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We cannot remember having seen so many markets at critical points simultaneously. It is truly astonishing. Scary movie or turning points?
The dollar is standing at a critical juncture which has been built since three decades. The secular chart patterns reveal that the dollar is sitting right at a giga-trendline. If the dollar were to trend higher in the coming weeks and months, we would interepret it as strongly deflationary. On the other hand, we see a false breakout in the chart, indicated with the red circle, which could mean that the secular downward trend is still intact.
Several key commodities have arrived at another structural decision point, particularly Dr. copper, gold and silver.
Dr. Copper, the indicator of global economic health, is going to tell us shortly what to think of the state of the economy. As the next chart shows, we are right at the apex of a mega trend (triangle); its formation is 14 years in the making.
Gold, the monetary commodity, has also arrived at a critical point. Although the triangle on its chart goes back to 2008, slightly less impressive than copper, it also tells us it is make or break time.
Unsurprisingly, silver has reached the last retracement level of it’s secular uptrend which started in 2004. It goes without saying that this is a critical point.
Last but not least, the U.S. bond to stocks ratio is arriving at a decision level as well, although there is still some room within the ongoing pattern. A break outside this pattern could signal a similar situation as in 2008: stocks are about to undergo a (severe?) correction, while bonds would appreciate. The issue here is that there is not much room left for bonds to rise, given the multi-decade low yields. Let’s be clear: we will have one of the following three scenarios: either a crash in the bond market, or lower yields than we have today (in other words, negative yields across the board), or a severe correction in stocks.
It is truly exceptional to see so many strategic assets at critical junctures, simultaneously. It seems that a stock market correction is becoming clearer with the day. On the other hand, the commodities we discussed could go both directions: up or down. A declining stock market seems is likely to lead copper lower. Could gold and silver react as a safe haven, given the ultra low yields in bonds? Or will investors chose for bonds, driving yields even lower, and making the world we live in even more crazy than it is today?