Gold has traded between $1,152 and $1,171 on this volatile day in global equity markets…as of 10:30 am Pacific, bullion is down $7 an ounce at $1,153…Silver is off 60 cents to $14.75…Copper fell as low as $2.21 but has since recovered modestly to $2.25, down 4 cents on the day…Crude Oil has retreated $1.35 a barrel to $39.10 while the U.S. Dollar Index touched Fib. support just below 93 and is currently off 1.25 points at 93.64…
China’s Shanghai Composite, which was looking increasingly vulnerable last week, led North American equity markets to the downside at the open today…the Shanghai suffered its worst single day percentage fall (8.45%) in 8 years as it crashed below support at 3400 and closed at 3211 for a loss of 297 points…Chinese authorities have been their own worst enemies with repeated acts of desperation like the move over the weekend to allow pension funds managed by local governments to invest in the stock market for the 1st time, potentially channeling hundreds of billions of yuan into the country’s struggling equity market…
It was bad enough that they encouraged their citizens to borrow money (margin lending hit record levels in China earlier this year) to buy an overbought market from 4,000 to 5,000…now they want to tap into their people’s pensions to prop up ailing stock prices…the communist government’s cheerleading of the market was a deliberate attempt to create a “wealth effect” at a time when the economy has been struggling and showing clear signs of not meeting a 7% growth target – now that wealth effect is working in reverse…that’s what happens when governments start screwing around with things they shouldn’t be touching (that reminds us, isn’t Ontario Premier Wynne proposing some sort of crazy provincial pension scheme that has Justin Trudeau’s full support and is going to cost taxpayers a bundle?)…
The Wall Street Journal reported yesterday that Chinese authorities are preparing to add liquidity to the banking system with a move expected to come before the end of the month…
China’s slowdown, at first glance, is a major setback for the world…the country accounts for 15% of world economic output and has contributed as much as half of the world’s growth in recent years…however, that does overstate its impact on a lot of countries…China exports more than it imports, so a slowdown in its growth has a limited impact on most of its trading partners (except commodity exporters of course)…exports to China amount to less than 1% of GDP for the U.S., U.K., France, Italy and Spain, 2.6% for Germany and 2.7% for Japan, according to BA Research, a financial analysis service…
WTIC 34-Year Monthly Chart
U.S. Crude is now nearly 20% below its opening price at the start of the month amid an economic slowdown in China and a continuing supply glut on global markets…multi-year lows in Oil prices have so far failed to trigger any action from the world’s biggest producers to rein in output…the market will therefore have to find a price level that brings demand and supply into better balance…
Technically, the $35 level is the next obvious support before a rally may set in…as John’s previous charts have shown, however, it’s not inconceivable that WTIC could ultimately tumble to the $20 area as a final bottom…
CRB Index 35-Year Monthly Chart
It’s critical to keep a close eye on the CRB Index as it’s nearing lows not seen since the period from 1999-2001…in 1999, the CRB Index plunged to 183…over the next couple of years it shot up nearly 30% before sliding back again to the low 180’s for a classic double bottom in late 2001…
Support around the 180 area should be very strong, especially considering the current oversold conditions (Crude, however, would have to hold support around the mid-$30’s considering its heavy weighting on the CRB)…
A really encouraging sign would be a bullish “W” (is it forming now?) in the CRB’s SS indicator as occurred just prior to the sharp move higher starting in 1999…note the 4 blue circles that John has highlighted near the bottom of the chart pertaining to the SS…we could be close to a turning point here which also coincides with the Venture’s 39-week cycle…
The CRB Index touched 185 this morning and is down 3 points at 188 as of 10:30 am Pacific…if the 180 support doesn’t hold, ouch…
U.S. Dollar Index
The U.S. Dollar Index is now trading below its 200-day moving average (SMA) for the 1st time since its big move started in the early summer of last year…the 100-day SMA has also reversed to the downside, but for now at least the Dollar Index is holding within its primary support band…
The conditions for the greenback are not nearly as favorable entering the final 4 months of this year as they were at this time in 2014…downside risks have increased substantially, and a Fed rate hike could very well be off the table until sometime next year…in addition, China is believed to be dumping dollar reserves and buying Gold…the dollar trade has been very crowded over the past year, and any major correction over the next several months would have to be considered bullish for Gold and helpful to commodities in general…
