There are so many things happening on the markets right now that I don’t even know where to start!
Let’s start with the investors’ favorite asset – or is bitcoin so-last-year and it’s now Nvidia and AI that we should focus on? More on tech stocks later.
At times, bitcoin and the precious metals sector moved together. The 2022 tops were aligned, so it could be the case that gold reaching its rising long-term resistance line and bitcoin invalidating its breakout are connected on an emotional level as both anti-dollar assets are topping at the same time.
Bitcoins move back below its all-time high is a sell signal on its own, but through the above-mentioned link, it’s likely to be a sell sign also for gold.
Next: tech stocks.
Last week, I wrote the following:
Speaking of invalidations – it seems that we’re about to see one in tech stocks.
And we just saw it!
Last week, I wrote that the invalidation of a breakout of this importance would be a clear sell sign. We just saw it!
Would you like some confirmation with that?
Nvidia appears to have finally topped after a huge rally. Why would I say so? Because of the price level that it (almost) reached before clearly reversing on big volume.
It’s hard to find a level that’s rounder than $1,000, and that’s the level that NVDA was approaching. It topped a bit below it, but its proximity still makes the reversal believable.
On its own, it might imply a top, or it might not (the mid-Feb. “top” was not really THE top), but given NASDAQ’s invalidation, it’s quite likely that the top is indeed in.
Also, if you go back to the long-term NASDAQ chart, you can notice a specific “treasure”. I mean the superb timing tool provided by tech stocks that’s based on the analogy to the bottom that we saw over two decades ago.
Back then, mining stocks bottomed when tech stocks moved to their initial low. Right now, it’s easy to pinpoint the initial low – it’s just above 10,000. This means that we are likely to see a major bottom in mining stocks – and probably a buying opportunity also in the rest of the precious metals sector – once NASDAQ moves to that level.
The S&P 500 Index is also pointing to lower values…
The important thing that we see in the S&P 500 Index is that it broke below the rising support line, then moved back to this line, reversed, and then tried to rally back above this line one more time – without success.
Remember – when laggards catch up, it often means that the market is topping. Junior miners were definitely one of the weakest sectors, and they are now catching up (the same goes for FCX, platinum, and palladium) – the implications could extend beyond the precious metals market – it could be a sign of a top in the broad market as well.
Other markets simply don’t confirm gold’s strength and they indicate that gold is about to turn south.
Quoting my Mar. 7 intraday Gold Trading Alert:
As the USD Index just moved below its late-Feb. low it can now decline even lower – how low? Quite likely to the 102.5 – 102.8 area. That’s where we have the following:
- the 50% Fibonacci retracement,
- the previous lows,
- and the declining support line that was broken in the final days of February.
Before anyone says that the rates might fall in the U.S. and this would make dollar decline, please note that the same thing is the case globally – the ECB just provided the same no-rate-cut-yet-but-sometime-in-the-future narrative. The USD Index is an index that is based on several currency exchange rates, so it’s value is driven by how well the U.S. currency does relative (!) to other currencies. If the situation is bad for the USD but it’s worse for other currencies, the USD Index would be likely to rally, because in relative terms, the USD would be a better choice.
Technically speaking, the USD Index has floor just below today’s lows, so its downside is likely limited. And it’s bottom and the subsequent rally might be the trigger that takes gold lower and that takes our short positions in junior mining stocks to their profit-take levels.
This target has indeed caused the USD Index to rally. It wasn’t apparent at first, but it’s clear based on today’s prices.
Higher USD Index values make its alternatives less attractive – I’m talking about gold and bitcoin. In the case of the U.S. stocks market, the impact is also negative – the increasing USDX means less competitive exports for the U.S. companies, which is not good news for their profits and thus, share prices.
Here’s what the situation looks like in the case of the USD Index’s biggest component: the EUR/USD.
The areas marked with red ellipses are analogous. It’s common for the EUR/USD to provide one last bounce before it plunges after its multi-top pattern. In other words, the outlook here remains bearish which has bearish implications for the precious metals market.
While we’re in the long-term realm, let’s check the two important ratios for the precious metals market – the HUI Index (proxy for gold stocks) to gold and the HUI Index to the general stock market.
Both ratios are after major long-term breakdowns. And you know what often takes place after breakdowns? Verifications.
That’s exactly what both ratios have been doing recently – they moved back to the previously broken lines without rallying above them.
As the breakouts were not invalidated and are being verified, their extremely bearish implications remain intact.
They are particularly bearish for mining stocks.
Meanwhile, silver rallied as well, but the move was significant only if one focuses on the short term.
Silver rallied considerably recently, but… It’s nothing extraordinary compared to what we saw in the previous months – and in each case a decline followed.
The interesting thing about the current rally is that – based on yesterday’s high – it didn’t take silver back above the rising, orange resistance line which is the neck level of the previously completed head-and-shoulders formation.
However, in today’s early trading, silver soared, and it did move above the rising, orange line. It did so while greatly outperforming gold.
That’s silver’s recent performance in terms of 4-hour candlesticks, and below you can see the gold price from the same perspective.
It’s obvious that silver just outperformed gold in a major way.
The GLD ETF is DOWN by 0.75% at the moment of writing these words, while the SLV ETF is UP by 4.43%.
This is how tops in the precious metals market look like.
And you know what? Silver appears to have reached it long-term, declining resistance line.
This means that the rally is quite likely done, or very close to being done, as silver sometimes briefly moves above its resistance, fakes out and then drops like stone in water. Stay tuned… Or better yet – stay prepared.
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Przemyslaw K. Radomski, CFA
Founder, Editor-in-chief