2016 – Green Shoots

January 11, 2016

Let us look forward to the green shoots of 2016 and try to forget about those embers of 2015, leaving them to lose their glow and become history. Green shoots? Yes, it is a well known and no longer trusted description of the economy, but this time the focus is on the metals, not the false optimism of manipulated figures for the CPI or the growth in new jobs. Silver and gold held and stuck to their long term support as presented on the monthly charts in the ‘Four Charts’ report. This was a positive sign in the light of sustained selling pressure as 2015 slipped away.

There was also confirmation of how important this stability was when 2016 started trading with both metals much firmer than the 2015 close. However, it will only be confirmed at the end of January whether support on the monthly charts has held. Granted, downward pressure did not disappear and selling waterfalls were frequent. However, demand was solid, with buyers keen to open positions near any waterfall lows; which meant the rebounds higher rarely were much delayed and often shot higher than the tops of the preceding waterfalls, as fresh buying piggybacked the new rallies.

All five silver fixes last week were within $3.00 of the $14.00 level; a strange show of stability in the London AM fix while the market swung from a low near $13.85 to a high of $14.34 during the week. One could almost think there was a manipulation of the fix last week! This week should quickly reveal whether such tightly managed fixes could be sustained in the face of what seems increasing demand. 

Wall Street reacted the way one would have expected from a stock market that was ramped by whoever wanted a strong finish to the year – with the buyer(s) trying to off-load the excess equities on their books into a market with slack demand; at least until 401(k) buying kicks in, if it does. The worst first week of a year for Wall Street confirms the negative technical outlook in the ‘Four Charts’ report and leaves a long way to go still.

The 10-year US Treasury note firmed as 2016 began, against the more bearish tone of the monthly chart; but there are still three weeks to pass before the month end, when that chart is updated next. Finally, the dollar held mostly sideways, with some volatility, against the dollar index and against the euro; very little changed over the week and a quiet start to the year.

We therefore find that the well known post 2009 ‘green shoots’, that never really did what green shoots do, are now withering away. Perhaps 2016 will show these fresh green shoots have the required staying power to keep on growing. So far so good, despite the ongoing and still regular if no longer as successful intervention – unless the apparent frequent failure of the latter happens to be an elaborately setup trap, 2016 will bring about a pleasant change.

Euro-Dollar Chart

2015 rushed to its close without any euro surprise. The trend remained sideways  within its new bull channel KL, (K: $1.1309, L: $1.0674) without testing the sides. There is still ample room to continue mostly sideways, with a bullish bias to remain above the bottom of the channel. First support is still at line D ($1.0689), while the resistance is at line Q ($1.1160). No fireworks as yet in 2016.

Euro-dollar, last = $1.0932 (www.investing.com)

Dow Jones Industrial Average (DJIA)

The year started off badly for Wall Street. The Chinese stock market had sold off at the first sign of 2016 and the Yuan was devalued again. The keyword is the ‘again’. This has happened before, late in 2015, but at the time the DJIA was trying hard to get back above the 18 000 level before the year ran out, and the Chinese effect was relatively small and of brief duration.

This time though it seems the Big Buyers were either away on vacation still, or the desire to see the DJIA above 18 000 had slackened off a bit. The first trading week of 2016 had four ‘down’ days, all but one more than 250 points in the red and only one positive day – with late keen support – of less than 10 points for a combined loss of just over 1000 points. Reported as the worst start to the year ever.

Wonder if the folk tale about day one, week one and the first month as a signpost for what the year will bring is to come into play? That is, if the trend continues.

Dow Jones Industrial Index, last = 16346 (money.cnn.com)

Gold PM fix - Dollars

Gold price – London PM fix, last = $1101.85 (www.kitco.com)

The gold price did not know which way to go as it got squeezed into the intersection at the apex of its pennant, ZR (Z: $1054, R: $1060). At the same time, channel KL ($1108) was trying to put a bullish slant onto the market. The result was sideways tight consolidation, with a brief dip down to test support at line D $1055) as 2015 wound down. 2016 started with support at the two pennant trend lines holding firm and a move higher to break clear of $1100/oz for much of the first week of trading.  

