WEEKEND WRAP: Stocks Slide; Island Reversal Seen; Gold, Silver Soar; Treasuries Flatline; Argentina On The Ropes

For a second time in the past three weeks, stocks suffered another round of losses which accelerated as the week progressed. Of the major indices, taking the biggest hit were the Dow Industrials, followed by the NYSE Composite, S&P 500, and NASDAQ, in percentage terms.

The Dow's 3.31% fall was made possible by a Friday selloff which saw the blue chips decline by 730 points, the largest selloff since June 11, when stocks suffered a major blow preceded by an ominous island reversal of June 5, 8, 9, and 10. (see video below for more)

Friday's action may be presaging an oncoming decline of a magnitude rivaling the initial slide in March. The second quarter comes to a close on Tuesday and everybody on wall Street knows that it's difficult to "price in" a GDP decline which may be on the order of 35-50% when the first figure is announced on July 30.

Prior to that momentous milestone, corporate earnings reports will begin to flow to the street following next week's July 4 Independence Day holiday. The coming week will be shortened by a day, as Friday is a national holiday, giving most Americans a three-day weekend. Stock markets, banks, the postal service and most city and county offices will be closed. Hopefully, most of them will reopen on July 6.

For the week just concluded, treasury yields were clobbered, the 10-year note falling from 0.71 to 0.64%, the lowest since May 14 and approaching the record low of 0.58% from April 21st. As the 30-year bond yield fell from 1.47 to 1.37 over the course of the week, the curve flattened significantly, 125 basis points covering the entire complex. If this is what the Fed considers success in "curve control," they can have it, with the short end - one-month to two-years - covered by just five basis points (0.12 to 0.17%).

These low rates at the front end aren't by accident. They are policy and they are indicative of a recession if not outright depression. Adamant that they will not go to negative rates as has been the case in the Eurozone and Japan for years, the Fed's real rates have been in the red pretty much since the previous crisis in '08-'09, i.e., they were lower than the inflation rate. The one year note only crested above one percent in 2017. A year ago, it was yielding 1.92%, a stark comparison to Friday's close at 0.17%.

The Fed promised cheap credit and they are delivering.

Oil prices were slapped down after WTI crude tested $40/barrel, peaking at $40.73 on Monday, only to close out at $38.49 on Friday. Expect oil to continue trading sideways to lower if stock prices begin to falter, or, vice versa. Oil declines could help trigger or exacerbate a rundown on equities.

Precious metals were by far the big winners for the week. Both gold and silver advanced smartly despite a desperate attempt to crater their prices Friday on the NYMEX failed miserably. The morning rout sent gold reeling $20 to the downside, bottoming just below $1745 per ounce. So enamored with "V"-shaped recoveries, Wall Street got an unexpected one when gold prices recovered all of the losses within an hour and proceeded to close near the high for the day at $1771.50. Laughably, Friday's recorded London PM fix was set at $1747.60, setting up a $24 weekend arbitrage gap. Maybe, considering the problems the paper COMEX markets have had in recent months, it's not so funny for gold shorts, which are burning.

Silver savers should be delighted with the price action this week. Not only was a raid similar to the gold price suppression thwarted on both Thursday and Friday, but spot edged three cents higher than the closeout future price, at $17.83 the ounce, the highest Friday price since February 21, just prior to the epic COVID collapse.

Current physical prices continue to demand high premiums. This week saw prices for silver art bars absolutely explode higher, some one ounce bars selling above $40. Average and median prices for one ounce gold coins and bars were captured at prices $33 to $45 higher than a week ago.

Here's a glimpse at current selected prices on eBay (shipping included):

Item: Low / High / Average / Median
1 oz silver coin: 25.95 / 40.95 / 30.92 / 29.47
1 oz silver bar: 27.00 / 45.44 / 34.62 / 32.93
1 oz gold coin: 1,827.85 / 2,109.95 / 1,919.39 / 1,901.60
1 oz gold bar: 1,861.66 / 1,920.65 / 1,879.77 / 1,873.92


Argentina's Debt Crisis Far From Resolution

Argentina's government continues to play cat and mouse with international creditors, extending the deadline for negotiations concerning $65 billion worth of bonds to July 24.

Having already defaulted on a $500 million interest payment on May 22, the government is doubling down, indicating that it will miss another similar payment in June, which has a 30-day grace period. The chances of a settlement agreeable to the government and its creditors continue to deteriorate as interest payments are missed and the value of the bonds plummets, some selling off to as low as 37 cents on the dollar.

Talks stalled over the past two weeks as investors including BlackRock, Fidelity, AllianceBernstein, and Ashmore Group PLC, rejected a government proposal tied to agricultural exports while seeking recovery of between 49 and 57 cents on the dollar.

At the same time, the province of Buenos Aires, Argentina’s largest province, is negotiating with bondholders on the restructuring of $7.148 billion in debt and extended its deadline for a negotiated settlement to July 31.

