Take Advantage of the Dips - Precious Metals Projections
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The dollar is up, and silver is way down since Easter. And the stock market? Yikes. Host Craig Hemke and analyst Chris Vermeulen of the Technical Traders break down all the charts you need to navigate the coming bear market.
In this edition of the Precious Metals Projections, you’ll hear:
- How far the stock market could fall before another Powell Pivot
- Why the dollar is rising while other currencies are tanking
- Plus: what you should do in a bear market
To view Chris’s full thoughts on this month’s gold and silver charts, watch here:
Craig: Welcome back to the "Sprott Money News" and sprottmoney.com monthly precious metals projection video. I'm your host Craig Hemke. Joining us as usual here in the month of May 2022 is Chris Vermeulen of thetechnicaltraders.com. Chris, good to see you.
Chris: Yep. Good to see you, Craig.
Craig: Just a reminder, as we get started, I know I probably sound like a broken record, but please help Sprott Money spread the word on this content that's produced free of charge for you. It's publicly available. Best thing you can do is to help them spread the word, subscribe, maybe, or send out a like on whatever channel you're viewing this, but then, of course, keep Sprott Money in mind. I mean, we're gonna be talking about silver prices that are quite a bit lower than they were a month ago, and maybe higher by a month from now. So, now is a good time to be looking around and doing some shopping. Sprott Money always have a great competitive prices. And on silver right now is probably the time to be looking. Gold too.
Again, sprottmoney.com. As you can see, Chris has the page up right there. Thank them for this content by sending them some of your business. Go to that site or, of course, call them at (888) 861-0775. All right. Chris, it is Monday, May the 9th. It was amazingly just three weeks ago that we came out of the Easter holiday and, man, everybody was pumped. Gold was trading briefly over $2,000 an ounce, silver was about $26.50. And now silver has fallen 15 days in a row since. Talk about a reversal, and it's really all markets. The spike in yields here in the U.S. have really wrought havoc everywhere. So, let's start there about your management and what you do, just trying to eliminate some of the downsides that you've got some dry powder left over to take advantage of these dips.
Chris: For sure. I mean, we're coming into a unique time. I mean, bear markets don't happen very often. I mean, they're very rare, but they're also one of the most dangerous things for an investor, especially if you're, you know, 40 years or older, you know, you never know how long a bear market's gonna last if we get into one, which we are pretty darn close to breaking down into a bear market. And I kind of wanted to show this chart, and this is my investing strategy where really it's all about if you've got, like, long-term passive capital. There is a time when you really don't want to be in equities. When we do get into a bear market, I mean, there's a lot of opportunity to the downside. But as a very passive investor, avoiding a bear market is one of the most powerful things you could do with the least amount of effort involved. And all you have to do is when we are in a bear market is exit your positions and go to, like, literally a cash position. And cash can be one of the most powerful plays because as we've seen over the last couple of weeks when there's panic selling in the stock market, almost nothing goes up. And there isn't a place to dump your money other than really cash.
And so, I kind of wanna let people understand that if we are coming into a bear market, which we are potentially a week or two away, avoiding one of these is gonna be the opportunity of a lifetime because a bear market may last, you know, 3, 6, 9 months. It could last 2 or 3 years. And if you're later stages, you've got all your net worth built up, you know, you're in your 50s-plus, for all we know, you know, back over here in 2000, it was like 12 years before the S&P 500 got back to break even. That is a long time. For the NASDAQ, it was 18 years. And so, you know, the majority of investors don't have that much time. They don't wanna ride and lose down those gains and burn up money at a discounted rate.
So, I think it's really important to kind of show this. And this is one of the things that I try to do with The Technical Investor newsletter. And what I really wanna kind of hone in here is right now is kind of a point for investors. It's not about trying to make as much as you can, it's about trying to preserve your capital. And this chart here, it shows three different indexes. The green one here is just trading, from a technical standpoint, using the Technical Traders investing strategy. The gray line is the S&P 500, and the black line is the overall global stock market. The key here is what does the green line do when a bear market comes? Once we're in a confirmed bear market, you move to cash, and you can avoid these huge collapses.