The increase in the PM fixes is holding just short of a break back into bull channel KL. If that should happen soon – this week? – and hold, the outlook for gold should be much more positive, as could be expected from the Four Charts report. Clearly a new green shoot that is showing more promise than the others on the economy did over a number of years!

Gold PM fix - Euro

Euro gold price – PM fix in Euro, last = €1013.3 (www.kitco.com)

2015 ran out with the stronger euro with sideways gold, at best, had the euro price of gold breaking first below the long term triangle AS (€1003), then trying to hold at support at line Y (€979.1), to prevent a definite bearish break below the triangle. A dip below this support turned out to be a false bear scare just before 2015 ended.

The jump in the dollar gold price as 2016 started, gave a boost to the euro price of gold; it was carried back into triangle AS to end a little short of the lower boundary of bull channel KL. This recovery back into the triangle is a first sign of a true new bull market in gold, with gold outperforming the euro to show the improving gold price is not merely a weaker dollar play.

Now gold needs to experience further strong demand and a rising price in its own right in order to carry the euro price of gold back into its bull channel KL (€1029). 

Silver Daily Fix Chart

Silver daily fix, last = $14.04 (www.kitco.com)

Silver showed promise when it held to bull channel KL ($19.29) in October 2015 as if to break back into the shallow bull channel, CD ($16.47). As mentioned here on a number of occasions, it seems that silver could be the major threat for somebody’s short positions; it cannot be allowed to break loose. The suppression had the price lower, back to testing support at lines S ($13.99) and G ($13.08), going sideways at best.

2016 has been good for silver, as from gold, but the lid on the silver price is steeply clamped, except for a very brief break higher to above $14.30, if only to show this can be done! All five silver fixes the past week were right at the $14 level, if only to prove that control is still strong. However, if a major jump in demand for silver out of India and China in late 2015 carries through into 2016, the ability of whomever is so scared of the metal to continue holding control is certain to be fully tested. 

U.S. 10-year Treasury Note

2016 started with some dollar weakness and – in a knee-jerk reaction that is often seen - the yield on the 10-year US Treasury note compensated for this by moving lower; or being moved. The volume of Treasuries held outside the US presents the major threat to US bonds. If foreign holders of Treasuries, now more aware of the fickleness of markets than before, see a decline in the value of their investments in their local currencies, they may well decide to sell and get out.

The Federal Reserve is definitely not keen to add more bonds to their already great holdings and would prefer not to have to buy more from foreign sellers. This is why for some time now a weak dollar is matched with a stronger bond market; a strong dollar has yields rising, to keep foreign prices steady; else foreign holders who see rising prices for their investments might be prompted to sell and take profit.

U.S. 10-year Treasury note, last = 2.116%   (www.investing.com)

The yield is still in triangle NF (N: 2.327%, F: 2.084%) and has dipped below the market resistance at line B(2.157%) that has held firm late in 2015. There is still ample room to move sideways, with no real technical pressure to choose direction. Given the basics of rising rates, it seems logical to expect the break from triangle NF to be higher, towards rising yields – as was also anticipated in the Four Charts report. Indications are that the Treasury market is soon to start a long term bearish trend. How steep that will be remains to be seen.

West Texas Intermediate crude. Daily close

WTI crude – Daily close, last = $33.16 (Investing.com)

Probably against most expectation, the price of crude continued lower, finally to find support at line Z ($33.20) after a break lower into bear channel GF ($35.28); with support at line G down at $25.81). No relief as yet for the troubled shale oil scene and possible greater problems still ahead for them and their bankers.

Iran is still to join the already too many producers of crude who are desperately in pursuit of more production to generate maximum income from a falling price. They all have major budget problems after following the age old mantra of, “When you are really coining it, spend it all; the good times will keep rolling along”. Go out and ask California about water and taxes; keep asking, in Saudi Arabia and also in the Netherlands who thought their North sea gas resources would never run out; and Norway, whose sovereign fund was liquidated after their North sea oil was depleted.

It is the same old, same old and we will see more of it in 2016 – more so when all the readily available gold and silver are finally sold to China and India!

©2016  daan joubert,   Rights Reserved      

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Throughout history the ruling class has always sought to own gold and silver because they represent purity and longevity.

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