Oil, Gold, Gold Miners, Silver, Bonds and Dollar and some Macro Viewpoints (Premium)

I covered the stock market environment on Tuesday and Thursday because it seemed timely given price action. This commentary will focus on the macro picture with analysis for oil, gold, gold miners, silver and bonds. Gold looks bullish and we have a new trend signal in the Gold Miners ETF. Copper looks even more bullish with the copper/gold ratio hitting new highs. I also included videos from Chris Verrone and Stanley Druckenmiller.

Oil Holds Breakout and Remains Bullish

Oil fell back on Thursday with a 3% decline, but this does not change the overall picture and it did not trigger the ATR Trailing Stop. The chart in the upper left shows oil with an 83% advance to the 2019-2020 highs. The long-term trend is up, but resistance is at hand. The bar chart shows a triangle consolidation in USO, a breakout and a new high here in May. This is bullish price action. The ATR Trailing Stop is shown for reference (traders). The breakout zone and late April low mark support in the 41.5-42 area. A break below this zone would call for a re-evaluation. Energy related stocks should perform well as long as oil holds its breakout.

Gold Set to Challenge 200-day

The chart in the upper left shows GLD bouncing off a reversal zone marked by the spring 2020 lows and 67% retracement. It is as if the run from 140 to 195 (start-end) was three steps forward and the decline to the 160 area (67% retracement) was two steps backward. The double bottom in March and breakout in April are bullish. On the bar chart, GLD firmed in the 158 area with two lows and broke out with a ~10% advance the last six weeks. A small pennant is forming on the candlestick chart and this is a short-term bullish continuation pattern.

Overall, I remain bullish on gold and must now consider what would prove this stance otherwise. This advance looks eerily similar to the 10% advance in December, which retraced 50-67% of the prior decline. The current advance has also retraced 50-67% of the prior decline and is near the underside of the 200-day SMA. This is a potential bearish reversal zone. Right now the immediate trend is up and I do not see any signs of a reversal. A move below 167 would break the lower trendline and erase most of the early May bounce. This would call for a re-evaluation of my bullish stance.

StochClose Triggers Bullish for GDX

The bar chart shows the Gold Miners ETF (GDX) with a VERY strong positive correlation with GLD. The middle window (blue line) shows the Correlation Coefficient (20 days) based on percentage price changes. This line rarely dips below .50 and this means GLD and GDX move in the same direction almost all of the time. Most of the time I prefer taking signals from GLD because it represents the underlying commodity. The long-term chart in the upper left shows GDX retracing 50% of its 135% advance with a falling wedge to the 31 area (two steps forward and one step backward). The recent wedge breakout is bullish and signals a continuation higher. Also notice that StochClose turned bullish on Tuesday (May 11th). This is a trend-following signal (40% are successful and 60% are not). Also, keep in mind that such signals trigger after price has bottomed or topped.

Silver Remains Erratic and Bullish

The Silver ETF (SLV) outperformed GLD from late March 2020 until February and is underperforming GLD the last two months. On the long-term price chart (upper left), SLV is forming a massive triangle consolidation after a 137% gain. This consolidation is digesting the prior gains, alleviating overbought conditions and paving the way for a continuation higher. A breakout at 26.30 would be bullish. The bar chart captures the swings within the big triangle and the wedge breakout in early April is bullish. I will place my re-evaluation level at the late April low and rising 200-day.

TLT is the Most Unloved Asset Right Now

I covered the 20+ Yr Treasury Bond ETF (TLT) on Tuesday because it failed to bounce when stocks fell. TLT continued lower this week and broke below the late April low. TLT basically failed near the falling 50-day SMA and RSI failed in the resistance zone (50-60). The long-term trend is clearly down and the recent short-term breakdown signals a continuation of the bigger downtrend. This means yields are on the rise, regardless of what the Fed sayeth.

Verrone and Druckenmiller Videos

Here are some macro views from Chris Verrone of Strategas and the legendary Stanley Druckenmiller. The main takeaway from both: yields will continue to rise and bonds will continue to fall. These are narratives so be careful!

Chris Verrone: The decline in tech stocks does not look like a mere rotation. Instead, it looks like a change in character in the market. AMZN reported good earnings, but is not going anywhere and recording 52-week relative lows. The Copper/Gold ratio is rising and tends to drive yields higher. The XLF:SPY ratio is at new highs and the market telling us that yields will rise (10-year to at least 2%). Euro yields are moving higher already and there is a big divergence with the US.

Stanley Druckenmiller: The Fed is playing with fire because monetary and fiscal policy are out of step with the current economic environment, which is strong. Retail sales are above pre-covid highs, employment has recovered and the economy is reopening. Retail sales growth is 15% above trend, which is normally 3% per year. He thinks the Dollar will lose its place as the world’s reserve currency. Fed is buying over 50% of Treasuries and supporting the bond market. Without the Fed, the bond vigilantes would be totally rejecting this. The deficit is increasing at an alarming rate and the Fed will have to monetize the debt, which is very bearish for the Dollar. Foreigners were net buyers of US Treasuries for 20 years and became net sellers in spring 2020 and continue to be net sellers.

Thanks for tuning in and have a great day!

-Arthur Hill, CMT
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