On the heels of another rally in the gold market, it appears that “Mayhem rules” right now and gold may rise very rapidly because of it.
By Bill Fleckenstein President Of Fleckenstein Capital
June 3 (King World News) – As I’m sure everyone knows, over the weekend the Chinese expressed their view of the current trade situation via a “white paper” — the net of which is that the possibility of a trade deal between the U.S. and China appears to be less likely now than ever.
It’s Always Dumbest Before the Dawn
Of course, in any “negotiation” like this, it often looks like there will never be a deal and then suddenly there is. That doesn’t imply that a deal is imminent, but it is almost assuredly going to look impossible before it actually occurs, if and when it does. Meanwhile, I’m sure by the time the G-20 meeting rolls around later this month there will be all sorts of hopes that something good will come out of it, but I’m not going to hold my breath.
As for today, the futures were barely lower as the casino opened for business (after trading down almost 0.75% lower overnight) and the dip buyers showed up to produce a gain of a bit less than 0.5% for the SPOOs in the first hour, followed by a little selling. The proximate cause for the rally was perhaps mindless money flowing in at the start of the month, and a little excitement that Infineon has decided to pay a stupid price to acquire Cypress…
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That certainly enlivened the chip sector, which seems to do well on days that cloud and/or FAANG stocks are getting hammered (the Google/DOJ news this weekend caused problems for Amazon and Facebook). In any case, by midday, the S&P and Dow were slightly green, while the Nasdaq sported about a 0.5% loss.
In the early afternoon, the market began sinking again when St. Louis Fed head James Bullard chirped that a rate cut might be warranted soon, which caused a bounce that didn’t last long. Also around the same time Apple tanked from $177 to $172 in about two minutes as Tim Cook couldn’t blow enough smoke at their developer conference. (I make note of that because it was a big move, involving a lot of market cap, all happening in the blink of an eye — something people should start getting used to, as there will be much more.) All of that followed the earlier announcement that the FTC was launching an investigation into Facebook.
In sum, a lot of hand grenades were rolling around on the floor at the same time while visions of rate cuts danced in bull’s heads, the net of which was lower stock prices by about 1.5% for the Nasdaq (while the Dow/S&P just sort of marked time a little lower).
From there, another rally was attempted based on rate cut hopes. Perversely, however, we will likely need to see lower stock prices to get them, which is exactly what happened next, i.e., the rally fell apart and with an hour to go the Nasdaq had fallen almost 2%, with the other two major indices joining in somewhat as they fell around 0.5%. Next, the market slid some more to new lows, only to bounce hard late in the day to close with the Dow/S&P essentially unscathed compared to a 1.5% loss for the Nasdaq.
Away from stocks, green paper was weaker, and I would point out again that the concept of being long the dollar is one of the more crowded trades at the moment, along with being long the stock market in general. That could cause some extra indigestion at some point. Turning to fixed income, it was higher, and the metals came to life, each gaining 1.5%-plus while the miners put in a very respectable performance as well.
A Bend in the Trend
I noted on Friday that MSA’s technical work suggested more upside for the metals, because its triggers were hit, and in the report over the weekend Mike Oliver (the founder of MSA) suggested that the move could be rather rapid, based on his analysis. He also feels that a break in the stock market could be rather wild and violent, due to the technical structure. That fits exactly with my view, but he has the technical data to back it up.
In any case, it is quite likely that we are going to see bigger and wilder moves as the trend changes and folks are forced to adjust the positions they have spent so long putting in place. To subscribe to Michael Oliver’s Gold, Silver & Mining Stock Report at the special KWN discounted rate of only $269 CLICK HERE.
***Also just released: James Turk – We Are Now Witnessing A Mini-Rocket Launch In London’s Physical Gold Market…Expecting One In Silver As Well CLICK HERE TO READ.
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