out in 2008  building out a massive 12 year H&S top. Last week the euro broke below the neckline of its H&S top which was the backtest to that massive 12 year neckline.

Since the XEU makes up the biggest part of the US dollar we can see a small H&S top on this weekly chart made over the last year. If the XEU is building out a H&S top, then the US dollar will have been building out a H&S bottom of that same timeframe.

There is another currency that actually has a pretty close correlation to gold which is the $ZAR, South African Rand. Again the 2016 low marked the time when both gold and the $ZAR began their 2 1/2 year consolidation patterns.

This last foreign currency we’ll look at is on a combo chart which has the CYB, Chinese yuan on top and the UUP on the bottom.  There appears to be a pretty good inverse correlation between the two.

All the foreign currency charts above show there appears to be a race to the bottom which in turn should be bullish for the US dollar. Last Friday the US dollar finally broke out from its  nearly three month bullish rising wedge. These types of consolidation patterns are no different than any other consolidation pattern other than they tell you the move will be strong. The price objective for this rising wedge should be in the neighborhood of 100 to 103. A backtest to the top rail would come into play around the 95.75 area.

Below is a longer term daily chart for the US dollar which shows how the price action has been reversing back up after the 2017 decline.

Below is a 35 year monthly chart for the USD which shows its 2011 uptrend channel with the blue expanding triangle and the red bear trap, red circle. If you look to the thumbnail on the sidebar you can see the H&S bottom a little more clearly with the bullish rising wedge being the right shoulder.

Will we ever see the 165 area again on the US dollar in our lifetime which would be the price objective of the 30 year falling wedge?

Below is a weekly combo chart which has the US dollar on top and gold on the bottom. From a short term perspective the inverse correlation can be a little ragged but on this longer term chart the big picture shows the inverse correlation to be pretty good over time.

This next chart is a 2 year static chart which shows the 2014 to the 2015 impulse leg up for the US dollar had that we followed in real time back then. As you can see the first two small consolidation patterns were the two red rising wedges. Beginning in October of 2014 the US dollar began to buildout a much bigger black bullish rising wedge which was built with two smaller consideration patterns, the blue bull flag and rectangle. Note the breakout gap above the top rail of the black rising wedge and the clean backtest which confirmed for me the black rising wedge was indeed the correct pattern. After the breakout from the black bullish rising wedge the US dollar had one more consolidation pattern to build out which was the red triangle before that major impulse move finally ran its course.

With the breakout of the bullish rising wedge last Friday there is a chance that we could see an impulse move similar to the 2014 – 2015 leg as shown on the chart above. If we get something similar the combo chart below shows how many of the different asset classes performed during that time. Only the TLT kept pace with the US dollar as it made a series of higher highs and higher lows. The SPX followed the US dollar higher initially but then had a small correction, black arrow, before ralling again with the US dollar. GLD and GDX bottomed initially in November of 2014, experienced a decent counter trend rally while the US dollar was still building out the black bullish rising wedge. They both declined once more as the US dollar was approaching its 2015 high but managed to close just above their 2014 low, red arrows. The WTIC declined pretty strongly during the US dollar’s impulse move up but also created a double bottom between its two lows. The $XEU looked like it was the weakest area to be in during the US dollar’s rally leg while the Japanese yen fared slightly better by not making a new low.

 

BONDS

I’ve been writing about the bonds throwing us a possible curve ball which still hasn’t made it to the plate yet. There has been a lot of chopping action over the last several weeks which is failing to give us any confirmation one way or the other. After bouncing off the possible neckline back in July the $TNX, 20 year bond, produced a possible second right shoulder of a H&S top. Friday’s price action gapped below a small H&S top which formed the second right shoulder high. Now we are back down to the July lows once again. A breakout below the neckline will signal lower bond yields are coming which I think will catch a few investors off guard. In my last post on the bonds I said I would pay close attention to the price action because it’s such an important inflection point.

Below is a longer term daily chart for the $TNX.

If this 2018 H&S top breaks to the downside it will complete an even bigger trading range a 2 1/2 year bearish rising wedge. Many times with a setup like this we can see the neckline and the bottom rail of the rising wedge broken at the same time with a big breakout move. This is some thing we need to keep a close eye on.

I’ve been speculating for the last couple of months that instead of seeing a strong inflationary environment over the intermediate term the charts are suggesting we could see a deflationary event sooner rather than later. At this point in time I would view it more like  2014 to 2015 time frame when the US dollar had its major impulse move up while currencies and commodities had large declines. This could also give the US stock markets time to correct back down to the bottom of their January 2018 consolidation zones. These types of setups don’t come around all that often, but I’m perpared if we see the US dollar keep advancing while the interest rates start to decline once again. Have a great weekend and all the best…Rambus

 

 

 

 

 

 

GLD Update…

Just a quick update on GLD which has broken down from a 2 1/2 year triangle consolidation pattern. If we get a backtest to the bottom rail around the 119 area I will take a position in DGLD which is a 3 X short gold etf.