There's some opportunities in 2007, 2008, where you can actually generate returns in a bear market, but you're sidestepping these big market collapses. And in the long run, you don't dramatically outperform the indexes, but the key is you're getting rid of or eliminating the drawdowns, the risk, the roller coaster ride, and the years it could take to make your money back. So, this to me is one of the most important times in trading. I've been through two bear markets, traded through, invested through two bear markets. And, I mean, if somebody's gonna do a play and focus on the markets, now is the time for an investor to actually take action and make sure they have that gun powder dry, as you said, Craig, because when the market resets and there's a revaluation event, to have all the money you have right now available to dump into gross stocks, gold, silver, miners, all those things, when they are primed and ready for a massive move, it's gonna be pretty exciting. So, that's kind of the key thing I kind of wanted to share is we're in that big perspective, big window time to make a move that can, you know, save you so much money. And a lot of people don't understand that this volatility's got so many people dancing in this market trading back and forth, and they're just getting slaughtered. This is so dangerous for most traders. It's day trader heaven. It's swing trader nightmare because the markets gap up and down 5%, 6% every day, they swing. So, it's kind of luring them in, but it is just chewing them up and spitting them out. And the reality is doing nothing is sometimes the best thing, right?
Craig: Right, right. Well, leave that chart there for a second because I think you lead into that pretty well. A couple of things, the former head of the New York Fed, Bill Dudley, said about a month ago. I mean, Chris, you've heard, don't fight the fed, right?
Craig: Bill Dudley said, "The Fed's goal is to inflict more losses on stock investors." So, they've told you this is what they wanna do. It led me twice in the last month, in my weekly column at Sprott Money, you can find it all these weekly columns linked to Sprott Money to write what I call concern for stocks. I mean, if the Fed's telling you this is gonna happen, you might want to take their word for it. And, you know, the important thing is the math. I mean, if everything falls 20%, it's gotta go back up 25% to get back to even. And then if you're in the, like, the leveraged ETFs, oh, holy smokes, you really got a problem.
Okay. So, in that chart you showed, the breakdown that you have to avoid is when the bottom drops out when you break down through support. I wanted, Chris, to put this chart up because what the green line there, this is the S&P 500, that green line is the 200-week moving average. I don't know if that's anything special or not, but you can see how many times in the past five or six years, this S&P has pulled back and found support that line.
Well, the most analogous situation to now is the fourth quarter of 2018. The Fed was talking about hiking rates in '19 and tightening their balance sheet. And the 10-year note got to three and a quarter percent, and the stock market plunged. And, Chris, if you could highlight 2018 on that chart, you can see there was some support there at about 2600 on the S&P. And that support held into December, and then down it went. And when it got down to the 200-week moving average, it was about 10% lower at 2300. That's the Powell pivot. That was the point of Max Payne. And then they've changed policy. In '19, gold rallied. Everything rallied. Then you can see the next time it pulled back, it actually fell below the 200-week moving average. Well, that was COVID, and the total market sees up. Well, what happened? Well, March, 20th here comes the Fed with QE to infinity. Everything takes off again, okay, especially gold and silver. So, as you break down through support, look what... I mean, the history would suggest you follow that 200-week moving average. And as you put on there, Chris, we're breaking down, you can see the obvious support at 4100 or so in the S&P. We're now below there. What do you think of this whole idea that that's how far the stock market could fall at a minimum before we get another Powell pivot?
Chris: I think there's pretty good potential. I mean, the amount of fear that we've seen in the stock market, in the last several weeks here, is pretty big. Just last week alone, we were seeing readings, on a panic selling indicator, telling us that there was 31 people hitting the market to sell button on the New York stock exchange to every one person looking to buy.
Craig: Oh, god. Sounds like silver.
