Recently, the U.S. stock market rallied to new all-time highs, which prompted an almost immediate celebration. A day later, the stock markets reacted by setting up multiple top rotation patterns. The next day, a moderate price rally set up after the U.S. Fed decreased rates by 25 basis points. The following day, the markets sold off dramatically with heavier volume – prompting metals and the VIX to rally.
We've been warning for weeks that U.S. markets have been moving into a Pennant/Flag formation within a tightening range biased to the upside. We believe the move in precious metals may be indicative of a breakout/breakdown move in the markets – near the apex of the pennant formation on the gold chart, below.
We think this Pennant/flag formation on gold's daily chart aligns with the longer-term pennant formation that setup in the U.S. stock market. We also think the breakout move in metals may be a very strong indication that the U.S. stock market may begin a reversion price move – a deeper downside price rotation – that could result in a spike in the VIX and metals while the U.S., and potentially global, stock markets react to weakness that may drive a price correction over the next few weeks. This type of price correction could resemble the correction that happened near the end of 2018.
As we've been warning over the past few weeks, we think that U.S. and global stocks are setting up in a very fragile price pattern that may result in a moderately deep price correction that could surprise investors over the next few weeks and months. Be prepared for some very stark volatility and an increased risk of a potentially deep price correction over the next 60-to-120+ days.
If gold continues as we suspect, a rally to the $1600 to $1650 level may be set in very quickly. Ultimately, this rally could continue to levels above $1700 to $1750 before the end of 2019. The speed of the rally in metals will relate to the amount of fear generated by any weakness in global markets and the speed and severity of a potential price collapse.
Silver, which should lag behind gold initially, may see one of the biggest rallies drive prices well above $22 to $23 on the initial upside move – we may just have to wait for it to accelerate as gold will likely lead this rally.
At this point, price is the true indicator. Technical analysis, price patterns, price theory and other resources allow us to better understand what is likely to happen in the future. Any price failure after the U.S. stock market reached these nominal new highs will prompt an attempt to retest recent price lows. This means the U.S. stock market may attempt to retest the June 2019 lows or the December 2018 lows on deep price correction.
Concluding Thoughts
October was the month of most major asset classes completing their consolidation phase. Natural gas was the big mover in October and subscribers and I took full advantage of the consolidation and breakout for a 15-24% gain and it's still on fire and ready to rocket higher.
November will be the month of breakouts and breakdowns and should spark some trades. I feel the safe havens like bonds and metals will be turning a corner and starting to firm up and head higher but they may not start a big rally for several weeks or months.