Per previous proposals, payments would not begin being made on the currently-defaulted bonds until 2025. This article, published by the Council on Foreign Relations, offers the most comprehensive details, including charts that break down Argentina's $323 billion of debt, all of which is at dangerous risk levels.

At a time when the country's GDP is predicted to decline by 10 percent, the severity of the financial crisis cannot be understated, though mainstream television media in America has nearly completely neglected to report on the issue. Argentina has suffered through decades of boom and bust over the past 45 years, 20 of which showed GDP in decline.

It's not a question of when Argentina defaults on its debts, it's a question of how severe the defaults will be, how they will affect government pensions, and the ability of the government to maintain its status as a going concern. With a population estimated at 45 million, Argentina's problems are quickly becoming everybody's, as tens and perhaps hundreds of billions are in the process of being eviscerated.

With the government of President Alberto Fernandez content to play kick the can by extending the negotiation deadline for a fifth time, the dithering is taking its toll on investors. While a formal default has only been declared on portions of Argentina's debt, triggering the awarding of a credit default swap (CDS) recently, these things have a nasty way of snowballing into global crises, as was the case with Mexico in 1982, the Asian Crisis in 1997, and when Russia devalued the ruble in 1998.

Having to deal with some of the most severe lockdowns in the world due to the COVID-19 panic, Argentina is ill-prepared to deal with a financial hardship of this magnitude. The situation could spiral out of control at any time, when one side or the other finally throws in the towel and walks away. Consider Argentina's plight a fluid situation with more headlines and fireworks likely over coming months.

At the Close, Friday, June 26, 2020:
Dow: 25,015.55, -730.05 (-2.84%)
NASDAQ: 9,757.22, -259.78 (-2.59%)
S&P 500: 3,009.05, -74.71 (-2.42%)
NYSE: 11,604.43, -260.68 (-2.20%)

For the Week:
Dow: -855.91 (-3.31%)
NASDAQ: -188.90 (-1.90%)
S&P 500: -88.69 (-2.86%)
NYSE: -375.19 (-3.14%)

Peak Prosperity's Adam Taggert and friends discuss threats to the stock market, highlighted by their charting of the recent Island Reversal:

WEEKEND WRAP: TA (Technical Analysis) Shows Split Indices, Preferences

By most accounts, the week past was very solid. Midterm elections went to a split decision, the Fed Held firm on interest rates and stocks generally responded with gains. Apparently, Wall Street is perfectly satisfied with Donald J. Trump in the White House, Republicans in control of the Senate, and Democrats holding sway in the House of Representatives. The Dow, in particular, was the big winner, posting its second straight week on the upside, leading the majors with a gain of 2.84%, suggesting that big business is still the motif of the Republican party.

On the slightly more moribund side of the ledger, the NASDAQ, thanks largely to a selloff in tech equities, fared the worst, though still registering a gain of two-thirds of a percent.

What is striking to those steeped in charting discipline is the variegated construction of the major indices. In the interest of brevity and clarity, a table serves best to understand where stock indices are currently residing.

The table below shows where each of the major indices stand in relation to their various moving averages.

Index	50-day MA	200-Day MA	40-Week MA
Dow	Above	Above	Above
NASDAQ	Below	Below	Below
S&P 500	Below	Above	Above
NYSE COMP.	Below	Below	Below
Dow Trans.	Below	Below	Below

Obviously, the Dow is presently the favored index, having cleared all the hurdles which allow it to be pointed for more success. On the other hand, the NASDAQ, NYSE Composite and Dow Transportation Index are all trending negatively, offering signals in broad swathes that all is not as well as the Dow would have us believe.

The S&P hovers in no-man's land, below the 50-day, but above the 200-day. The 500 major stocks represented cumulatively are offering value, though direction is far from assured.

The Dow Transports have been included because of its unique relationship to the Industrials. Transportation issues are largely overlooked by the financial media, though their importance in general markets should not be undersold. If the companies that move goods, services and people are struggling - even in the face of dramatic declines in fuel prices - something is not right.

What should this suggest to the investor?

Perhaps it is nothing more than big money preferring to buy well-known names with solid track records (the 30 Dow stocks) while shunning the lesser-known companies represented in the broader indices. The S&P probably offered the best indication: that, according to current sentiment, stocks are somewhat fairly valued. Continued divergences such as are showing in the table cannot last for long. Either the positive vibe from the Dow will serve to lift other areas and sectors, or the broadly-defined mid and small-cap stocks in the composite indices (and the transports) will pull all boats crashing into the shoals.

One might expect these divergences to be resolved in short order, though markets today are guided so much by programmatic trading and headline-chasing algorithms, it's difficult to pinpoint where the breaks are actually occurring and in just what direction they are going to move.

A related article by Bernie Schaeffer of Schaeffers Research offers some insight into how well the Dow Industrials and Transports perform under various conditions. The article references November, 2016, and readers should know well what happened in the weeks and months following the general presidential election. Stocks soared, with numerous record highs met and broken.