2+ Year U.S. Dollar Index Chart
Extreme overbought RSI(14) conditions persisted in the Dollar Index from last September through to early April this year with a 2015 high likely recorded in March at Fib. resistance just above 100…the surge in the greenback is 1 major factor that really put the screws to the Venture and the commodity sector, though Gold managed to weather the storm pretty good…
Gold vs. U.S. Dollar, Canadian Dollar & Euro
Speaking of Gold, despite all the negativity surrounding bullion from the North American mainstream media in particular, it’s down only 6.25% vs. U.S. Dollar terms over the last 20 months, and has performed extremely well against the euro and the loonie as you can see below (and against every other currency) since the beginning of 2014…
What’s significant at the moment is Gold’s emerging turnaround vs. the greenback…Gold’s RSI(14) is showing strong momentum, and the ADX indicator is almost near the point of a bullish DI cross…
Today’s Equity Markets
Asia
The Shanghai flu spread throughout Asia overnight…Japan’s Nikkei average fell nearly 5% to close at 18541…
Europe
European markets were off sharply today, roughly 5%, but expect a rebound tomorrow given market action in North America today…
North America
Panic-selling hit U.S. and Canadian markets at the open this morning with the Dow falling as much as 1100 points, almost hitting its rising 1000-day moving average (SMA) as it did in 2011, before a dramatic reversal…as of 10:30 am Pacific, the Dow is down just 241 points on a record swing day…volatility is likely to continue, leading up to next month’s Fed meeting…key U.S. economic data this week includes consumer confidence figures tomorrow, durable goods orders Wednesday, and the next preliminary Q2 GDP growth estimate Thursday which is expected to be much more positive than the initial reading…
In Toronto, the TSX found support this morning around 12750, as per John’s call, and is currently down just 154 points at 13319 through the 1st 4 hours of trading…the Venture gapped down to 522 at the open and fell as low as 509 before rebounding…it’s off 15 points – down for the 13th trading session out of 15 – at 522 as of 10:30 am Pacific…
The Venture successfully tested support at 515 this morning – it would be bullish if that level can hold through the balance of the week, and if the Index can close above today’s opening price…
Below is a 16-year Venture chart…the DI levels are at historical extremes at a time when the Venture’s 39-week cycle suggests a reversal within the next couple of weeks…
TSX Gold Index 5-Year Weekly Chart
Last week, famed hedge fund manager Stanley Druckenmiller plunked down more than $323 million of his own money into a Gold ETF, according to 2nd quarter regulatory filings…Druckenmiller is the guy who consistently delivered 30% on an average annual basis between 1986 and 2010, the year he closed his fund to investors…he’s also responsible for making the call to short the British pound in 1992, which “broke the bank of England” because it forced the British government to devalue and withdraw the currency from the European Exchange Rate Mechanism…
Druckenmiller didn’t see John’s TSX Gold Index chart when he threw more than $300 million on a Gold bet, but this chart says he’ll enjoy another great return as Gold stocks are poised to move higher into year-end in our view – which means bullion may surprise a lot of investors before 2015 concludes…
The Gold Index, which climbed nearly 8% last week, hit the bottom of downsloping channel recently while RSI(14) conditions slipped into very oversold territory…a confirmed breakout has now occurred above 135…various indicators are looking highly favorable for a further advance that could ultimately challenge the top of the downtrend line…
The Gold Index is off a point at 139 as of 10:30 am Pacific…a test of previous resistance around 135 could certainly occur…the rising 20-day SMA, currently 128, provides secondary support…
“The Wall Street Journal reported yesterday that Chinese authorities are preparing to add liquidity to the banking system with a move expected to come before the end of the month”
Japanese Economics Minister Akira Amari said on Monday he expects China’s economy to stabilize because its government is taking steps to stimulate growth in response to a prolonged slowdown.
http://uk.reuters.com/article/2015/08/24/us-japan-economy-amari-idUKKCN0QT02420150824
Holy cow that DJIA recovery! Apple recovered $65 Billion in 15 minutes!
Comment by Concerned Citizen — August 24, 2015 @ 9:51 am
Do you get the sense that this was done on purpose. Amazing how the day recovered. At least I got my .11 buy on EQT, thank you market.
Comment by dave — August 24, 2015 @ 10:16 am
EQT – Don’t know what tomorrow brings, but I may have got my .11 just in time. Bids building again. If by some chance it drops to .10, I will be there waiting.