Chris: Yeah. It's crazy. And anything over three is extreme. So, I saw it go up to 31, so 10 times. Typically, when we see this panic selling, it's a great buying opportunity. You know, I usually point it out to subscribers in the morning. I'm like, "This is great. We're gonna have a one or three-day bounce. It could be a really big standout bottom looking back a couple of weeks from now." But I was telling them over the last weekend, I said, "Listen, there is so much selling, and so much fear right now. Too much of a good thing is actually bad. And it's not just an oversold, you know, wave here. We actually have a massive herd mentality. Starting to get bears. I think we have huge distribution selling going on. And, you know, this mark... this bottom could fall out very quick. I mean, it's really only a one or two weeks away from, you know, hitting that 200-week moving average. It won't take much, and this market just moves so quickly. So, you gotta be really cautious about what's gonna potentially happen.
Craig: And you can see there, again, the support that was around 4100s going back a year, right?
Craig: And then from there, if we start, now that we've taken that out, those lows, there's quite a few lows back there in September and October of 2020 near 3200, which is also where that pretty close, or just below where that 200-week moving average is. So, anyway, to your point, you know, we don't talk about the stock market much. But, man, when everybody starts getting margin calls, they sell anything that has liquidity. And, man, you get a drop-down there another 15% in the S&P, that's gonna affect everything. And as you said, Chris, if you can avoid that because probably everybody watching us has 401(k) and IRA that has, you know, regular mutual funds in it or something like that. This is the time you really gotta be paying attention because... Go ahead.
Chris: For sure. The other thing too, Craig, is you go and you go and look at bonds. I mean, most people are pretty heavy in bonds. I mean, we're down at a pretty long-term support level. Bonds are down like 29%. I think from the highs after COVID, the spike highs, people are looking for that bond replacement. Like, where do you go? If both are crashing, what are you supposed to do? And, you know, that's one of the plays as a passive investor, one of the plays is you don't own anything. If everything's falling, there's no point in holding it. And I think that's where I really differ from a lot of individuals is people always think they need to be in trades, they have to own multiple stocks, they need to trade a lot, they have to hold equities. My philosophy has been this forever, which is if something's falling, I don't want any part of it. I would rather watch it fall and get back in later. And so, you know, a bond replacement is cash. That's one of them. I mean, it's not very exciting, but I would much rather sit tight and see my money just hold its value than lose 15% because bonds have been, you know, a defensive play in the past 40 years. But we've had 40 years of declining rates. Rates kind of hit zero pretty much, and now they're on their way back up. So, bonds are gonna be under pressure. When you look at the big picture of bonds, this is the weekly chart, we go way back here. I mean, this is a pretty high volatility. You could argue, it's a huge double top. It's on the verge of breaking down. I mean, if bonds break down from here and really start to headway down here, there is gonna be so much pain inflicted on, you know, baby boomers, seniors. It's gonna be devastating. That's why people need to take action. It's not about what asset do you buy? It's really protecting your capital. And if there isn't anything, it's either cash or an inverse ETF, if you're, you know, active in the market. So, it's really important, this tipping point in this market
Craig: Fed is playing with fire here.
Craig: And again, you can see, again, bonds are back to where they were basically in the fourth quarter of '18, and we know what happened then. So, that's good heads up. And like you said, there are times that we don't like Fiat currency that could be one of the best to pull up that chart of the dollar if you would. This is not, like, an original thought. You can see what's going on here. The yen is going to the toilet, the euro's going to the toilet, the pound is going to the toilet. Makes the dollar look pretty strong. And now, as you can see, I mean, those are 20-year highs in the dollar index.
Chris: And we could see another huge move. I have a feeling we're gonna see 16.120 on the dollar. And that's gonna put pressure on commodities. It's gonna put pressure on huge multinational companies. I mean, their services are gonna be so expensive compared to other currencies. I mean, all this stuff, there's such a huge shift in what's going on. And if you're not on the ball, it can be really painful. And what's interesting is, you know, I'm based in Canada and, you know, watching the U.S. dollar rally is really good because I have a large chunk of my money in the U.S. dollar. It's been in a strong uptrend for a while, and the dollar to me is cash. So, when I just sell all my stocks or commodities, I move to U.S. dollar cash in my account, yet you watch the U.S. dollar and it rallies. So, cash is a very good play, especially for international players. And that's one of the reasons why I think we're seeing the dollar move up is all the other currencies are falling, so what is an international investor gonna do? They're gonna move their cash to the best cash, which is the dollar itself.
