Silver Is the Trigger For the 'Super Capital Rotation Event' | Alan Hibbard w/ Northstar Bad Charts

Key Concepts

• Capital Rotation Event (CRE): A significant shift in investment capital from one asset class to another, often driven by macroeconomic factors.
• Super CRE: An intensified version of a capital rotation event, characterized by a severe bear market in stocks and a dramatic outperformance of precious metals.
• Dow Jones Priced in Silver: A ratio chart that measures the value of the Dow Jones Industrial Average in terms of silver, used to identify long-term trends and capital flows between stocks and precious metals.
• 45-Year Rising Support Line: A long-term trend line on the Dow Jones priced in silver chart, indicating historical support levels for stocks relative to silver.
• 72-Month Moving Average (MA): A long-term moving average used to identify bull and bear markets. Bull markets occur above the MA, and bear markets occur below it.
• Ichimoku Cloud: A technical indicator that provides support and resistance levels, trend direction, and momentum. Bull markets are typically above the cloud, and bear markets are below it.
• Divergence: A situation where a price chart and a momentum indicator move in opposite directions, signaling potential trend reversals.
• 10-Year Yields: The interest rate on U.S. Treasury bonds with a 10-year maturity, often correlated with inflation expectations and economic growth.
• Bull Era: A sustained period of outperformance for an asset class, characterized by strong gains in fiat currency and relative strength against other major asset classes.
• Cup and Handle Pattern: A bullish technical chart pattern that suggests a continuation of an uptrend.
• Liquidity Event: A situation where assets are sold rapidly to meet margin calls or other financial obligations, often leading to sharp price declines.
• Matrix of Indicators: A grid of various asset classes and economic indicators, all priced in gold, to identify broad market trends and capital rotation.
• Knowledge Base: A resource on Northstar Bad Charts' website designed to educate users on technical analysis and investment concepts.

Capital Rotation Event: A Deep Dive into Gold and Silver's Outperformance

This discussion, featuring Patrick Kum and Kevin Wadsworth from Northstar Bad Charts, elaborates on the concept of a "Capital Rotation Event" (CRE), particularly focusing on an impending "Super CRE." The core argument is that precious metals, specifically gold and silver, are poised for significant outperformance against traditional assets like stocks, driven by a confluence of historical patterns and current macroeconomic indicators.

The Dow Jones Priced in Silver: A Historical Compass

A central piece of evidence presented is the Dow Jones Industrial Average priced in silver. This ratio chart is crucial because silver, historically, was more freely floating than gold, offering greater granularity and more realistic trend lines prior to the 1970s.

• 45-Year Rising Support Line: The analysis highlights a significant 45-year rising support line on this chart, which was broken in the late 1960s. This break signaled a shift from a stock market bull run to a period where silver began to outperform.
• Head and Shoulders Pattern (Analogous): The break of this support line was accompanied by a pattern resembling a head and shoulders formation, indicating a potential downtrend for stocks relative to silver. A confirmed downtrend is established when the price breaks below a horizontal support line.
• Confirmation with Technical Indicators: This trend line break is corroborated by other technical indicators:
  • 72-Month Moving Average (MA): A break below this long-term MA signifies a bear market.
  • Ichimoku Cloud: A break below the Ichimoku cloud also indicates a bearish trend.
  • When the Dow Jones priced in silver breaks below both the support line, the 72-month MA, and the Ichimoku cloud, it provides strong evidence of a bear market for stocks relative to silver, meaning silver is outperforming.

Historical Parallels and the "Super CRE"

The presenters draw parallels between the current situation and historical CREs, particularly the periods leading up to the 1930s crash, the 1970s stagflation, and the early 2000s dot-com bubble.

• Analogous Patterns: The chart of the Dow Jones priced in silver shows patterns similar to the bull market leading up to the 1929 crash and the bull market from the 1980s to the 2000 dot-com bubble. The current setup is described as an "exactly the same type of pattern" or at least a strong analog.
• Momentum Divergence: A key observation is the divergence between the price of the Dow Jones and its momentum. Even when the Dow Jones is outperforming silver, if the momentum indicator shows lower highs, it suggests vulnerability for a drawdown and a potential shift in favor of silver. This was observed in the period from 1953 to the late 1960s and is seen as mirroring the current situation from around 2014-2015.
• The "Super CRE" Trigger: The true "Super CRE" is expected to occur when the Dow Jones falls in fiat currency terms. This nominal decline in stocks, coupled with government debt expansion and accelerated purchasing power destruction, is seen as the catalyst for silver's most significant gains. The current phase is described as "step one" or a "pre-super CR phase," a warm-up before the major event.

The Role of 10-Year Yields and Gold/Silver's Performance

The discussion also delves into the relationship between precious metals and interest rates.

• Silver and Dow Jones Alongside Rising Yields: A chart illustrating silver and the Dow Jones alongside 10-year yields reveals that during the period leading up to the 1960s, silver was rising concurrently with the Dow Jones, even as 10-year yields were increasing. This challenges the notion that gold and silver only perform well when rates are falling.
• Current Yield Uptrend: A new uptrend in 10-year yields is currently observed, with higher lows and higher highs, mirroring the pre-1960s environment. This is seen as a precursor to a period where precious metals will outperform.
• Warning Shots:
  1. Dow Jones vs. Silver Rollover: When the Dow Jones starts rolling over against silver, it's the first warning sign of an impending shift favoring precious metals.
  2. Nominal Stock Market Decline: The second, and more critical, warning shot is a significant fall in the Dow Jones in fiat terms. This is considered the "true capital rotation."

