TLDR;
This video features Kevin Wadsworth and Patrick Karim from Northstarbadcharts.com, who provide an update on capital rotation events, stock market outlook, and potential investment opportunities in silver and oil. They emphasize the importance of understanding market trends, identifying entry points, and differentiating between bull markets and bull eras. The discussion also covers Bitcoin's recent price drop and its implications in the context of capital rotation.
- Capital rotation is a process best seen with hindsight, marked by the stock market underperforming while commodities like gold and silver rise.
- The stock market's weakness versus gold is a key indicator, followed by its performance against fiat currency.
- Silver and gold outperform after a significant rollover in US equities, fueled by economic stimulus.
- Oil presents a potential investment opportunity similar to silver's earlier breakout, with favorable risk-reward dynamics.
- Bitcoin's performance, when priced in gold, suggests it may not benefit from a gold bull era.
Intro [0:00]
Charlotte Mloud from investingnews.com interviews Kevin Wadsworth and Patrick Karim from Northstarbadcharts.com about capital rotation events and market trends. They reflect on their discussion from a year prior, focusing on the capital rotation event concept and its current status.
Capital rotation event [0:21]
Kevin and Patrick review the capital rotation evidence matrix, noting that all boxes are now red, indicating that various market indicators are in a bear market when priced in gold. This includes US money supply, the US dollar index, consumer and producer prices, and major stock indices. This matrix helps explain current market phenomena, such as the decline in crypto and the surge in silver. The capital rotation event, characterized by a substantial stock market fall (30% or more), is best identified with hindsight. Historically, these events have led to the stock market stagnating for 10+ years while gold, silver, commodities, energy, and oil significantly increase in value.
Stock market outlook [8:33]
The initial step involves the stock market's underperformance relative to gold. The weakness in the stock market priced in gold is the first warning sign. The next step is the stock market losing ground priced in fiat currency. A true capital rotation event requires a US equities drawdown of 20-30%. The steeper the support line on a technical analysis chart, the less significant it is; flatter lines are more critical.
Bull market vs. bull era [14:20]
A bull market is defined as an uptrend in price in fiat currency above a three-year moving average. A bull era occurs when an asset is in a bull market in fiat currency and also outperforming its major competitive asset class, such as gold outperforming the S&P. Capital rotation events during a bull era can further fuel the asset's rise.
Silver's next move up [19:03]
The S&P is currently in a rising wedge pattern, which can lead to rapid upside movement if there is an upside breakout. A move below the orange line at 6,770 would trigger alarm bells, potentially opening a path to the red support lines around 5,800. Crossing above the green line at 7,035 increases the probability of a move to 8,000 or higher. A break below the orange line could signal the start of a capital rotation event, and crossing the red lines would confirm it.
Is silver a buy today? [22:30]
Investors need to determine their time frame and investment style (trader, investor, or stacker) before entering the market. The monthly chart shows silver is stretched from the mean, suggesting limited upside for new entrants. Those already in the trade can use classical technical analysis (TA) or trend-following strategies to manage their positions. A classical TA approach would involve selling into strength at measure move targets, while a trend follower would hold as long as the price stays above the 12-month moving average.
Picking entry points [31:02]
Opportunities exist in other markets that mirror silver's earlier breakout pattern, particularly in the commodity space like energy and oil. Silver has higher targets at 250, 300, 500, whatever it happens to be. Gold, you know, 8,000 and then quite possibly 12, 16,000, 20,000. Low-risk entry points are those where the next significant correction is less likely to result in a loss-making position. It's crucial to align investment decisions with one's time frame, risk appetite, and investment goals (trading, investing, or stacking).
Is oil the next silver? [34:48]
Crude oil has been consolidating since 2022, presenting a potential breakout opportunity. A confirmed breakout above the dashed line on the monthly chart would increase the likelihood of reaching higher targets. This setup offers a low-risk, high-reward scenario, with the potential for rapid gains once the breakout occurs.
Oil stocks and ETFs [40:03]
Exposure to oil can be gained through ETFs like XOP and XOM, as well as individual stocks such as Chevron and Exxon. These oil plays are not yet historically stretched, indicating further upside potential. Oil stocks can perform well even when oil prices are stable, and many offer dividends. Oil is currently undervalued compared to the S&P and other assets, and the notion that higher oil prices break the economy is a misconception.
Bitcoin's price drop [46:23]
Capital rotation has negatively impacted Bitcoin, with its price down 50% from its bull market highs. Bitcoin priced in gold has shown weakness, suggesting it may not benefit from a gold bull era. A move below $60,000 would be technically catastrophic for Bitcoin, potentially breaking the power law model. Bitcoin bull markets occur above its 50-week moving average, while bear markets occur below it. Using gold as a measuring stick provides a different perspective, revealing that the tech sector is in a deep bear market when priced in gold.
Outro [55:20]
Kevin and Patrick thank Charlotte for the interview and encourage viewers to stay safe, objective, and unbiased in their investment decisions. They emphasize the importance of using charts to understand market trends and identify entry and exit points.
