The main T-Theory chart is searching for a low that can initiate a rally in equities.
As mentioned on October 6, I was looking for a Point of Recognition around October 26-29. It began a day late, and continued through the next day. These PoR have been good for returns of roughly 3% when they occur. The high on October 25 was 5862, and the low on October 31 was 5702. The close yesterday was 5728.
We’ve since broken through the green line of support drawn on the McOscillator a few days ago. That dashed line is tentative, but I am looking for completion of a new low sometime within the next month. The longer it takes to reach that low and turn upwards, the longer the period of strength (that should follow that low) will last. At the moment, I have to believe that this new T will be positive. At the same time, I need to be wary of some weak internals.
An area that’s been concerning me recently is the SPX A/D line. There are two points of concern. The first is that the A/D line itself has passed below the 20 EMA. It has been above that EMA almost every day since early July–even as the market weakened for a month. More concerning is the fact that the 20EMA has begun to point lower, and the 50’s trajectory seems to be moving in the same direction. The last time these two approached each other was near the beginning of July, and they still managed to kiss, rather than have the 20EMA cross below the 50EMA. A similar scenario would require weeks of–weakness, in my opinion.
And yet, we are hopefully creating a new T. Until Price support breaks down, we need to look for positive outcomes–for Price.
Where is that support? The middle of the Keltner band resides at 5695, and weakness on Thursday was stopped at 5702. That’s our first level of support. Breaking below that on a prolonged basis would lead us to reach for that secondary support of 5468.
The first sign of a new T forming will be a move on the Volume Oscillator below -100, followed by a rise above 30. For the McOsci, we’d like to see a low below -80, followed by a move above +22.
Using the rule of Complex versus Simple Structures, a V-shaped recovery using the above numbers from a low creates a Simple Structure, which should create a normal T. Should we malinger below the zero line, crossing and failing to move above zero, we could create a Bear T.
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I was stopped out of my GLD position on Thursday at 252.
I’ve enjoyed riding this T (which still has more than a month to go). My initial suggestion of this T came in a post of July of 2023. I was stopped out of that, calling it a failed T. I re-entered it in February, around 182. I closed my position at 198, thinking I had a pretty good run, but was “forced” to re-enter when 212 became support. The 2% drop on Thursday triggered my stop.
I consider myself the opposite of a gold bug, and perhaps that’s why I’ve been relatively successful in trading it. If you look closely at my T chart, we could move as low as 227 to hit its support at its Optimum Moving Average, or we could go the other way, and move to 275 before we move into a situation similar to that of the last time GLD exceeded its envelope in the second half of 2020.
A reminder–these charts are based on those offered by Terry Laundry. He suggested a 20 year T in Gold, beginning in 2000, and ending in 2020, while also predicting a top in Gold in 2011, which gave us a 4 year lull before Gold topped out in 2020, as predicted.
I’m not prepared to discuss Bonds in depth this week. But I will leave you with a chart showing that after most Quantitative Easing announcements, TLT fell for 4-6 months almost every time. Yesterday was a horrendous date for those holding TLT. I am holding it now, and will continue to do so for the foreseeable future. My cost basis (after hedging from 100 to 94) is about 93.
There are those who must hold 30 year bonds.True bond holders want high short term rates to protect their capital from the effects of inflation. But of course, any holder of these bonds must compartmentalize the fact that the amount of debt carried by the US is absurd, and will probably never be repaid. In fact, my only comment about the current situation is that in 2016,Trump suggested that we should renegotiate our Treasury debts.
Quoting from an article on Politico at the time:
Trump explicitly ruled out renegotiating the debt. But he also glibly spoke of “[making] a deal” and appeared confused about key economic concepts related to debt…
The quote that triggered the original story—and much of the handwringing—came after Trump appeared on CNBC and spoke about his experience with debt in the business world. Then he said: “But I would borrow, knowing that if the economy crashed, you could make a deal. And if the economy was good, it was good.”
What did Trump mean when he said “make a deal”? Did he mean that a damaged economy could give the U.S. government leverage to force creditors to accept worse terms? CNBC’s Becky Quick followed up by asking if he meant renegotiating. “No,” Trump responded. “I think there are times for us to refinance. … And I could see long-term renegotiations, where we borrow at very long-term rates.”
In a matter of seconds, Trump went from opposing renegotiations to saying he could see long-term renegotiations. Deciphering a policy position from these sentences is impossible. Given the confusion here, Quick followed up again, “But let’s be clear, you’re not talking about renegotiating sovereign bonds that the U.S. has already issued?”
Trump responded, “No. I don’t want to renegotiate the bonds.” That’s Trump’s clearest statement in the entire CNBC interview: He explicitly ruled out renegotiating the terms of the debt. A second later, Trump said, “I’m not taking about a renegotiation, but you can buy back at discounts.”
Compartmentalization becomes harder, under these circumstances.
You may be surprised to have received this post, as it’s only 2 weeks since I closed my site. It’s still closed, but as my wife watched me reviewing the markets this morning, she suggested I send this to my email followers. I’m doing that, but the site remains closed. I will be posting this on elliottwavetrader.net.
Stay safe. Watch for the creation of the next T. Look forward.
Best to you all.
Bunker
T-Theory Thoughts 