Are These Charts Showing A Period Of Deflation In All Asset Classes Is Coming? (SLV, GLD, GDX, TLO, TMV, URE)
John Townsend: Trying to make complete sense of what is going on in the markets right now is nearly impossible, at least for me. But I do envision ‘things on the horizon’ that could well become reality and I dare say they are quite contrary to what appears to be true at the moment. In two simple words, I think ‘caution advised’ is worth our consideration and if you read on I will show you why I think this is true.
This post will look at gold (NYSE:GLD), the miners and silver (NYSE:SLV), but stray a bit and also consider the bond market/interest rates and include real estate. The conclusion of my analysis may leave the reader with the notion that a period of deflation in all asset classes is likely before us. Or certainly, that an upcoming bout with deflation is a very good possibility. I will tell you right now that this is my concern and again assert, ‘caution advised’.
Let’s begin with this look at the weekly chart of the World Gold Index (XGLD). I have used the 40 weekly moving average as a proxy for the 200 dma. The calculations above price are the approximate percentage that price was able to achieve above the 200 dma since the previous C wave top of 2008.
At this time, a price of $1665 would place gold about 15% above the current 200 dma reading. This, along with gold being on Day 20 of its 20-25 day daily cycle, suggests to me that gold is due for a pull back and soon. The True Strength Index (TSI) indicator looks fine, as it is rising above ZERO. A few weeks ago it made the bullish ZERO crossover and a trend line break BUY signal followed.
Possible conclusion: gold is due a correction based on its daily cycle and possibly a large correction due to its height above the 200 dma.
Moving on to a daily chart of Market Vectors Gold Miners ETF (NYSE:GDX) will begin the analysis that suggests much more caution. First, we note that on this past Friday the 200 dma fell for the first time in over a year, and observe that about 6 weeks ago the 50 dma bearishly crossed down through the 200 dma. Neither of these technical observations are bullish.
Second, we note the clear trend line break SELL signal given by the TSI well over a week ago, and the following bearish negative divergence price action that yielded another SELL signal. At present, the TSI is in free fall BELOW ZERO, price has closed below the 200 dma and there are no TSI BUY signals remotely imminent or possible at this time. Add to this the fact that gold has been rising while the miners are falling, and well, something is not right.
OK, so let’s have a look at the weekly GDX chart now.
There is no other way to characterize what I see than to refer to it as scary. Our current situation is eerily similar to that which existed in later 2008 – just before the gigantic deflationary meltdown. I have hand drawn a possible TSI future path that is identical to 2008. In my opinion, we truly are on the cusp of something big and my guess is that it is something both big and unpleasant.
The TSI was brilliant in spotting the top of the silver parabolic last April. Too bad I did not completely believe all the SELL signals it gave me on the daily, 4 hour and 1 hour charts….but they were all there….like 5 of them!
Well, here is a daily chart of Proshares Ultra Silver ETF (NYSE:AGQ) and maybe I would do well to tell you what the TSI indicator says. It says SELL.
I would imagine that if the markets are going to enter a deflationary episode, everything, at least initially, is sold in panic. Stocks and miners, of course. But also gold and silver. And even bonds. Everything gets sold in one of these deflationary melt downs.
So let’s turn to a couple of charts relating to bonds and see how they may be positioned for future movement. This first chart is a weekly of SPDR Lehman Long Term Treasury ETF (NYSE:TLO).
An investor may wish to own TLO if they think long term treasuries/bonds are going to rise in price. But that negative divergence in the TSI tells me that the next likely direction for this ETF will not be up. Rather, it will be down.
And here is a look at an inverse ETF that goes up in value if bonds fall in price. This weekly chart is of the Direxion 30 Yr BEAR 3X (NYSE:TMV). At present the TSI is set up to behave exactly as it did last Sept/Oct. That is, bounce off a positive divergence and make those who own it about 60% richer in 3 months.
And finally, this look at real estate. As I wrote earlier, in a deflationary panic/melt down everything, all asset classes, get taken down and taken down hard. After you take a look at this weekly chart of Proshares Ultra Real Estate ETF (NYSE:URE), could you keep a straight face trying to argue why this security should survive a stock market melt down? I know I could not.
The TSI Trader is a website dedicated to the deployment of the True Strength Index (TSI) indicator for buy and sell signals related to gold’s secular bull market. The TSI indicator is freely available at FreeStockCharts.