Is This ‘It’ For Wall Street?

Predictions of what could be the Greatest Crash on Wall Street have been floating around for a long time, longer than a year at least. The Covid crash of March 2020 resulted in a spike in the more intense “This is it!” claims from letter writers, but with assistance from the Fed et al, “That was not it.” Yet. However, now that Wall Street is not having a good start to 2022, the number of doom predictions are on the increase again. So, is this going to be really “IT” this time?

Before we look at the long term Wall Street charts, it seems the LBMA has opened up a little on their traditional secrecy. The initial London Bullion Market has its roots way back in the 1700s when N.M. Rothschild and four other bullion banks formed the price fixing operation and later established the rather secret London Bullion Market, where bullion was traded in volume and in secret. In 1987 the Bank of England established the LBMA – London Bullion Market Association – which was the public face of the LBM.

Only in about 1999 did the LBM go public stating they have existed for a long time and had trading volumes of almost a 1000 tons of gold every day. This announcement sparked a heated debate on www.gold-eagle.com on whether the trade was actual gold or whether it was merely a paper trade with balances being settled perhaps on a monthly basis. By now it is widely assumed that it is paper trade.

The vestiges of their history of secrecy remained after they had gone public; it took a good deal of time for more detailed information to dribble out, in particular about the OTC market. In about 2018 they added trading volumes on the OTC markets and this appears currently on the LBMA website:

It appears to be of weekly volumes. At $1800/oz, the gold volume is a little more than the equivalent of 1350 Comex contracts. At $22.5/oz the silver volume is only about 60 Comex silver contracts, which could be expected to be lower, given that the focus of the LBMA is strongly biased towards gold. Clearly, OTC trading on the LBMA does not approach the volumes on Comex and is not a major factor for the price of gold – which does not imply that large long term OTC contracts could not influence the metal price at various times, typically said to be at year end.

The chart below of the long term history of the DJIA shows that the market initially was contained in rather narrow channels, first YZ and then XZ. It was only after the 1999-2001 bear market that Wall Street took off on a near uninterrupted bull market. The 2008/9 bear market of the Great Financial Crisis had the DJIA breaking below the channels of the earlier phase to give a bearish signal until the Fed stepped in to save the global financial system. Then the Covid Crash of March 2020 that caused a brief 37% dip in the DJIA, which only served to speed up the bull market to complete leg two of rising wedge FG. It is still consolidating in what is leg three of the wedge.

Daily DJIA. 1950-2022. Last = 34 309.17

The options at the moment are that the DJIA completes leg three by rebounding off line G into leg five, which later is to be completed by touching line F. Then the DJIA can either proceed normally and complete the downward leg five and break below line G into a new bear market. After starting on leg five off line F, the DJIA can break higher before leg five is completed, which would be very bullish.

Alternatively, the DJIA can now break lower before reaching line F to complete leg 4. That would be a premature or abnormal break from the rising wedge, which normally will be a very bearish signal once it breaks below steep line G, currently at 32 497.

The chart below is the long term view of the S&P500. Rather the same as the DJIA, in gross terms, but with what seems a rocket propelled spike after breaking above the second consolidation of the bull market just below line T. The rising wedge also is a lot narrower and steeper than the one of the DJIA. This wedge is also on the declining leg three and normally should rebound off line G, currently at 4001, into leg four. As for the DJIA, a break below the wedge after reaching line G to complete leg three and then in effect starting on leg four, can be expected to be very bearish after an abnormal break.

Daily S&P500. 1950 – 2022. Last = 4403.10

Daily Nasdaq. 1986 – 2022. Last = 13 768.92

The above long term chart of the Nasdaq is even narrower and steeper than that of the S&P500; no wonder then that it has already broken lower. A closer look at the last portion of the chart – below – shows that while the DJIA and S&P600 are only on the third legs of the rising wedges, the Nasdaq had rushed ahead and completed legs three and four and so the break lower happened at the end of leg five, as is the norm for the wedge formations, whether rising or declining. The break lower also broke into shallow channel XY, of which line X has acted as significant resistance and support.

Daily Nasdaq. 2015 – 2022. Last = 13 768.92

Whether the DJIA and S&P500 will overcome the bearish bias of the Nasdaq to resume their rallies into completing leg four of their wedge patterns, appears unlikely to happen. That implies that these two indices will break below their respective lines G to effect a premature and bearish break from the wedge patterns.

On the other hand, the Fed is known to step into the market during bear spikes with enough funds to halt and reverse the sell-offs. If this now were to happen again, the obvious levels where the Fed would step in ought to be when they reach their respective legs to complete the third legs of the wedges. Whether that would result in them completing their fourth legs to confirm the normal development of the pattern is not predicted, but then the Fed has very deep pockets. Being successful in a full rescue of Wall Street will have very high priority for the Biden administration.

