Michael Oliver: The Acceleration Phase in Silver and the Miners has Begun

Key Concepts

• Momentum Technicals: Analysis of market trends based on the speed and strength of price movements, rather than just price levels.
• Broadening Top: A chart pattern indicating a market topping phase, characterized by higher highs and lower lows, widening over time.
• Crash Event: A rapid and significant market decline, typically 30-35% within a week or two.
• Grinding Bare Market: A prolonged period of market decline characterized by slow, laborious drops rather than sudden crashes.
• Tombstone Event: A signal that a market peak has occurred, often coinciding with the Fed cutting rates.
• Fiat Money Degradation: The decline in the purchasing power of government-issued currency over time.
• Legal Tender: A form of money that must be accepted for payment of debts.
• Wet Noodle Indicators: A dismissive term for technical indicators that are considered unreliable or overly sensitive to normal market fluctuations.
• Market Neutral: An investment strategy designed to profit from the relative performance of different assets, regardless of overall market direction.

Stock Market Outlook and Potential Downturn

Michael Oliver of Momentum Structural Analysis expresses a bearish outlook on the US stock market, particularly the S&P and NASDAQ. He argues that while these indices have made marginal new highs, the underlying momentum technicals suggest a topping pattern.

• Technical Indicators: Oliver emphasizes that his analysis is primarily based on momentum technicals, not just price action, which he considers "elusory." He notes that damage was done to long-term momentum factors early in the year, derailing the upward trend.
• Broadening Top Pattern: He identifies a potential "broadening top" pattern, as described by Edwards and McGee in 1958. This pattern is characterized by three consecutive higher highs and two lower lows, widening over time. The failure from the third new high, which has now occurred, is a significant bearish signal.
• Bubble Market: The US market is described as a "bubble index," the oldest and largest bull market in history, with a 15-year upside and a 19-20 fold move in the NASDAQ 100. This unprecedented growth, fueled by monetary factors like M2 and low Fed funds rates, is unsustainable.
• Potential Decline: Oliver anticipates that the S&P and NASDAQ could slip back below their January highs. This would invalidate the assumption of a breakout and signal a significant downturn.
• Crash vs. Grinding Decline: While acknowledging the possibility of a crash event (defined as 30-35% decline in a week or two), Oliver leans towards a more "painful but not sudden" grinding bare market, similar to historical periods like 1929-1932 or 2007-2009, which lasted about two and a half years. He notes that crashes are rare in bare markets, with the 2008 event occurring a year after the market high.
• AI and Other Factors: While AI is the current leader and likely to lead on the downside, Oliver points to other overlooked factors that could negatively impact the market.

Critical Sectors and Potential "Ambush" Events

Oliver highlights specific sectors and assets that exhibit concerning technicals and could trigger significant market reactions.

• Banking Sector: The long-term momentum of major banks shows a floor that has been tested repeatedly. While price charts may appear stable, momentum charts reveal a precarious situation. A break below these floors, especially with a new quarter's momentum numbers resetting, could lead to an "implosion" event.
• Visa and Mastercard: Similar to banks, these payment processors show momentum charts indicating a vulnerable floor. Stories of consumer credit maxing out and defaults are contrasted with their price charts, but momentum suggests a potential "headline event" that is not widely anticipated.
• Bitcoin: Bitcoin's price action shows layered advances with distribution zones, but its quarterly momentum has been weakening. A breakdown below key price levels, particularly the 110,000 mark, could lead to a significant decline. Oliver draws a parallel to the 1987 S&P crash, where a repeatedly tested momentum floor ultimately failed, leading to a crash. He believes Bitcoin is deeply embedded in the financial system, and a significant drop could financially ambush many entities.
• T-Bonds: The 30-year T-bond futures have been in a bearish trend since late 2020. Despite attempts at rallies, they have been unable to gain significant ground. A sudden downside spike in T-bond prices (upside spike in yields) could significantly upset central banks and negatively impact debt-related sectors like commercial real estate, further ambushing the stock market.

Gold and Silver: The Safe Haven and Alternative Money

Oliver strongly advocates for gold as a primary investment, seeing it as the best environment for value increase. He contrasts its prospects with Bitcoin and the US dollar.