Comment by dave — August 24, 2015 @ 10:51 am
One thing you can say about EQT right now is that it certainly has liquidity.
Comment by Danny — August 24, 2015 @ 11:43 am
Well I started my DBV position today.
GGI and EQT will both be higher by end of week. 🙂
Comment by BigRig — August 24, 2015 @ 12:05 pm
That it does, Danny, and strong technical support. What a day on the markets. Got a little dizzy on that roller coaster.
Comment by Jon - BMR — August 24, 2015 @ 12:09 pm
Why they are selling GGI and DBV today?
Comment by Theodore — August 24, 2015 @ 1:07 pm
Probably had something to do with this bad day I heard about on the market today, Theodore.
Anyway, GGI had gone 8 sessions without a down day. Normal trading, retraced on relatively low volume to the 50-day SMA.
Comment by Jon - BMR — August 24, 2015 @ 1:23 pm
You are always going to get some selling of the juniors when the major markets get hit, some is panic selling and some is just forced selling because of margin calls. People who panic never make money.
Comment by Danny — August 24, 2015 @ 1:50 pm
The Dow was off 1,089 points at its Monday low.
“I don’t know how long it’s going to last and how deep it’s going to go,” said Sam Stovall, stock strategist at S&P Capital IQ.
The panicked trading could continue until the middle of September before leveling off at the end of the year, if this correction follows previous trading patterns, Stovall added.
Comment by jim niles — August 24, 2015 @ 2:02 pm
Jim, there will certainly be volatility – in both directions – leading up to the Fed meeting in mid-September, for sure. Extreme oversold RSI(14) conditions on the Dow’s daily chart not seen in 14 years. Not wise to panic-sell into this, IMHO.
Comment by Jon - BMR — August 24, 2015 @ 2:59 pm
1-The Wall Street Journal reported yesterday that Chinese authorities are preparing to add liquidity to the banking system with a move expected to come before the end of the month…
2-China’s slowdown, at first glance, is a major setback for the world…the country accounts for 15% of world economic output and has contributed as much as half of the world’s growth in recent years…however, that does overstate its impact on a lot of countries…China exports more than it imports, so a slowdown in its growth has a limited impact on most of its trading partners (except commodity exporters of course)…exports to China amount to less than 1% of GDP for the U.S., U.K., France, Italy and Spain, 2.6% for Germany and 2.7% for Japan, according to BA Research, a financial analysis service…
1-Artificial.
2-If people no longer have the cash to buy cheap knockoffs in the internet age,it doesn’t bode well for the rest of the world’s economies.
3-Good paying jobs in the West that have built up China over the last 2 decades have slowly been lost due to free trade agreements.This could be the beginning of a very long downtrend.
4- Time to start buying gold and gold companies?
Comment by jim niles — August 24, 2015 @ 3:30 pm
Jim, China has some significant structural issues to sort out, including how they handle their financial system – keep in mind, this is a communist government – but the economy is still growing at an impressive clip, albeit not at the blistering pace of earlier years. China’s slowdown has helped Oil prices plunge to multi-year lows – that’s quite stimulative for many economies around the globe. The euro zone is probably the biggest beneficiary of that. Smarter U.S. fiscal policy would be a big help. The world isn’t coming to an end. When all the news channels are focusing on a market plunge, when fear is being spread among the masses, that’s when it’s usually the time to be on the buy side. Good gold stocks and physical bullion, definitely.
Comment by Jon - BMR — August 24, 2015 @ 3:48 pm
All this focus on China. What about India?
Comment by tony T — August 24, 2015 @ 3:50 pm
Good point, Tony. India is doing pretty good. Their market caught the Shanghai flu today as well, but the country has been rebounding under Modi.
Comment by Jon - BMR — August 24, 2015 @ 4:06 pm
From Michael Lewitt:
China’s debt has increased by at least $20 trillion since the financial crisis, but China’s numbers are notoriously unreliable and opaque. The figure is likely much higher. A debt-fueled boom is bound to bust and that is exactly what happened beginning in mid-2014. The first symptom of this was the collapse in the prices of commodities like oil, iron ore, copper and aluminum over the second half of last year.