Craig: And just, you know, maybe by a month from now, this will all have walked back from the edge, right?
Craig: And the dollar will be back down under $100, and we'll talk about how god, yeah, we were worried about it going to $120 just a month ago. But the point of all this, for everybody watching, I mean, this is a time to be paying attention to all of your investments, not just your precious metals because there are ripple effects of all of this globally if we continue. So, let's, and in our final minutes, Chris, we should at least update. Let's start with that silver chart if you've got it. I remember in May of 2017, we watched because really what more can you do besides laugh? Silver went from 19% to 15% by going down 18 days in a row. And the RSI, the momentum indicator of RSI, got to 18 and we laughed. This is now like a new adage at TF metals report. If the RSI is the same as you're losing streak, that's probably a good time to buy. All right. So, since all that optimism, three weeks ago today, this is our 15th red candle in a row...
Craig: ...with no end in sight.
Chris: We flip to the daily chart, and it's just a blood bath. I mean, it's just brutal.
Craig: And can you pull up...? Do you have an RSI or a momentum indicator you like, so we...? I mean, look at all those red candles. I'm just, like, you know what? No one needs silver ever again. So, there's just nobody...there's just nothing left, but people selling. But you can see we're at this area. People can see on this chart, we've come down here multiple times while we've been flagging sideways for the last year-and-a-half, held support near 22, even dipped down on two daily occasions below 22, and then quickly reversed. But again, Chris, that doesn't mean we're gonna reverse this time. What are your thoughts?
Chris: Yeah. What scares me is silver's led the charge to the downside, and we draw that horizontal line. You know, it's right down here flirting with a breakdown. And the part that scares me is this looks really good. It is a support level. It's oversold. We got panic in the market. So, it's naturally good. But what scares me is you go and you look at gold, for example, and gold for the equivalent kind of price action, gold would need to be, like, you know, down here or down here. And we are a long ways from getting to those levels. And when you look at the gold miners, like GDXJ, you know, it would be silver's equivalent to trading right down at these lows here. So, miners and gold are just starting to break down. They're trying to play catch up to silver.
But if these things keep collapsing, silver could just slice right through support. It's gonna create a very sharp wave of selling and panic, and probably another very sharp drop. I do think it'll be a great opportunity to pick up physical metals. I mean, this is the grand scheme of things, the big picture, you know, the quarterly charts of miners or metals. I mean, still very, very bullish. And I think there's a good scenario for a lot higher prices in the future. But, I mean, I think we're still in for some more downside. And silver, if we're lucky is gonna hold its ground here, while the other one's kind of catch up. So, we'll just have to see.
Craig: As you said, silver, well, within the last three weeks, broke its 50-day moving average first, and then gold and the miners followed. Then it broke its 200-day, and then gold and miners followed. That's the thing, we'll have to watch it closely. Is there even, on the silver weekly chart, Chris, one of the things...? I even wrote about this in my annual forecast, again, you can still find at Sprott Money, I said the first four months are gonna be tough a lot like last year, of this year, are gonna be tough. And there's a gap on the chart there, at least on some weekly charts, there's a gap in there around $19.75 or $20 from July. Yeah. Right in there.
Chris: Yeah. If I go to the SLV, which will show probably regular trading hours.
Craig: Yeah. There you go. I've seen that there's...
Chris: Maybe one of these...
Craig: I've always been concerned that we are open to a plunge down in there. And so, we'll see, again, we're so oversold already. It doesn't mean we can't... I mean, there's nothing to stop us going down 15 more days. I mean, the chart's just the chart. But gosh, we are so oversold already. There's probably an opportunity here. The old adage, that you and I have talked about before with the precious metals, gotta always be able to sell some when things look the best like they now did three weeks ago. Also very rare to buy some when things look the worst, and we're getting close.
