Are You Ready for Major Plate Tectonic Shifts in 2016?

Michael Oliver who is my favorite technical analyst put out a letter to his subscribers on Dec. 16 titled, “Will Gold Try to Position Itself Like Stocks?”

I like Michael’s work because he isn’t trying to “cheat the markets.” Rather he is a student of the markets and I think has learned to listen to the language of markets as well as any technical analyst I know including the late Richard Russell. I suppose if you were a trader rather than an investor, you might find other technicians who may be more geared to your liking. But in getting a sense of where markets are in their short, medium and longer term cycles, Oliver’s approach is the most comfortable for me as an investor and I think the way he approaches it, not as a tea leaf reader, but in using momentum and structure metrics, is as scientific as any technician I have studied.

Early in 2015 Michael’s work suggested that two major markets, namely the debt and equity markets were losing momentum to the upside and as the year went on, he showed how they were in a topping out process. Two other major categories, namely precious metals and commodities, have been in the process of losing their downward momentum and in a bottoming out process during 2015. Of course within these major categories individual markets will bottom and top out at different times. But in general Michael’s work is suggesting that 2016 will likely see a major shift in these major financial market plate tectonics.

In his message of December 16th, Michael pointed out that we are indeed closely approaching a major turn upward in gold and a major bear market in stocks. Here is what he wrote that relates to the charts above:

“Developed market stock indices are currently positioned badly for opening of 2016. Meaning, their current prices (S&P500, DAX, Eurostoxx50, Nikkei225) are at levels that if traded in 2016 will blast out massive horizontal annual momentum support structures that stretch back to 2012 in some cases. Those momentum charts were shown in recent MSA reports. “Wrong place at wrong time,” is what it amounts to.

“But there are about ten more trading days let in 2015, so maybe they can explode above those levels (such as above 2090 for the S&P500) and never stick their toes below those levels again during 2016? Maybe…but I suspect not.

“I consider gold to be an opposite to that asset category. But gold’s massive annual momentum breakout numbers (breakout from a multi?year horizontal base, unlike stocks breaking down from momentum topping zones) begin around $1150 and extend to $1170 for next year. I’ve circled that zone on the price chart. While a simple look at the price chart might not be impressive with a move to those numbers (after all, the price high in October was $1191), 36?mo., 3?yr. and 3?qtr. momentum average momentum charts will be fully broken out if that circle can be reached. Question is whether gold might also try to position itself near its pending long?term momentum breakout zone before year?end? Like stocks already are.

“The charts above are of intermediate trend time?scale. The momentum trend chart tends to shift direction probably every few to several months. The recent drop was clean and swift for momentum, but the interesting aspect is that while price made, yet again, a “new low,” momentum, even on an intermediate time?scale, refused to confirm the price action. Momentum made a higher low. There was also a “new low” for price back in Nov. 2014 which was equally non?confirmed by momentum. This behavior pattern of price nudging a new low with momentum non-confirming is not something that is perpetual. Usually three is about the extent of such a nudging new low process. And this recent low is the third in a sequence since November, 2014.

“Right now I’d watch the top end of the recent oscillator range (red line) ? which actually traces back through a prior pivotal low. That is an important line for this particular chart. Close over it and that suggests gold might want to move up toward the levels that become massively important for it in 2016. MSA is not arguing that breaking out over the red line is a major buy on gold. Such a breakout must be placed in a time ?scale context ? and in this case it’s of intermediate quality at best. It’s a trading buy. Certainly not an “all in” signal. The only significance of that line is that crossing it might begin to move gold closer to the BIG numbers applicable in 2016. MSA will update as needed.”