Crazy stuff! The "deflation bias" charts plunged only to be saved (for less than a day) by some Fed jawboning. And now here we are, at the end of the week, with stocks and other paper "assets" clinging to support.
It has been quite a volatile day so far in the paper markets. Crude plunged as low as $83.62 before rebounding more than $2. The S&P 500 bottomed out near 1913 but has since rallied over 10 points. Fear of deflation/disinflation seemingly has "investors" everywhere poised and ready to run for the exits. Will that mass exodus begin next week? Maybe. It is October, by the way...
That said, with the ever-present bid of the Plunge Protection Team, perhaps the global equity markets will stabilize again? Let's watch today's close very closely. Last week, we identified the area around 1926 as important support and a close below there would almost certainly invite a trip down to 1905 early next. Below there, the drop would likely accelerate before reaching new support near 1870. At that point we'd be talking about a 10+% correction and the bubbleheads on CNBS would be uncontrollably hysterical. Could it happen? Absolutely! That's why next week is setting up to be so interesting.
Also, we had picked out $84-86 as a potential, broad support zone for crude oil. As mentioned above, the greazy stuff bottomed out earlier all the way down at $83.62 and has since rebounded. I actually have a last of $85.83 and UP 6¢ on the day. Why does this matter. Two main reasons:
- Plunging crude personifies the "disinflation bias" as well as the "global slowdown/collapse bias"
- A rally/bounce in crude will help silver and gold to catch and sustain a bid
So we're going to be watching crude quite closely next week. Be sure to note how a similar plunge in 2012 brought the same oversold extremes that then led to a $20 rally:
For how this all relates to gold and silver, let's have a look at the weekly chart. First, notice that gold has bounced again from the $1180 level and, in doing so, is about to put a bullish, engulfing candle on the weekly chart. This certainly looks like a hopeful sign to me and it appears to be a precursor for a continued rally back UP to the old 2014, Cartel-enforced trendline that we've been following all year. If you look closely, that line appears to be near $1245 which, (not) coincidentally is the exact same level gold needs to best to confirm a turnaround. Are you beginning to see why next week is important??
Turning to silver, getting back above $18.20 and then $18.50 continues to be our main goal. IF IT CAN DO THIS, we can begin to get excited about a rally into year end. Crude bouncing and rallying back above $90 and toward $100 would obviously be a big, big help. (Note that, at present, silver continues to "ride the line". Any move now back UP and through $22 would be an extraordinarily bullish signal.)
I'm going to stop here because it's late and I need to get this posted. I hope you have a restful weekend and that you return on Monday with your gameface on and ready for anything.