Despite this obvious warning sign that the global economy was heading to another downturn, stock market investors chose to keep worshipping false idols – the world’s central bankers. These are the same people who sit around fancy conference tables debating whether inflation is too low when, if they looked out the window, they would see that the prices of virtually everything other than gasoline has been raging higher for years. The blind have been leading the blind and the brick wall is now right in front of them. As they say in the comic books – KABOOM!
While there are other reasons for the stock market to sell-off – over-valuation, weak U.S. economic growth, etc. – the real culprit is China. And what ails China is not going to be fixed. Chinese authorities have already panicked twice. The first time resulted in a series of ham-handed moves that destroyed the free market mechanisms of the country’s stock markets (and naturally didn’t work).
The second time we saw the devaluation of the yuan, which sent a signal to the world that the Chinese economy was sicker than it had previously admitted. The Chinese may well launch further stimulus moves, but there is little they can do to stop a debt-engorged economy from slowing further.
Comment by jim niles — August 24, 2015 @ 4:43 pm
BigRig you seem certain that DBV, GGI will be higher by end of week !
Comment by Guy Delisle — August 24, 2015 @ 4:55 pm
You hit the nail on the head Jim Nilis.
Comment by Les — August 24, 2015 @ 5:53 pm
Imo,the big shoe is yet to drop.It will take a few weeks to play,then it’ll drop.There was always China to fall back on the last 15 years.That is now on its way out.
Comment by jim niles — August 24, 2015 @ 6:13 pm
Eariler today the spike in the Vix reached 53 which is a much sharper rise than the one in Sept. 2008.
Does this mean the bear market has lasted only 3 days and is over?
No, this is early in the discovery that all is not well in the financial markets .
Got gold ?
Comment by Les — August 24, 2015 @ 7:38 pm
Most accurate statement I’ve ever read in my life….
‘If its possible, this gives you a little more time to get out of this market. What was manipulated up is now being manipulated down in stages for the benefit of the manipulators. They will cash out while telling you to remain calm. So remain calm and cash out yourself.’
Shanghai,Nikkei,and Europe all down again,and CNBC touting US Futures and a buy signal.Watch the huge selloff by mid-morning.You can’t sugarcoat this.
Comment by jim niles — August 25, 2015 @ 2:08 am
China cuts interest rates, floods its economy with cash.
Europe -5% yesterday, today +4% lol
More Chinese stimulus in the weeks ahead
Beijing quit meddling in its overvalued stock markets, it was a waste of resources to prop ’em up
IMO China is gonna step on the gas to get that 7% growth this year
Comment by Concerned Citizen — August 25, 2015 @ 3:35 am
China is going to definitely step on the gas, for sure, and other central banks may follow suit if they have to…the VIX yesterday hit its highest level intra-day since the Crash…RSI(14) on that 10-year chart has actually exceeded the Crash high…the other 3 previous highs in the VIX prior to yesterday all came at important market bottoms…we’ll show that chart this morning…
Comment by Jon - BMR — August 25, 2015 @ 3:39 am
Rebound Heaven. I was wondering how red when I turned on my computer at 9:37 – SURPRISE – every stock green or even.
Comment by dave — August 25, 2015 @ 5:38 am
Ha, I just started getting all my emails from analyst sites I follow, they saying REBOUND
Comment by dave — August 25, 2015 @ 5:40 am
Absolutely hilarious, a couple of months ago China was making all kinds of efforts to stop people from buying stocks and today it’s reported China has dropped it lending rate and encouraging everyone to buy stocks. And there are still people all over the world that think these jokers are going to save the world economy.
Comment by Les — August 25, 2015 @ 5:48 am
Well, Cannacord has been dumping EQT for 3 days now, but to no avail. Ya, it hit .11 briefly yesterday, but the bids are building and the volume is light today. A sign the PP should be ready to close. I got more at .11 and I say its time to rock shortly here. They could be drilling near end of next week.
Comment by dave — August 25, 2015 @ 6:27 am
A lot of U.S. buying normally comes through TD, They just sucked up 200k at .12 on EQT. Hint, hint.
Comment by dave — August 25, 2015 @ 6:29 am
EQT – I retract the light volume, this thing is rocking now.
Comment by dave — August 25, 2015 @ 6:42 am
EQT – lid bigger than the bids and keeps on getting bigger
Comment by david — August 25, 2015 @ 7:52 am
David, adjust your eyes
Comment by dave — August 25, 2015 @ 9:41 am