A Week of Roman Candles

Source: Michael Ballanger 04/15/2024

Michael Ballanger of GGM Advisory Inc. shares his thoughts on the current state of the market, including moves in gold, silver, and copper.

As the weekend unfolds, precious metals enthusiasts the world over are going to be reading dozens upon dozens of "expert commentaries" on Friday's vicious reversals in gold and silver, being treated to a multitude of theories as to how and why these clearly overbought metals could be allowed to undergo corrections after multiple upside gaps and vertical ascents.

After the overnight and morning sessions produced outsized gains, with June gold touching $2,448.75 (up $76.05), it was thirty minutes before the close of trading in London when several enormous sell orders came in and not only halted the rally but triggered an avalanche of retail sell orders in the Chicago futures pit but also on the NYSE where both GLD and SLV set off my volume alert alarms with conspiratorial complaint.

The usual manipulation theorists out there (and you know who they are) donned their oversized cowboy hats and spoke of "MEMORIES OF DEC. 3-4" where an overnight advance was repelled by the bullion bank traders with follow-through weakness flooding the markets the following morning.

That pullback was short-lived back in December as it only took twenty-four days for the high at $2,134 to be re-tested and another sixty-two days for all-time highs to once again be surpassed.

May silver has been lagging the gold move rather sadly up until this week, with the resistance band between $26.47 and $27.39 being finally overcome on Tuesday, leading to a breathtaking advance of the near-vertical variety that came within a dime of the magical $30.00 level this morning at around 11:04 am.

What followed was the "stuff" about which best-selling books are written as silver went into a 27-minute swoon reminiscent of those Acapulco cliff-divers that we used to watch on the National Geographic channel when we were kids. Dropping from $29.90 to $28.74 without so much as even the slightest bounce, it settled the Friday session at $27.97, which was thankfully above the lows of the prior session.

As bad as Friday's action was, it barely avoided a "key reversal day" where a new high for the move reverses and takes out the low of the prior session. Technically, silver actually had a pretty good week, as did gold, with both registering green weekly candles and notwithstanding the bearish "tombstone doji" patterns that closed out the week; I rate it as a positive.

Quiet Move by Copper

Lost in all of the panting and gasping that went on as gold and silver threw their tantrums was the quiet little move that copper had. Copper traded as high as $4.362/lb. before all the noise of the PMs took hold of it, trimming the gain from nearly a dime on the day to slightly over $0.06 on the day but achieving a weekly close over $4.30 after challenging the January 2023 high at $4.365/lb.

With little fanfare and a modicum of splash, the red metal went about its business and quietly closed above $4.30/lb. for the best weekly close of the year now has its sights set on the January '23 high of $4.355 and the Mat '22 high of $4.59 before attempting to move to all-time highs above the critically resistant $5.00.lb. barrier. I believe that copper will trade up and through the all-time highs in 2024 as supply constraints brought on by mine depletion and the scarcity of new economically viable deposits combine to create a frightening structural deficit over the balance of the decade.

Even existing deposits on "care and maintenance" due to governmental interference or lobbying by the environmentalists that finally get permitted are still five to ten years away from producing copper concentrate capable of alleviating the shortage.

The Uraniumites out there that number in the hundreds that post thousands of articles every week on the growing demand and supply shortages facing the nuclear energy industry forget that despite the Chinese initiative to build over twenty-five new modular reactors in the next year or so, once completed, they will have infinitely more electricity to be pumped out to over one billion Chinese citizens.

It is no secret that the Chinese electrical grid is in dire need of modernization, which means expansion, and if they are going to expand their electrical capacity, they will need to expand the means by which electricity is transported through the country. I shudder to think of the amount of wiring that will need to be installed and, with that wiring, the amount of copper that will be consumed and never return to the recycling pool in any of our lifetimes.

This is why I have maintained a bullish bias for the balance of the year and the decade on copper, with a secondary emphasis on gold. Thus far in 2024, silver has been the hands-down winner, but only in the past two weeks did it eclipse gold as the top performer. While gold and silver require the emotional (and buying) support of Eastern culture, copper is a universal necessity for all cultures on the planet and, as such, will continue to grind its way higher against the looming specter of supply shortages.

For those dismissing the demand side of the equation and looking for G7 economic weakness in the second half of 2024, I counter that argument by referencing the impact of the emerging markets on copper demand. Many citizens of the EM world are only learning about desktop computing and the internet, as well as many of the basic aspects of the modern household.

All of these benefits in the name of "progress" require copper in some form or another, and no amount of tinkering with the yield curve or real interest rates, or U.S. reserve requirements is going to prevent excess demand for copper from altering the balance when it comes to price.

So, when I see the action in the precious metals create a maelstrom of protest and indignant shock versus the comparative halcyon of the copper market, I watch with morbid curiosity as the new participants to the world of precious metals ownership post Twitterverse messages of abject outrage blaming the Fed, and the White House, and the BIS, and JP Morgan, and the Bank of England for "obviously" interfering in the markets.

Even veteran "gurus" out there (names purposely omitted to protect the emotionally sensitive) were spouting off on Friday while going down the same road that we have all traveled time and time and time again since the Hunt brothers first (and quite successfully) cornered the silver market.