Chris: For sure. Yeah. I mean, you look at the daily charts, silver, gold, and miners were on a tear. I mean, they were a very good defensive play, but they just reversed. And this is where position management comes into play. If you're a short-term trader, you know, getting stopped out absolutely sucks. No one likes taking a loss. Problem is if you don't do it, it can hurt so bad. I mean, it only takes one bad trade to wipe out a good chunk of your wealth, right? And that's the issue is everyone was on board. Even I was liking precious metals and miners and it was looking like it was ready to take off, and the market reversed, and it's sold off. And if you didn't get out, you're underwater huge. And if this does break to the downside, it's really gonna hurt because the silver, miners, you know, move a lot faster. Silver, miners are down, you know, 6% today and they're kind of right down to these lows already. And they could very easily go a whole lot lower. So, it really is about, you know, cutting losses, managing your plays going forward. Because if the dollar does make that big rally, it might really, you know, put a stall in precious metals and see them correct for potentially another several quarters or so, a long time, right? It's...
Craig: Yes. Well, and again, the ripple effect of that, you know, not only across, you know, the central banks, but the emerging markets, you know, the soaring dollar, like you said commodities. And again, the fed wants to think they've got all this under control, but we're gonna find out. We're probably not far from them having to cry, uncle. I mean, they might want to talk, like Bill Dudley saying, they want to inflict pain, but they've driven so many institutions, and endowments, and pension funds, and everybody else into these risk assets with their low-interest rate policies over the last decade that, man, they are really playing with fire here. So, Chris, as we wrap up, tell everybody a little bit about what you do on a daily basis because I think we've made the point here that this is a time that people need to be paying attention.
Chris: Yeah. So, with The Technical Traders, we offer kind of three different levels of ETF trading. And one of them is The Technical Investor, which to me is one of the most critical pivot points in most people's investing lifetime. If you can avoid or profit from a bear market, I mean, it's gonna save you light years ahead in terms of your retirement age, or wealth level, or both. And so, that's what I help with is kind of the big... Right now I wanna focus on the big picture because there's majority of investors are, you know, baby boomers, the older age, no one should have to suffer through a 3, 5, 10-year bear market and lose 30% or 50% of your wealth. And that's what I'm trying to really focus on over the next, you know, this year because if it's not managed properly, it's really gonna hurt.
So, I focus on long-term investing signals. I trade them. Followers and subscribers, they follow them as well. But I also get down into trading more consistent index and sector trading with the band trader, which is the best asset now. And our technical index and bond trading strategy, you know, it allows you to get in and out of this market, profit from pullbacks and rallies. And so, that's what we're trying to do is we just try to navigate through this market to create that consistent kind of growth over the long run, so you don't have to hold through a bear market. There's nothing better than watching the market collapse, and your account keeps going up quarter after quarter after quarter, or just simply avoiding it if you don't wanna get active, you just wanna be a couch potato investor and say, "You know what? Call my advisor. I'm just gonna move to cash." And, you know, when Technical Investor tells me to get a loan in eight months, I'll go get long at a cheaper price. Like, there's a lot of different ways you can attack the market. And so, that's why I try and let everyone see there's a million ways to invest, and you just find the way that works best with your style. And I kind of walk you through it and teach you at the same time.
Craig: What's at the top of the list, a best asset now, right, cash?
Chris: It is. Yeah, yeah.
Craig: It's not surprising.
Chris: Yeah. The U.S. dollar index is the place to be. Either UUP or just U.S. cash sitting in your account. That's it.
Craig: There you go, thetechnicaltraders.com. Chris Vermeulen, one of Eric Sprott's favorite technical analyst. It's always fun to hear from you every month, Chris. And again, we'll see where we are by next month. Things have certainly changed really quickly in the last three weeks. They could turn around and change just as quickly over the next three weeks. But in the meantime, if we do see a further dip, use that to your advantage, go to sprottmoney.com. Always be looking for deals there. They always have very competitive prices, and we get that pullback. That might be your opportunity to add to your stack. Again, sprottmoney.com or, of course, just pick up the phone, give them a call (888) 861-0775. Chris, thank you so much for your time. This has sure been interesting, and we'll see where we are in June. Huh?
Chris: Sounds great. All right. Thanks, Craig. Take care.
Craig: And thanks to everybody for watching. We'll talk to you again next month.
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