A Volatile Start To The Week For Global Markets – Metals & Oil Collapse, Part I

Overnight, on Sunday and early Monday, Precious Metals and Oil started a fairly big collapse which quickly bottomed and recovered – at least in the Precious Metals markets.  Crude Oil is still moving lower in early trading on Monday, August 9, 2021.  Can we learn anything from the pre-COVID market trends and extrapolate any real-world analysis from this?

PRECIOUS METALS “MINI FLASH CRASH” SURPRISES MARKETS THIS WEEK

One thing that struck me related to this move is this is a similar type of move that took place at the start of COVID in February 2021.  Crude Oil started to move lower in early January 2020 while the US stock market continued to move higher before the COVID virus event hit.  Gold also moved higher from January 2020 to a peak in February 2020 – just before COVID.  Yet, all of them, Precious Metals, Oil, and the US major markets, moved dramatically lower as soon as the reality of a COVID type economic event setup and traders realized the scope of the issues before all of us.

Today, we are seeing the Precious Metals, Oil and the US major markets move dramatically lower with what appears to be a moderate “flash crash” type of event in Precious Metals and Oil.  If we see a continued decline in the markets over the next few days/weeks, we might start to consider a new volatility event may be setting up related to the future expectations of the global economy, US economic and Federal Reserve policies/activity, and how the unknown aspects of the future of the global economy continue to play out.

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This Daily Gold Futures chart highlights the deep “flash-crash” type of price action that took place early Monday, August 9, morning.  My research team and I believe this move reflects a very deep concern by US and foreign investors related to the future global economic reflation abilities.  Even though many still believe the global markets will continue to recover and grow, we believe the post-COVID recovery may already be near a peak level and starting to flatten out/contract.

The world economy will continue to transition through an extended recovery phase which is very likely to continue to experience wild swings in volatility.  Weaker Crude Oil, Transportation Index, and other major indexes would suggest the past 12+ month global market rally is nearing a peak – or has already peaked. 

We need to be cautious of a sudden change in market dynamics related to key underlying commodities and market sectors as this transition continues to play out.

CRUDE OIL STARTED TO TREND LOWER NEARLY THREE MONTHS BEFORE THE 2020 COVID COLLAPSE

Crude Oil is struggling to hold above support near $65.30 and has recently rolled into a defined downtrend.  One thing is very clear, the current Double Bottom near $65.30 is clearly the last line of defense for Crude Oil related to the previous bullish price trend. Once Crude Oil falls below this support level, it will likely fall back to the $50 support level and may attempt to fall further.

Watch how the US and global markets continue to contract and move lower over the next few days/weeks as a new shift in the global markets appears to have already setup and started to transition.  In early 2020, Crude Oil shifted into a bearish price trend nearly three months before the big COVID market collapse.  Currently, Crude Oil has been moving lower for almost two months already and we have seen other key market indexes move sideways/downward as well.  Have we already transitioned into a new phase of downside market trending after the June/July peak in Oil?

In Part II of this article, we’ll continue to explore how other key market indexes may be highlighting global market weakness and clearly pointing to a US market that is attempting to trend higher while the floor appears to be falling away from recent support levels. The mini flash crash in precious metals this morning may have been the shot over the bow of the global markets suggesting “here is your warning – what is your next move”.

More than ever, right now, traders need to move away from risk functions and start using common sense.  There will still be endless opportunities for profits from these extended price rotations, but the volatility and leverage factors will increase risk levels for traders that are not prepared or don’t have solid strategies.  Don’t let yourself get caught in these next cycle phases unprepared.

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Have a great day!

Chris Vermeulen
Chief Market Strategist

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