Great Storm Rising: The Next Major Liquidity Squeeze!

Since the intra-day lows of February 11th, with the exception of T-bond prices, almost everything else is up sharply! You name it: Gold, silver, copper, crude oil, and stock prices are all higher over the last 16 trading days. 

Mining stocks have been the star performers this year so far, with many individual mining shares posting gains of 100% or more since January 19th. The S&P 500 Index is up 10.5% since February 11th, while the Russell 2000 Index and the Nasdaq Composite are up 13.0% and 12.0% respectively.

The "tone change" from February 11th is nothing short of incredible. Many Wall Street pundits are already declaring an end to the "great correction" that chopped 15% off the S&P 500 Index from the intra-day high on November 3, 2015 to the intra-day low on February 11th, 2016. And maybe this newfound bullishness is justified? Who am I to argue with the herd?

However, an interesting sell signal was triggered by my computer trading system in most of the precious metals stocks at Friday's close, March 4th. Please see the Philadelphia Gold/Silver Mining Index (symbol XAU) daily chart below. Few would argue that this entire group has been on fire lately with most stocks doubling in a few short weeks, and maybe these hot stocks deserve a much needed rest to consolidate recent gains. Unfortunately for bulls, I suspect that there is more here than meets the eye. I think the Federal Reserve is about to make a huge mistake. While most market watchers now believe the Fed won't raise interest rates more than once over the rest of 2016, and that the next rate hike is unlikely until at least June (if then), I believe that rhetoric from Federal Reserve officials is about to become very unfriendly and that a 1/4-point rate hike could come as early as the upcoming March FOMC meeting. Wow, wouldn't that be a shocker!

Philadelphia Gold/Silver Stock Index (XAU)  Daily Chart with Computer-generated Buy & Sell Signals

Second Thoughts: Sustained Advance? or Counter Trend Rally?

In my last column on February 11th entitled "Green Monday", I speculated that a tradable bottom was already in place or very close at hand for U.S. stock prices. As it turned out, the intra-day low in the S&P 500 Index at 1810 on February 11th was the turning point to a fairly strong rebound. The S&P 500 Index has advanced 7.5% since then and many on Wall Street are already predicting an end to the "great correction of early 2016" and the resumption of the 7-year bull market.

Are they right? Are we in a sustained advance that could eventually post new all-time highs? Or is this just a counter trend rally within a vicious bear market that will soon overwhelm even the most fervent bull?

Quite frankly, I just don't want to hang around with any significant positions to be apart of the outcome here!

For traders and investors looking for an excuse to exit this market, the S&P 500 Index has rebounded to its 50-day moving average line, which could very well be significant overhead resistance.

Another interesting excuse for exiting this market might be the price action today in Honeywell (HON). Yes, there's been lots of talk about a potential merger with United Technologies (UTX), but the Honeywell chart looks more than a bit scary to me, and this 2016 favorite equity could very well have topped out here today.

Of course, there are a score of other reasons to head for the sidelines in addition to these two interesting excuses, including the potential "Brexit" (UK) threat or  maybe even a "Frexit" (France) threat, two fascinating market moving topics that will corner the headlines for at least the next several months! I am on record in several of my columns over the last couple of years with the view that the European Union (as we know it today) will not exist by 2018, if not sooner. A comparison to the Soviet Union in 1989 ("tear down those walls") is not so far fetched here. The European Union may not exist in ANY form in two or three years time!

I wish I could offer a viable investment alternative to "Cash" right now. I don't even think the precious metals stocks offer any reasonable investment-worthy risk/reward opportunity here. 

Bottom line: Cash is king!

Honeywell (HON) Weekly Chart with Computer-generated Buy & Sell Signals