A Demonstration of Michael Oliver’s Valuable Work

On February 4, 2016, Oliver based on his momentum and structural analysis, a rise in the price of gold within the $1,140 to $1,160 range would be enough during that month to tell us we are in a new, sustainable bull market for gold. On the following day, the London PM fix jumped to $1156 and the average price for the month of February (London PM Fix) was $1,198.35, which was in excess of what I needed to tell me to stop sweating daily or even monthly price declines.

As Richard Russell was fond of saying, “Bull markets take as few riders with them as possible.” And sure enough, investors who were only watching the prices rather than the momentum and structure of Michael’s charts were thrown off the back of the bull toward the end of 2016. After a really good rise to nearly $1,350 in the summer of 2016, the price of gold plunged toward $1150 toward the end of the year. Yes, I was nervous, but Oliver’s momentum and structural chart work calmed my nerves. To be frank, I’m too busy trying to understand the fundamentals of the stocks I cover to be able to waste energy on worrying over the long-term direction of the price of gold. Because I have seen Oliver’s work hold true time after time with many markets, I have gained a considerable amount of confidence, so I continued to hold the view at the end of 2016 that we are in a long-term bull market. And as a reader of his work I will continue to hold that view until his unemotional technical work suggests the bull is ending. Another thing I like about Oliver’s work is that he gives you plenty of advanced warning if and when existing structures are becoming less secure. But what good would it do me if I allowed myself to get whipsawed out of a multi-year bull market the first time there is a serious correction? Obviously these emotional rides can be extremely destructive. They can kill all the upside.

T-Bonds Start a Secular Bear Market

I mention gold because it is the most important market for this newsletter. But it doesn’t matter what market Michael is following. What matters is his proven methodology. Don’t ask me to replicate it. I don’t understand it all that well. It is proprietary so it’s Michael’s business. All I know is that I have a hard time thinking of any market I have observed that he has written about. The one that comes closest I suppose is the S&P 500, which is taking much longer to break through momentum and structural levels that will allow Michael to pull the sell plug on stocks. But I would suggest you watch the S&P very carefully. On June 27, during a very weak market, Michael said the following: Regardless of the depth of the consequences in this selloff, the real issue, as we’ve noted for the past few weeks, is any stall by the index in the 2420 to 2440 zone leading up to the new quarter. That’s a bad zone to be dancing in next quarter due to changes in the 3-qtr. avg. momentum (a long-term metric).

So here we are in a new quarter. And where did the S&P close? At 2421.00, that’s where! If you are long the general stock market, you might want to take note of Michael’s warning. I sure do!

But let’s take a look at another market, namely, the three-year bond market. In his weekend report on Oct. 16, 2016, Michael told his readers that if the T-Bond fell into the 166-163 zone, it would signal a short. Sure enough on Oct. 17, the T-Bond closed at 163.94, good enough to go short the T-Bond. At the close of this week, the T-Bond closed at 153.80. Michael’s work says this is only the beginning of a long-term bear market for U.S. sovereign debt. I’m suggesting you pay attention.

The Dollar Starts a Secular Bear Market

The dollar is the most recent of the major market plate tectonics to change long-term directions. For a month or so Michael had been warning that if the dollar index closed below 99, it would mean a major bear market was underway for the dollar, meaning that a major bull market would be starting for the euro and perhaps for most of the world’s currencies. But since the euro is such a big part of the dollar index, that is the counter market that made the most sense to watch. On May 19 during the day, Michael sent out a missive saying that we didn’t need to wait for the end of the month to short the dollar, given its dramatic decline to around 97.14. In a month and a half this major market plate has shifted downward to 95.39, or about 1.8%. That may not seem like a lot but Michael said on my radio show last week that he expects the first significant support won’t come until the dollar index falls to around 88. Considering that the dollar index was as high as 103.2 in March of this year, the decline from the top is about 7.5%. It was on the basis of Michael’s work that I bought some call options on UDN. With several months left on the call, I’m fairly comfortable I should enjoy a pretty good return.

So, of the four major market plate tectonics that Michael has been alerting to expect change in directions, only the S&P 500 has not yet made its move. But it is getting very close. As a seismologist watches tremors and structures in the crust of the earth that set off warnings of a cataclysmic earthquake or volcanic eruption, Oliver can’t tell you the exact minute of a market tipping point. But he can alert us to see a new major moving coming and he can also tell us when markets are settling down with basing and topping postures. Since I have been talking about Michael Oliver’s major plate tectonics, gold has turned bullish in early February 2016, the T-Bond turned long-term bearish on October 16, 2016, and we entered a true long-term dollar bear market on May 19, 2017. All of these markets seem to be aligning with a bull market in gold even if it means we are going to see a secular rise in interest rates. For reasons we don’t have time to get into now, real interest rates are likely to stay negative as the cost of living begins to rise with commodity price rises. Collectively, Oliver’s work strongly suggests that we are in the early stages of a commodity bull market with gold in the lead.