Last week saw some nice improvement in the prices of gold and silver, with silver in particular doing well on the daily chart that is discussed later. The other good news from last week is that out of the blue the social media and various talking heads on news and commentary channels have dropped the official Covid narrative. In the UK and also Ireland most of the Covid restrictions have been recalled and possibly even the much vaunted vaccine charts. Despite these changes, the US and US hospitals and health services appear to toe the old line of vaccinate or become seriously ill from Omicron – which in most other countries is perceived as only a light flu, whether one is vaccinated or not.

This is a major and mostly unexpected development. Where it will take the pressure to be vaccinated and masks and vaccine mandates are not clear at the moment, but there are all manner of ramifications looming on the horizon. I wonder whether this has anything to do with the case of genocide that a London attorney and colleagues have lodged at the ICC in late 2021 against prominent political figures in England and others, which include top management of Big Pharma.

Euro–Dollar

Euro–dollar, last = $1.1340 (www.investing.com)

The euro’s reversal higher off lines W, E and S ran out of steam at line G to break back into channel WX. It held at the bottom of channel KL for a short while, but has now broken marginally lower to give a bearish signal. The dollar firmed late last week, possibly to provide psychological support for the ailing Wall Street, however, this might not hold. The euro could then recover into channel KL and resume its recent bullish trend.

DJIA daily close

After starting 2022 on a high note, with a new all time high early in the first week of the new year, the market turned softer. After four down days by Friday, Monday is going to be a real humdinger. Either the Bears will take control or the Wall Street support will halt the sell-off, as so often has happened during the past decade and more. It is not advisable to bet on the outcome as the day is likely to be volatile with little advance warning of what the outcome will be. What can be guessed at is that the odds of capitulation are low; far too much is at stake for Biden and co.

DJIA last = 34309.17 (money.cnn.com)

Gold London PM fix – Dollars

Gold price – London PM fix, last = $1836.60 (www.kitco.com)

The earlier ceiling price of $1800 was breached but, as month end nears, anything can still happen. After several tests of the support along the bottom of bull channel BC, the price managed to break back into the steeper bull channel PQ. While this is a positive signal, strong resistance at line W, top of megaphone WV, still lies ahead.

With the month end approaching, tradition says that gold is unlikely to break higher now and could even fail to hold the break into channel PQ. This will not be such bad news, provided that the shallower bull channel BC can manage to remain intact. The converse, a break above the megaphone, before the new month and NFP, will be very bullish for the medium to longer term should that happen.

Euro–gold PM fix

The improving dollar price of gold, largely despite the jump in the dollar late last week, is reflected in the euro price of gold, which managed to break above line D. This followed several recent tests of the support at the bottom of bull channel QR. Above comments for dollar gold regarding the approaching month end also apply to the euro price of gold.

Euro gold price – PM fix in Euro. Last = €1619.29 (www.kitco.com)

Silver Daily London Fix

Much like dollar gold, silver managed to hold within a bullish channel despite several tests of the lower support of the channel KL at line L. Then, as gold in dollars and in euro managed to do, the price of silver also broke above resistance. Where the prices of gold barely managed a break above the resistance, the price of silver manages a significant rally after the break, to reach the next level of resistance at the top of channel XY. It remains to be seen whether a break higher can be achieved while month end closes in. The strength of the new move, however, does anticipate a break above channel XY and to above resistance at line S.

Silver daily London fix, last = $24.32 (www.kitco.com)

U.S. 10–year Treasury Note

10–year Treasury note, last = 1.770% (Investing.com)

The reversal higher when the yield reached an all time low at 0.512 in August 2020, spiked higher and then settled in channel JK of the new bear channel JKL. How much expectations of inflation had to do with this is not known to me. However, a decline in the yield after reaching line K could possibly be when the Fed and Treasury both said that inflation is well under control and, later when inflation did take hold, stated that it would be temporary.

After holding mostly below line R, the yield broke below channel KL to test line R once more, and then broke back into channel KL, leaving a sideways bifurcated low on the outside of channel KL. The recent break above line R was repeated at line C and the yield briefly reached line K and is holding sideways. The market does not seem to accept the narrative that inflation will soon peak and then retreat; the bond market is assumed to remain bearish as long as channel KL holds.

West Texas Intermediate crude. Daily close

Much like the yield on the 10-year Treasury had done, the price of crude oil has also settled mostly in the upper band of the new rising channel, JKL. A brief break below that channel soon recovered and then continued higher to break above lines S and B.

The rising price of fossil energy is bound to boost prices across the board and this will not be good for the rate of inflation. For crude oil this is equivalent to a self-fulfilling prophecy. Don’t be surprised to see a month on month CPI of greater than 1.0%!

WTI crude – Daily close, last = $84.14 (www.investing.com)

©2022 daan joubert.

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