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Fundamentals

We have some mixed markets today, based on the news from Russia, indicating that they may not be withdrawing some of their troops from Ukraine's borders. It is causing a lot of choppiness. On top of this is the rhetoric about interest rates and inflation.

All the tensions and rhetoric could be hiding what is beneath it all. The economic system is the critical foundation of it all. We are starting to see that the global economic system is going through a transformation triggered by the pandemic. The Russian threat to invade Ukraine is causing the grain markets to be worried about whether the grain trade will be interrupted. Soybean meal is exploding, making a new high. Corn is also making new highs. Soybeans went from 1181 to 1630 a bushel recently. The grains are in a tremendously bullish area and appear about to break out to the upside.

The grains are one of the components of the CPI and PPI, so if they go up, inflation will continue to increase. If Russia invades Ukraine, Russian oil and gas may be kept off the market and crude oil could hit $100. Crude oil is also part of the CPI and PPI-again a possible trigger to much higher inflation and we are already at 40-year highs for inflation.

There is also the question of where interest rates are going to go. The 2-year note is heading toward 2.5 percent and is already above 2 percent. The 10-Year Note is the leading indicator of inflation and potential signs of recession. It appears to be adjusting to the inflation numbers. The 10-Year note is at 2 percent, yet inflation is at about 8 percent, so the real return is negative 6 percent. This negative spread is not discussed enough. It is going to cause a potential financial crisis if the gap does not narrow. If inflation continues to climb, the spread will widen and that is a sure sign that interest rates will have to rise sharply or the Fed has to bring inflation down somehow. If the Fed lets the market alone, it will find its mean or equilibrium, which is what is happening with the interest rate markets. In January 2020, the 10-Year was at .33 percent, yet in two years it topped 2 percent. Something will have to give: inflation has to slow or interest rates are going to shoot up fast to catch up with inflation.

If interest rates rise fast, the cost of money increases. Valuations in stocks and all assets have to be recalibrated. We appear to be living in a time of black swans: the pandemic, a possible invasion in Europe, rising interest rates, supply chain shortages, and more.

Russia entered into an agreement with China to use the Euro as a form of payment for energy trade between them-another hit to the US dollar as the world's reserve currency.

"We recommend that you be long energies, commodities, and Bitcoin," Equity Management Academy CEO Patrick MontesDeOca said.

Gold

Gold is at $1864.70. The market has reached the Variable Changing Price Momentum Indicator (VC PMI) daily Sell 1 level at around $1881.60. This is beginning to show resistance up at these levels. The algorithm forecasts that it is probably that sellers are likely to come into the market at these levels. The long-term fundamentals are incredibly bullish, but headlines can cause short-term bear or bull traps. The market may accelerate up through the area of resistance at $1892 and $1897 or the weekly $1902 level. If it does, the target is about $2,000, which could happen fast. Or the market may revert back down if it can't break through this resistance area.

With such a volatile market, be careful. Even trading one contact can be too risky, depending on your profile.

Gold is above the daily VC PMI average of $1861 and the weekly average of $1845. For day traders, there are no signals since we are around the median price, where there is a 50/50 chance of the market rising or falling. If the market goes up to $1883, it will be a good signal to take profits on long positions and go short. If we come down below $1861, we could hit the weekly average of $1845. If we close below $1845, we could be entering a short-term bearish correction with the target of $1823. A lot of ifs right now, so use the VC PMI to see which way the market is going to go. Patience is the key.

Silver

Silver is also above its average price at $23.49. Similar to gold, it is trading around the average daily and weekly prices with an average to bullish price momentum. Wait for the high probability trades. Wait for $23.90 for the daily and the weekly target of $24.06 or come down to $22.82 weekly or $22.96 weekly. So we are in the middle of the range. Wait for it to hit the extremes to above or below the mean to trade.

Bitcoin

Bitcoin is also in the same area around the VC PMI mean. We were short on February 15 and we covered them this morning, taking a nice profit. We are net long, long-term, but waiting to see what happens short term.

We are neutral for gold, silver, and Bitcoin today, February 16, 2022, but very bullish for the grains. Long term, we are long gold, silver, and Bitcoin.