• Gold's Upside Potential: Gold is not near its top and has massive upside potential. Oliver believes that as the US bubble bursts, monetary metals will become institutionalized again as money.
• Gold vs. Bitcoin: Oliver predicts that gold will "outpace Bitcoin." If Bitcoin implodes, money that was in Bitcoin will likely rush into gold and silver.
• Fiat Money Degradation as the Driver: The primary driver for gold is the ongoing degradation of fiat money units, evidenced by charts like M2. Gold reflects this loss of purchasing power.
• Legal Tender Status: The legalization of gold and silver as legal tender in several US states is seen as a "rebellion" against the dollar's monopoly.
• Silver's Outperformance: Silver is expected to outperform gold dramatically. The gold-silver ratio has reached historically low levels (around 1%), indicating that silver is "dirt cheap" relative to gold. Oliver forecasts silver to potentially double in relative value to gold over the next year, with the potential to reach $60-$70.
• Gold and Silver Miners: The miners are also expected to outperform gold, with the GDX already showing significant vertical movement.
• Sustained New Highs: Unlike previous "idiot highs" in silver, Oliver believes the current move will be more sustained, driven by the degradation of fiat currency and a potential shift towards institutionalization of monetary metals. He suggests that silver could reach $200 in real value terms to match historical highs.

Federal Reserve Policy and Market Reactions

Oliver discusses the Federal Reserve's actions and their impact on the markets, viewing rate cuts as a "tombstone event."

• Powell's "Surrender": Jerome Powell's recent speech is interpreted as a surrender, acknowledging the need for rate cuts due to pressure from other Fed governors and a weakening economy.
• Rate Cuts as a Bearish Signal: Historically, Fed rate cuts have not prevented market declines. Oliver cites the 2000 and 2007-2008 periods, where rate cuts were followed by further market drops. He calls this a "tombstone event," signaling a market peak.
• Expected Rate Cut is Priced In: The anticipated rate cut is already priced into the market, meaning it will not provide a significant boost.
• Economic Weakness: The Fed's decision to cut rates contradicts their previous narrative of a strong economy, suggesting underlying weakness and revised job numbers.
• Dollar's Decline: Oliver forecasts a major bear market for the dollar, potentially falling to 70 or lower. Rate cuts will put further downside pressure on the dollar.

Broader Economic and Geopolitical Consequences

Oliver expands on the potential real-world consequences of a US economic downturn and the breakdown of traditional financial systems.

• Global Impact: A sharp weakening of the US economy will not leave the rest of the world unaffected due to interconnected economies. However, other markets are not considered bubbles and are less likely to implode.
• Emerging Markets as an Alternative: A market-neutral strategy of shorting the S&P/NASDAQ and going long emerging markets (like EM ETFs with significant China exposure) is suggested.
• Street-Level Emotions: The economic fallout will lead to "street type emotions," similar to 2008, where job losses and financial hardship impact the average person.
• Commodities Eruption: Commodities, including crude oil, are seen as ready to erupt upwards after a period of suppression. The Bloomberg Commodity Index is poised for another major up leg, which could catch people off guard.
• Questioning Central Banks: The crisis may lead to a reconsideration of the role and validity of central banks, with potential for their abolition in the coming years.
• Tax System Changes: A collapse in the public's ability to pay taxes could lead to radical changes, such as the abolition of income taxes and a shift to a national sales tax.
• Javier Milei Example: The election of Javier Milei in Argentina, who promised to "tear it all down" and remove government controls, is presented as an example of the type of radical change that could occur globally.
• Chaos Theory in Markets: Oliver believes that market movements will not be incremental but will erupt suddenly, similar to chaos theory. Technical indicators that rely on historical norms will fail to predict these dramatic shifts.

Conclusion and Actionable Insights

Michael Oliver's analysis paints a picture of a highly precarious global financial landscape, with the US stock market at a critical juncture.

• Anticipate the Unanticipated: Investors should prepare for events that are not currently anticipated, as reality is likely to diverge significantly from current expectations.
• Focus on Momentum: Momentum technicals are crucial for understanding the true underlying strength or weakness of markets, often revealing more than price action alone.
• Gold and Silver as Primary Holdings: Gold and silver, along with their miners, are presented as the most robust investment opportunities, offering protection against fiat currency degradation and potential institutionalization as money.
• Silver's Outperformance: Silver is expected to significantly outperform gold in the coming period.
• Tombstone Event for Rate Cuts: Fed rate cuts should be viewed as a bearish signal, indicating that the market has likely already peaked.
• Prepare for Rapid Change: The coming changes are expected to occur rapidly, not over years but within quarters, emphasizing the need for proactive positioning.
• Real Value vs. Fiat Value: The focus should shift from nominal price levels in fiat currency to real value, considering the ongoing degradation of money.