Should this period - after a midterm election - respond similarly? Technical analysis would say yes, though, as the wizards of Wall Street are always keen to remind: past performance in no indication of future results.

Caveat Emptor indeed.

Dow Jones Industrial Average November Scorecard:

Date	Close	Gain/Loss	Cum. G/L
11/1/18	25,380.74	+264.98	+264.98
11/2/18	25,270.83	-109.91	+155.07
11/5/18	25,461.70	+190.87	+345.94
11/6/18	25,635.01	+173.31	+519.25
11/7/18	26,180.30	+545.29	+1064.54
11/8/18	26,191.22	+10.92	+1075.46
11/9/18	25,989.30	-201.92	+873.54

At the Close, Friday, November 9, 2018:
Dow Jones Industrial Average: 25,989.30, -201.92 (-0.77%)
NASDAQ: 7,406.90, -123.98 (-1.65%)
S&P 500: 2,781.01, -25.82 (-0.92%)
NYSE Composite: 12,537.53, -84.51 (-0.67%)

For the Week:
Dow: +718.47 (+2.84%)
NASDAQ: +49.91 (+0.68%)
S&P 500: +57.95 (+2.13%)
NYSE Composite: +215.73 (+1.75%)

Market Chart Alert: Dow Double Engulfing Day Signals Start of Turnaround

For as long as just about anyone who charts stocks and indices can remember, the pattern which appeared in today's session should be a primary signal that stocks are ready for an abrupt turn - and this one is decidedly to the downside.

Notwithstanding ongoing market manipulation to the contrary, which has pushed stocks to extreme levels over the past few months when just the opposite appeared more likely on poor data, low volume and other bearish signals, the double engulfing pattern - in which the high and low of today exceeded the highs and lows of the previous two sessions - is a bright red flashing light to chartists everywhere.

The Dow Jones Industrials took a rather abrupt turn late morning. After a slow start, the index reached the high point of the day (13,330.76) just before 11:00 am EDT, hovered in that area, then began a serious decline a short time later, finally dipping into the red around noon.

For the rest of the session, the Dow, carrying the other major indices along with it, continued a slow descent until bottoming out around 3:15 pm EDT at 13,186.60, eventually finishing just 16 points off the low, yet another bearish signal.

The trading range of 144 points exceeded the highs and lows from Friday and Monday's trading, on both sides and was the widest range since August 3rd, when the index ranged 148 points, but finished higher by 111 points.

The headwinds that have been pushing against stocks for a while (could be two months, two quarters or two years, depending on perspective) may finally be taking its toll on the trading community, though there's also sufficient data to determine that stocks have reached the upper limit for the short turn, coming a whisker within the 52-week high of 13,338.66, achieved on May 1st.

While the chart is eliciting a strong double-top formation, the gain from Dow 12035.09 to today's high - a rally of 1,295 points, or, roughly 10%, from June 4, was built on a series of sharp one-or-two-day upside moves with intermittent, short selloffs in between until the baby-step gains typical of the past two weeks.

In simpler terms, the market may just have run out of gas, the problems in Europe and the coming crucial elections and fiscal cliff all creating significant uncertainty in the minds of investors and traders.

A pull-back from these current nose-bleed levels would not be without precedent; indeed, the month of May shook out to the same amount as the gains in June, July and August combined.

What happens next is anyone's guess, and the transportation average is offering a bit of a clue, having finished the day just 0.23 short of the high made on Friday, a one-month high, but well short of the 52-week high set on May 2nd, 5334.52.

The issues plaguing the market and the general economy still are persistent and a shock to the system may be forthcoming, especially since neither the Europeans nor the Federal Reserve seem committed to further monetary easing, something market participants have been lobbying for over the past four to six months.

With November's elections coming fast, the Fed is very reluctant to make any abrupt announcements, while in Europe, the cries from Germany to stop the Ponzi-like bailouts of the southern sovereigns grows louder with each proceeding day.

Despite market breadth being only moderately negative and new highs - new lows reading nearly off the charts positive, we'll await confirmation from these and/or other metrics before making an all-red bear call.

Adding to the market consternation on the day were the continued run-up in safe haven assets, gold and silver, both reliable indicators of general fear in the marketplace.

As for the ongoing rally in crude oil, that is more a function of the time of year, when market insiders annually push prices to their highest levels preceding the Labor Day holiday, just two weeks hence.

Dow 13,203.58, -68.06 (0.51%)
NASDAQ 3,067.26, -8.95 (0.29%)
S&P 500 1,413.17, -4.96 (0.35%)
NYSE Composite 8,082.68, -11.65 (0.14%)
NASDAQ Volume 1,574,080,875
NYSE Volume 3,249,264,250
Combined NYSE & NASDAQ Advance - Decline: 2408-3071
Combined NYSE & NASDAQ New highs - New lows: 264-32
WTI crude oil: 96.68, +0.71
Gold: 1,642.90, +19.90
Silver: 29.43, +0.83