Here are key points Michael made on my radio show last week that I think are extremely important in helping us prepare for what likely lies ahead:
- The current S&P is looking very much like the 1987 market before the crash. What has Michael concerned is not an overlay of prices between the 1987 and 2017 markets but rather an overlay of momentum charts between the two markets. He is not seeing a crash in the near term, but if the S&P trades in the 2200s rather than the 2300s it would represent a definite wobbling and would set up a major decline. The S&P closed this week at 2378.25.
- The T–Bond “Judas Goat” market may also be on a parallel path with the 1987 market. In 1987, about six months prior to the October peak for stocks the T-Bond started trading down quite hard, meaning that interest rates were rising fairly dramatically. But stocks said, “We don’t care. We are going up even if rates rise.” Indeed, the Fed propaganda line being spun now is that the economy is strengthening and thus driving rates higher. So rates are rising for a good reason, not nefarious reasons. But getting back to 1987, Michael pointed out that at one point for about two months, rates stabilized and the T-Bond market traded sideways, at which point the S&P partied hard! But after that pause the T-Bonds started to decline hard again. It was then the stocks started to realize that rates were rising for nefarious reasons, and by October, it was crash time. Stocks declined by more than 22% on October 19. Now, looking at the present, Michael said on my show on March 14 that the T-Bond market broke through that same comparable 1987 floor about one week ago and on Tuesday, the S&P was off some 40 points. Stocks have rallied a bit during the rest of this week, but they are displaying a wobbly sign with a possible double top over the past thee months. Time will tell if we are witnessing a parallel of the T-Bond and stocks akin to that of 1987. But Michael’s work is showing a major decline for the T-Bonds and at some point a very overvalued equity market has to be vulnerable to rising interest rates no matter how much money the Fed pumps into the system.
- The dollar is looking increasingly vulnerable. As you can see from the chart below on your left that Michael put out last weekend, the weekly momentum chart is showing a breakdown of the dollar. But all along, Michael’s focus has been on a euro, which he believes is breaking out to the upside as the daily euro chart below right suggests. Michael said this week that if the euro could close a day above 1.07, it would be on its way to much higher levels. Indeed it closed out this week at 1.079 this week. And the dollar is indeed displaying weakness. Michael’s target for the dollar is a close below 99 on the index. That would signal that the bull market for the dollar is over.
- Gold is acting very well and as the chart on your right shows, back a few days ago when gold was flirting with a sub 1200 handle, Michael’s momentum chart was showing strength, though it was flirting with the zero line. With some dovish comments from Janet Yellen last Wednesday gold took off like a rocket, rising to close this week at $1230. Michael wondered this past Thursday whether yet another panic among gold investors has come and gone. In any event, if we are entering a bear market for the dollar, it should be very bullish for gold. Time will tell.
To learn more about Michael Oliver’s service, go to www.OliverMSA.com.