Posted on Sat, 21 Mar 2015 @ 10:44:50 CDT by Captain_Hook
Originally published as a subscriber-only article on 22-09-2014
With the G20 Summit just passed and calls for Russia to participate in November
, within the panorama of topics we could cover here today, it seems fitting to delve into the changing geopolitical landscape in the world again as ‘survival issues’ continue to accelerate, making for the perception of ‘strange bedfellows’ if you are a delusional and desperate American elitist. Big picture thinkers are well aware ‘profound changes’ and new alliances are currently being cemented that will materially alter the balance of power in the world as the years progress, with the rise of the BRIC’s and Eurasian trading blocs at center, not to mention cessation movements in Europe
themselves. (i.e. consider how quickly people’s attitudes
are changing.) Of course you would never know this if simply looking at things from an American’s perspective, with increasing global tension boosting dollar($) demand and US asset prices, resurrecting thoughts of Jim Morrison’s haunting words (foretelling verse) from The End
– ‘the west is the best’.
As alluded to above however, one must wonder why alliances appear to be moving away from traditional Western world political economy, if not financial market(s) preference – yet. The word ‘trust’ comes to mind considering the damage crazed fascists, bureaucrats, oligarchs are doing to the American persona; again however, not that you would ever know it looking at the financial markets. One must remember however, that in this technology driven world today, where markets are driven more on perception and sentiment than fundamentals, it’s all relative until real world constraints are reasserted, which like in the movie West World, will likely see the limits of technology exposed. It’s one thing to rig the financial markets with computers and baseless programmers who don’t really know their collective asses from elbows, but it’s quite another to think developing robots that will eventually be making other robots would further future economic prospects is quite another – and anybody with a good grip on earthly realities knows it.
You can see this if looking closely. The ‘powers that be’ today are very similar to the programmers in West World, where they thought everything was ‘in control’ until the technology was no longer able to maintain the illusion; until the machines began to malfunction; until the androids began to rebel. Such is the condition of America’s ‘Western world’ today, where the illusion is being held together by the machines (and leverage) as well, shaping the financial markets to give the impression everything is ‘just fine’, and ‘not to worry’, until the technology breaks down – and make no mistake – it will. China and Russia and the super-rich know this and are preparing by accumulating gold, because when the manufactured and false economy fails, both the machines and markets may need to be closed down while things are sorted out. The only problem is we have generations of people who have been living in the ‘dream world’ unbridled fiat currency creation engenders, so returning to more earthly pursuits may literally be impossible.
And if you attempt to talk with most people on this subject matter today they don’t want to hear about it. They would prefer to remain in their own little dream world, like West World, on vacation from their sensibilities. In terms of ‘common sense’ and ‘earthly knowledge’, wisdom that will be needed as the unraveling of the West accelerates, it obvious from observing people today most lack the basics that would allow them to adapt to profound change both in terms of technical knowledge and attitude. People are spoiled and most don’t know it, which is why they continue to play along in a modern version of ‘bread and circuses’, placated for the moment until the mob appears. All we need to see for this to happen is a wholesale collapse in the financial markets brought about by accelerating dangerous practices in an over-leveraged arena and the mob will appear at some point to extract justice – something that you can count on when enough of the middleclass is disenfranchised from the dream. (i.e. the American way of life -- which is materialism.)
This too is accelerating, where eventually the divergence between the disenfranchised and stock market will need to be closed. One thing you can count in this modern day financialized economy is it won’t be the middleclass catching up to monetized GDP trajectories that closes the gap. No, it will be the stock market catching down to the reality of an exhausted Western model that must account for the negatives too – like demographics. All we need to know how this turns out is to look at Japan, which is about a decade ahead of the US in this regard. Given, profound differences in cultures call for a bigger fight by Americans; but still, it should be understood that once the demographic tipped over into an acceleration of the aging population demanding safety for their savings, stocks have never recovered no matter how much QE was thrown at the situation. This is a lesson that should be learned by Americans, where structural changes that conform to the needs of common people are put ahead of greedy power barons, not the other way around.
