Michael Oliver & Tectonic Market Shifts

Last year, my favorite technical analyst, J Michael Oliver, started to talk about major tectonic shifts in markets. Specifically, a year to 18 months ago, Michael’s structural momentum work was beginning to reveal some cracks in the debt and equity markets and some signs of base-building stability in precious metals and commodities sectors in general. Of course where geological time horizons are measured in millions of years, the time horizons for these markets are measured in weeks, months and quarters rather than millions of years.  And so, while invisible to most, cracks in the structure measured by Michael’s momentum work that he talked about 12-to-18 months ago are now just starting to become visible to a growing number of members of the Wall Street establishment.  The dollar is the key structural market against which other prices are measured and there is a close correlation over time between a weaker dollar and stronger gold and commodity prices.  Let’s take a look at Michael’s latest work on the dollar, dated March 24, 2016 to get a sense of how close we may be to a prospective tectonic quake that sends the dollar down and precious metals upward:

“In recent reports on the Dollar Index I’ve identified the 95 to 94.50 level as negative—if closed at or below on a monthly closing basis. A 94.50 monthly close will credibly break this multi?year uptrend on quarterly momentum. This month’s low trade has been 94.57. It is now trading at 96.23.

“Within the Dollar Index the Euro is the primary factor holding the index steady (the Euro comprises 57% of the Dollar Index). The Euro continues to make efforts to break out on its long?term momentum (an April closing price on Euro futures of 1.1360 will accomplish a momentum breakout). But the efforts come and go in a range. Currently the Euro is just below 1.12.

“Meanwhile, Yen futures are in bull mode ever since last year’s closing level at .83 (now at .89), but the Yen is only 13.6% of the index. Not enough on its own to tip the Dollar Index into negative. Another pending bullish currency in the Dollar Index, which could weigh on the Dollar, is the Canadian Dollar. But its futures need a monthly close at .7450 to begin to signal upside.

“Currently slightly over .75 with four trading days left in the month. The Canadian Dollar is 9% of the Dollar Index. But net on balance, the uptrend line on the Dollar Index’s quarterly momentum (since 2008), while being pressured, is still intact. A 94.50 monthly close (March through June) will break that structure. Until then, monitor.”

Okay so let’s monitor!

• On April 1, 2016, the dollar index closed at 94.618, which is just a whisker above the level that Michael suggests and is crucial to trigger a tectonic shift toward weakness in the world’s reserve currency.
• The euro closed this past week at 1.14165, which is above the key breakout spelled out by Michael.
• Also, the yen at .89685 has risen above the .83 level and as such is in a bull market vis-à-vis the dollar though as Michael points out is only 13.6% of the dollar index.
• The Canadian dollar at .76770 has also broken through Michael’s key resistance level of .7450.

Beneath the Surface lies the Chinese Yuan & the struggling Chinese Economy

While the dollar index is hanging on by a thread (94.618 vs. 94.50) for the moment to its bull market status, as Jim Rickards points out in my interview, which you can listen to here http://ow.ly/10cnxA  the bigger picture involves the Chinese currency.  The Chinese Yuan is connected to the dollar. The only way the Yuan can be cheapened, thus stimulating Chinese exports, is to devalue the dollar, which as noted above from Michael’s work is sitting on the precipice of a dramatic decline.  Were the Yuan to decline dramatically against the dollar, as we have seen recently, it would send the global markets into a tailspin. Thus, in an attempt to keep the global economy from imploding for as long as possible, a slight of hand game is taking place to enable the Chinese Yuan to decline against a host of other currencies like the Yen and the Euro which as noted above have begun rising against the dollar and thus vis-à-vis the Yuan.

So indeed underlying all of the markets we focus on each and every day, the most important market is the U.S. dollar in which the ruling elite of the western world is seeking at all costs to maintain its hegemony. But there are geopolitical and market tectonic shifts that are just starting to become visible. And once those slow moving shifts evolve into an earthquake, we are likely to see massive change in which the dollar reverts towards its true value—zero—and with it items of value, starting with honest money—gold—will be restored to natural levels. Because of the economics and political dislocations that result from those major changes, I am not cheering for this event. But to recognize its inevitability and prepare for it, seems more important now than at any other time since I began writing this letter in 1981. Indeed, with the dollar perched on the edge of a very important decline, it may now be most urgent to prepare for these inevitable tectonic markets shifts discussed by Michael Oliver.

While we are on the subject of the dollar and gold, please see again Michael’s latest price and momentum charges for GDX, the ETF that tracks gold shares. Indeed prospects are looking very bright once again for the kinds of stocks covered most in this letter.

Regarding gold itself, Michael’s work is suggesting we should now be anticipating a gold price of approximately $1,450 as the first significant resistance point. Here is what he last wrote about gold on March 24, 2016. “Observations regarding the long?term trend: The base was substantial and clear on MSA’s gold long?term momentum charts. Given that the breakouts occurred on the long?term charts, one should expect longterm upside consequences. This is not a ‘trade.’ There will be corrections and congestions, but the major trend has turned. Furthermore, long?term momentum readings are not overbought in the least, and after due congestion they will likely see a further, major advance. MSA continues to expect the first working target of this new bull trend to be in the $1450 area. Not the end of the bull, just a likely level of major pause.”  In other words, the outlook for our gold and gold shares is looking very, very bright!