JUNE 11

1.) ROTATION - Gold losing it's leadership?
2.) SMALL CAPS - Russell 2000 (IWM) signaling broadening of market participation
3.) VIX - CPI below consensus...sell the news?

Episode Transcript

Speaker 1 (00:00):
Now here's your care for my wealth guide Chris Klein. Morning,
and welcome to how to Invest Wisely. Today's top things
Number one rotation, Number two the rustle two thousand, number
three volatility. So what do I mean by rotation? Well,
last week I mentioned that gold has been failing to
put in a higher high and it needs to break

(00:23):
above thirty four to thirty seven an ounce, but the
probability of that is starting to decline. How do I
know that the immediate term trade signal is currently signaling
a lower high below that thirty four to thirty seven mark.
That's three four hundred and thirty seven dollars per ounce
of gold priced in US dollars. And remember when I

(00:43):
say trade signal, I'm talking about the rate of change
of price, volume, and volatility together over a time series
of less than a month. And if we think about
it that way, that's what the machine chases both up
and down. So this is the signal for gold. And
does that mean that gold is just going to fall? No,
it doesn't mean that. It could mean that we get

(01:05):
some sideways digestion. And I say that because we're not
getting a lower low signal. We're still seeing a higher low,
and so that's good, but we're getting a lower high.
Sometimes when you get a compression of the volatility signals,
it creates an environment where that asset class wants to
move higher. So we'll have to see. But one of

(01:26):
the things that is standing out a little bit now
is that we're starting to see rotation in the precious
metals category. If you've never seen a relative rotation grapht
you might be able to find it on stock charts
dot com, or if you just search grock or something
like that, you might be able to find it too.
But nevertheless, a relative rotation graph just gives you an

(01:47):
indication of relative strength of what's lagging, what's weakening, what's improving,
and what's in the lead. And basically here's how you
would read this. The bottom portion, or the horizontal axis,
would show how strong an acid is compared to the
overall market. In other words, the further to the right
that you go on that graph, the stronger it's been.

(02:07):
The left or the vertical access shows whether that strength
is getting better or worse. If it's higher on the chart,
it's gaining momentum. The chart is split up into four
separate quadrants, and anything in the top right means that
it's been strong. Bottom right means that it's still strong
but starting to slow down. In other words, it's weakening.
The bottom left means it's weak and getting weaker. Lagging

(02:29):
right top left means that it's been weak but it's
starting to improve. So whichever asset you decide to plot,
it's going to rotate clockwise on this chart. Gold has
been the leader, but it's starting to curl lower, which
makes it look like a tired leader. So what it
all means, Well, it just means that if you're a

(02:50):
precious metals buyer, platinum might actually be ready to take
the lead, especially if we can't see gold put in
a higher high above that three thousand, four hundred and
thirty seven dollars per ounce mark that I just talked
about number two Russell two thousand. So from commodities, if
you think of commodities, oil is definitely a big one,

(03:12):
and oil is joining the reflation rally now. It was
up about two point four percent pre market this morning futures.
That is all the way to small cap US stocks.
So we are in the broadening phase of this part
of the economic cycle where growth and inflation is essentially
accelerating together. Now, yesterday I mentioned that the Russell two

(03:34):
thousand and you can view that via exchange traded fund
symbol IWM recently broke to a bullish trend. And again, reminder,
when you hear me say trend, it's the rate of
change of price, volume and volatility over a period more
than three months. So it's longer, right, intermediate type term,
whereas a trade is immediate type turn. It's still signaling

(03:57):
bullish trend for small caps. And now Russell volatile simpol
RVX is breaking down. It's got a range of nineteen
point sixty six to twenty six point eight seven. That's
the immediate term trade range, and so it's declining, it's decelerating.
Volatility is leaking out. Might we have a bout of
volatility from time to time? Yep, pretty normal in the

(04:18):
midst of a ble market. But what we also are
seeing is eighty three consecutive trading days where the three
month rolling fund to flow for the Russell two thousand
has been negative. Now that's a stretch small caps haven't
experienced since mid nineteen twenty nineteen. Why does it matter, Well,
it just suggests that nobody wants small caps right now,

(04:38):
which might be exactly the reason that you pay attention
to these things. Negative flows for this long isn't just rare.
It's a clear sign of bear sentiment, and we know
what can happen when sentiment hits extremes. Historically, when flow
is dry up like this, it reflects a market that's
been abandoned, and often that sets the stage for a reverse.

(05:00):
But it's not just fun flows. Short interest. In other words,
traders betting against the asset. Short interest in small caps
is right near an eighteen month high, and that kind
of crowding rarely ends up super quiet. So if you're
looking for more risk potentially more return, one way to
possibly express that is to increase exposure to small caps.
The crowd hates these things right now, and if you

(05:22):
remember the rule, it comes down to beware the herd
at extremes. Number three volatility. Volatility as measured by VIS
continues to see what we would call a ball crush,
and that means that it just keeps declining with little
bouts and pops of fits and starts. But its immediate
term trade range is from fourteen point one eight all

(05:43):
the way up to twenty point one seven and continuing decline.
Not that long ago, at the top end of that
range was in the mid twenties. Yesterday the herd bought
a lot of puts ahead of this morning's benign CPI data.
Month over month and year over year both came in
below consensus, and so now those protections are going to
need to get on wound, and that tends to cause
dealers to buy futures, pushing some support into the market. Okay,

(06:08):
that's it. That's what's on my mind to help you
invest more wisely as time goes on. If you have
any questions, email us info at carefromiwealth dot com or
the old fashioned way eight sixty six five nine six
ninety eight eighty six. Thanks for so much for your
time and attention. God bless and I hope you have
an amazing day.