The "Matrix" of Indicators and Historical CREs

A comprehensive "matrix" of indicators, all priced in gold, is presented to demonstrate the breadth of the current capital rotation. The key observation is that many of these indicators are now in bear markets when priced in gold, a phenomenon that has historically only occurred during CREs.

• Indicators in Bear Markets vs. Gold:
  • US M2 Money Supply
  • US Dollar Index (DXY)
  • Consumer Prices (CPI)
  • Producer Prices (PPI)
  • Currency in Circulation
  • Equal-weighted S&P 500
  • New York Composite Index
  • Dow Jones, Russell
• S&P and NASDAQ Approaching Bear Markets vs. Gold: The S&P and NASDAQ are noted as being on the verge of entering bear markets when priced in gold, with quarterly confirmations pending.
• Historical Outcomes of CREs:
  • 1930s: One massive stock market crash.
  • Early 1970s: A series of stock market drops (20-40%).
  • Early 2000s: Two significant drops of 50% each.
  • Common Outcome: In all historical CREs, stock markets have gone nowhere for 10-15 years, while gold has risen hundreds of percent. Stock markets have fallen between 50% and 80%.

Gold and Silver Chart Patterns and Future Outlook

The discussion highlights significant chart patterns for gold and silver, suggesting a strong bullish outlook.

• Gold Cup and Handle Pattern: Gold has been tracking a cup and handle pattern for years, with a breakout expected to new highs. The current price is noted as being beyond $4,000, with a potential target of $4,250.
• Silver's Potential Outperformance: When silver breaks out above its resistance line, it is expected to significantly outperform gold for a period.
• Two Roadmaps for Silver:
  1. Silver Pullback: Silver might pull back with gold, retesting its red line near $3,000.
  2. Silver Breakout: Silver could quickly break out to $75-$100, then pull back to retest its red line, while gold moves higher.
• Silver as the Key Watch: At this juncture, silver is considered the most critical chart to watch. A break above $55-$56 for silver would signal a significant move higher for gold.
• Historical Volatility of Silver: The presenters emphasize silver's history of sharp, rapid moves and subsequent significant corrections (35-50%), citing examples from 2008 and the 1970s. This volatility is often linked to liquidity events where stretched assets are sold to meet margin calls.

The Role of Miners and the "Super CR" Setup

The performance of gold and silver miners is also discussed as a leading indicator.

• Miners' Pre-CRE Rally: Miners have historically shown strength leading into a Super CRE. The current upward movement in miners is seen as a confirmation of this pattern.
• Potential Correction and Subsequent Run: While miners are expected to experience a correction, they are also anticipated to have multi-year runs after the initial Super CRE.

Technical Analysis and Algorithmic Trading

The importance of technical analysis, even for those unfamiliar with it, is stressed.

• Algorithmic Recognition of Support Lines: Technical analysts and algorithms alike recognize key support and resistance lines. These lines are not arbitrary but are based on historical trading volume and price action.
• Signals for Traders: Crossing these lines provides significant signals for automated systems and experienced traders.
• Ichimoku Cloud and Moving Averages as GPS: These technical indicators are described as the "GPS for investing," providing clear signals for market direction and asset allocation. Being above the long-term MA and Ichimoku cloud signifies a bull market, while being below indicates a bear market.

Gold vs. Technology and Bitcoin

The long-term relationship between gold and technology stocks, including Bitcoin, is examined.

• Tech's Long-Term Underperformance vs. Gold: The tech sector (XLK) has been in a bear market priced in gold for the last 25 years, failing to regain its 2000 highs despite advancements like AI. This is seen as a significant indicator of gold's strength relative to technology.
• Bitcoin's Correlation with Tech: Bitcoin is strongly correlated with tech stocks. Therefore, as gold enters its bull era, Bitcoin's performance will likely be influenced by the broader stock market's trajectory.
• Agile Investment Strategy: The presenters advocate for an agnostic approach, investing in Bitcoin when it outperforms gold and rotating back to gold when it leads. Currently, gold is outperforming Bitcoin.

Sector Performance and the "Super CRA"

A breakdown of S&P 500 sectors reveals a broad weakness against gold.

• 10 Out of 11 Sectors in Bear Market vs. Gold: Ten out of the eleven S&P 500 sectors were in a bear market priced in gold, with only the tech sector (XLK) previously outperforming.
• Tech's Breakdown vs. Gold: The tech sector has recently broken below its rising support line, long-term moving average, and Ichimoku cloud, indicating a new bear market against gold. This breakdown, along with a potential topping pattern, reinforces the setup for a Super CRE.

Conclusion and Investment Strategy

The overarching message is that we are in the early stages of a significant capital rotation event, with precious metals poised for substantial gains.

• Current Position: The current environment is likened to the late 1960s, with significant upside potential for gold and silver still ahead.
• "Bull Era" vs. "Bull Market": A distinction is made between a "bull market" (price increase in fiat) and a "bull era" (outperforming other major asset classes). Precious metals are entering a bull era.
• Dynamic Portfolio Management: The presenters utilize a "Dynamic Portfolio Manager" which currently allocates 50% to gold (including physical gold, silver, and miners), 33% to stocks, and 16% to cash, with zero allocation to bonds.
• Focus on Price Charts: The emphasis is on following price charts as the ultimate fundamental indicator, rather than getting caught up in news or narratives.
• Oil as a Future Opportunity: Oil is identified as another potential significant opportunity, with its chart historically mirroring silver's performance.
• Unique Nature of the Event: While historical parallels are drawn, the current Super CRE is expected to incorporate elements from the 1930s (political unrest), 1970s (energy crises, social unrest), and 2000s (dot-com bust, crypto, AI), making it a unique event.

The discussion concludes by reiterating the power of the gold and silver cup and handle patterns as strong indicators of a major bull market unfolding.