Based on the accelerating determination of Western officials from Europe to Japan (include the US and you have the core West) however, this is not the likely outcome, leaving an eventual involuntary collapse to be played out. Western officials appear bound and determined to stay ahead of the asset bubble(s) boggy man, which is why the larger bubble economy just keeps getting bigger and bigger; but again, due to diminishing returns, as exemplified in Japan, all will be for naught. In terms of the stock market, internals are currently at unsustainable levels, which means some degree of a correction should be upon us soon. You will remember from recent discussion that the possibility of a seasonal inversion in the trading pattern exits if we see a strong monthly close. With the breakout of the S&P 500 (SPX) / iShares Silver Trust (SLV) above 112 last week we got the signal a ‘blow-off’ higher in stocks / lower for paper silver is now likely to play out, with 132 the signatured Fibonacci resonance target discussed here (again) just last week. (See Figure 1)
Figure 1 – Click Chart For Sharper Image
As you can see above, and with a now likely stock market blow-off into month’s end signaled by the breakout of the SPX / SLV Ratio, as you would know from reading these pages regularly, we will also be watching for a monthly close of the SPX / CBOE Volatility Index (VIX) Ratio at or near the 194 level (see above) as well to signal the move from 2009 lows is completed, with the allowance for marginally higher highs in October depending on how fast hedgers / speculators cover still massive short positions. Increasing the probability such an outcome will occur is the fact September is fiscal year-end for most hedge funds, who will be sure to attempt to game stocks higher in order to make the numbers look better. If there is one thing you can count on, is despite how ridiculous and overstretched a market might get, it doesn’t matter to these characters. So, don’t be surprised if stocks keep rising this month as most funds have a great deal of catching up to do given their terrible performance over the past few years. (See Figure 2)
Figure 2 – Click Chart For Sharper Image
Funny thing though, and as alluded to last week, we are seeing all this strength in stocks, but tech has yet to breakout – and it likely won’t. As denoted above (again), tech stocks should not break back into ‘extreme bubble territory’ given the 2000 bubble is still within the same generation. Thus, if we see the SPX / VIX Ratio vexing 194 at month’s end with the Nasdaq / Dow Ratio still contained, one would know the probability of a major top being in place is high. (i.e. you can’t think in terms of ‘guaranteed’ given the nature of the nut-bars on Wall Street.) Of course if stocks follow the seasonal pattern they will begin correcting this week; but again, with hedge fund year-ends and the shorts still in the market, anything is possible over the next seven trading days, including silver vexing the $15.60ish target mentioned last week as well. What’s more, and a sentiment evident in monthly plot technicals, it’s not difficult envisioning overshoot past the ‘trend definer’ for silver, all the way down to the 200-month moving average at approximately $12.50ish denoted in purple. (See Figure 3)
Figure 3 – Click Chart For Sharper Image
Do you think idiot paper market speculators will stop buying calls once the price hits $12.50? Even the staunchest of physical market bulls would be spooked by such a move, at least one would think so. If not, prices will likely stay down as deflationary drag sets in no matter how many mines close. The longer duration stochastics in Figure 3 are suggestive it could take some time (6 months) noodling around at the bottom before prices turn higher. I just checked post expiry open interest put / call ratios, and with the exception of NUGT (which saw a huge gain to 1.53) and SLV (which saw a modest gain), all other measures joined stock market measures (except MNX) in substantial plunges. It should be remembered however that the influence of a new options cycle is not powerful until we flip into the new month, so again, short interest may dominate this week. What’s more, we should wait a few days before drawing any firm conclusions as hedgers could come in given seasonals for stocks are at their most negative over the next few weeks. As for the big increase in NUGT, again, let’s wait a day or two before drawing any conclusions.
If precious metals decline into COMEX options expiry mid-week without a noticeable decline in NUGT’s put / call ratio (and it would help if the other ratios recovered) a bounce could occur, much as we don’t want to see such an outcome. This would throw a big monkey wrench into the formula with respect to the sustainability of such moves given implications associated with failures in the projections discussed above regarding Figures 1 and 3. A Hindenberg Omen was triggered late last week which is widely known about and something that may be acted upon by hedgers, so again, we will just have to wait a day or two to see how things pan out, however I must admit, at this point given the degree of the moves in post expiry put / call ratios, I am very worried we see moderate losses in stocks / gains in precious metals (post COMEX options expiry) for a few weeks, and then return to trends that have been dominating the markets these past years.
In terms of Figure 1, where I was leaving this until the end because it’s so important, you will notice the new purple annotations that point out key metrics associated with ‘swing line’, Fibonacci resonance, and sinusoidal targets, where I thought we could possibly touch the swing line by month's end to throw off a strong reversal signal. (i.e. failure without touching sinusoidal resistance would not have been necessary if the Fibonacci measure was attainted in marking a ‘seasonal inversion’.) Again however, given the collapse in open interest put / call ratios, neither of these targets may be achieved this month, opening the possibility of abject failure and a stock market crash; or, a relatively minor correction followed by more strength into next year. (i.e. which is the scenario that must be favored in being the trend.)
It never ceases to amaze me how speculators become exhausted at the most inappropriate times, again, given the next two weeks are the worst of the year seasonally.
See you in a few days with a put / call ratio update.
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