To all that would complain that the action in gold on Friday was anything but organic, with bidstack after bidstack getting wiped out through regularly-timed, four-minute intervals totaling over $100 in four hours, I remind them all of a story I have told many times over.

In 1980, after trading and profiting wildly with gold during the move from $110 to $850 in a little over two years, I called a veteran N.Y. trader who executed all of our Canadian orders through the Shearson trading desk.

"Jimmy" I asked, "how do you like that gold market? It just posted a double-top breakout on rising on-balance-volume and looks technically superb!"

There was a short pause on the phone followed by an audible sigh, after which he said, "Son, you can take all of that technical mumbo-jumbo, wrap it up in yesterday's newspaper, and throw it all in the East River."

Startled (and visibly embarrassed), I asked, "But why, Jimmy?" This forty-year veteran trader who began his career at the onset of WWII had only three words.

"Because it's RIGGED."

I have not forgotten those words in forty-four years of navigating the thunderous waves and cyclones of the precious metals waters. The younger generation of traders seasoned in the world of crypto and technology and meme stocks — those fine citizens to whom I refer as "kiddies" — stare at their monitors with outright shock whenever one of these raids in the precious metals occur.

Mumbling incoherently while wiping away tears, they limp back to the relative sanctuary of the technology or crypto world, hands and hair on fire, soiled undergarments in need of a change as they curse the moment they ever heard about silver, gold, or mining stocks. With that, the Wall Street titans and LME masters will have accomplished their missions.

They will have crushed any and all enthusiasm for the only financial asset upon which they cannot charge a fee. The Indian banks have felt the wrath of their depositors for years as the average Indian citizen keeps only enough money in the bank to cover his/her monthly expenses because everything else leaves the bank in favour of gold — or silver. That is the mortal fear of the banker — the loss of deposits. That is what killed Silicon Valley Bank in March 2023, and that is why gold is the Kryptonite for the global banking industry.

If citizens used gold rather than the banks, there would be no "financial system" because there would be no fees to support it. So, when one sees action in the precious metals that appears "odd" "suspicious" or "reeking of intervention," understand that it has been going on since August 14, 1914, when Congress passed The Federal Reserve Act of 1914. Since then, a small cabal of moneychangers have embodied the famous mantra of the founder of The House of Rothschild, who said, "Allow me to control the issuance of a nation's currency, and I will care not who makes the laws." Every increase in the amount of currency and credit in the U.S. amounts to a pay raise for the fee-charging member banks.

Never forget that.

Gold and Silver

The picture shown above shows the sentiment on Friday morning as the markets opened for trading. Giddiness prevailed and quickly began to morph into the deadly beast called "hubris" which means the move is almost toast. Yet, as bullish as I have been throughout all of 2023 and 2024 on the price of gold and of the SPDR Gold Shares ETF GLD, alas, I was flat and whimpering loudly on the sidelines as GLD exploded late in the week, trading up and through $225 early Friday before the legions of traders in London and NY teamed up to annihilate the runaway move that would have had Paul Volcker turning in his grave.

No sir-ee, those bankers were not going to make the same mistake Volcker made in 1979, so they made damn sure that my abstinence from the GLD calls was justified, and when it closed at $216.89 at 4:00 p.m. on Friday, I had to add up what I might have lost had I been riding the wave along with thousands upon thousands of Wall Street Silver disciples and their #SilverSqueeze compatriots.

Once I had recovered from the excruciating remorse of recalling my former ownership of the GLD June $200 calls (at $4.50), I found vindicating solace in the fact that I did take an embarrassingly tiny position in the iShares Silver Trust (ETF) SLV May $25 calls (at $1.30) after I got the second close for May Silver above $27.39 on Tuesday.

After watching them trade up to $2.66 on Friday morning, I was actually patting myself on the back for mustering up sufficient intestinal fortitude to buy into a market whose RSI exceeded 80 by Friday's opening. To wit, it must be known that as much as I pride myself in the self-satisfaction brought about by ample dollops of septuagenarian wisdom, buying into a raging vertical ascent is the ultimate demonstration of trader's HUBRIS. "To heck with the RSI in the 80s and to heck with the multiple gaps and damn the move in trend from gradual to vertical, I gotta buy silver, and I gotta buy it NOW!"

The cartoon shown here is mounted on the wall directly above my trading terminal and serves as a forceful reminder whenever the little green god of greed pops into the room.

Where go from here? Daily technical action put aside, the weekly charts are still powerfully bullish. The GLD chart from the past month tells me that the RSI, which scaled the 83 level back in early March (which faked me out), failed to create a corrective price move to the low $190s as I expected but instead pulled off a beautiful pennant formation with minimal price erosion. GLD traded sideways as RSI pulled back into the low 60s until late March, and then BOOM!

The price began a $25 ascent that culminated with Friday's reversal at $225, setting up either a 38.2% Fibonacci retracement to the $210 level or a sideways meander to work off the overbought condition.

My vote is for the latter. However, the geopolitical picture could prompt big safe-haven buying out of the Middle East and Asia over the weekend, especially if Iran launches a foray into Israel.

The chart shown below illustrates the pennant formation in early March that led to the explosive move to $225. The vertical move in early March was not the terminus of the advance in either price or time, so given the importance of the breakout above $194 on March 5, it is obvious to me that we have indeed entered into a new paradigm where all dips are to be bought as opposed to all rallies sold.

As for my SLV May $25 calls, they closed barely profitable at $1.38 on Friday, so I will risk down to $1.00 before hitting the panic button.

Stocks and Volatility

For the last five months, the U.S. markets (particularly the Dow and S&P) have been dancing merrily along the 20-dma trendline that has served as the "Buy the Dip" signal for the millions of EOD option players that now patrol the trading pits. That all ended a week ago when that big red candle created a massive blemish on what was the most beautifully engineered chart pattern of the past several decades.

If Joe Biden ever needed a chart pattern upon which his dedicated followers could ride to net worth security while ensuring that "woke-ness" stays in the White House, the boys at 33 Liberty were doing a marvelous job — until they weren't.

In the last eight days, the SPDR Dow Jones Industrial Average ETF DIA has taken out the 20-dma and then the 50-dma with remarkable precision and Marine-sergeant-like calm until Friday when all hell broke loose despite relative calm in the bond trading pits where yields were mixed.

The next major level of support for the DIA is at the 100-dma at 378.24 so with the Friday close at 379.87, any weakness on Monday sets up a plunge to the 200-dma at 358.74 which is almost in line with the 50% Fibonacci retracement level of 359.92. To give back half of the November-April 21% advance for the S&P would not be good for the Democrats, so if there is a goal-line stand to be made, it is right here at the 100-dma. Also favouring a rebound is the soon-approaching

oversold condition of the DIA, where the RSI is plunging rapidly toward 30 (now 34.08). RSI is where it was last October 27, just before the AI-led launch off the lows prompted by a sudden plunge in bond yields followed by a shift in the Fed's rhetoric from "higher-for-longer" to "we are ready to cut!" that kick-started one of the biggest bond and stock rallies of the decade. However, the bond vigilantes that bark marching orders to the stockroaches are now rejecting the idea of June being the start of the easing cycle.

The Wall Street oddsmakers now have less than a 20% probability of a July cut and the reason falls directly on the shoulders of that pesky U.S. consumer who still has oodles of helicopter money horded during the pandemic ready to spend at the slightest provocation or subliminal suggestion.

I am long a very modest position in the DIA June $375 puts from $3.50 that went out on Friday at $6.30 after trading up to $6.90 earlier in the day. I added a trading position in a fascinating vehicle that is not entirely suitable for anyone with an I.Q. below 200, making it unsuitable for just about everyone and certainly not suitable nor appropriate for a man in his early seventies who regularly forgets his car keys and is often found wearing odd socks (not to mention odd shoes). However, as a wild-eyed, totally irresponsible "bet" on a geopolitical or financial "event" that rocks markets to the core, triggering an enormous spike in volatility, this chart looks mightily tempting.

Due to its being priced off ever-eroding futures contracts for the CBOE Volatility Index, it and all of its ETF volatility brethren fall into the category of either "widow-makers" or "divorcee-makers" because unless you get the timing right, chances are that you will ride these melting piles of fee-inducing pessimism into the basement.

However, when you get it right as in the GFC (2008), the Covid Crash (2020), or the SVB debacle (2023), the VIX exploded from under 15 to over 90, taking all of the ETFs up by doubles and triples and in some cases quintuples.

2x Long VIX Futures ETF UVIX, while certainly not for the faint-of-heart trader or speculator, is an interesting way to hedge against that "black swan" event that may be looming out there by way of the wrong kind of bomb going off in the wrong kind of place or a sudden and urgent wind-down in the massive leverage levels of the global markets where the presence of derivatives on Apple Inc. NASDAQ many times the notional value of the company itself.

There is a Mount Everest of leverage out there betting on a healthy and never-ending "kicked can" that will be rescued at even the tiniest sign of stress. My speculative guess is that the gargantuan debt bubble is not "about to" implode; it is actually in the early, faintly detectable stage of actually imploding and along with it, the hopes, dreams, and expectations of millions of stock-worshipping idealists whose net worth will soon be a figment of wild imagination and an active social media feed.

UVIX is a highly-speculative toy that might just catch the attention of the volatility gurus who are all actively and collectively short this product, just like they were in 2020 and 2008, the last time the VIX went from 15 to 90.

Caveat emptor. . .

Important Disclosures:

1. Michael Ballanger: I determined which companies would be included in this article based on my research and understanding of the sector.
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Michael Ballanger Disclosures

This letter makes no guarantee or warranty on the accuracy or completeness of the data provided. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This letter represents my views and replicates trades that I am making but nothing more than that. Always consult your registered advisor to assist you with your investments. I accept no liability for any loss arising from the use of the data contained on this letter. Options and junior mining stocks contain a high level of risk that may result in the loss of part or all invested capital and therefore are suitable for experienced and professional investors and traders only. One should be familiar with the risks involved in junior mining and options trading and we recommend consulting a financial adviser if you feel you do not understand the risks involved.