Tech Breaks Down, Energy Ramps Up? | With Dale Pinkert
Audio Brief
Show transcript
This episode covers a technical analysis deep dive into the violent price action across precious metals, currencies, and indices marking the start of 2024.
There are three key takeaways from this conversation with trading coach Dale Pinkert regarding the unfolding Great Rotation in global markets.
First, the sharp moves in Gold and Silver display classic signs of a blow-off top. While the broader trend remains bullish, the recent parabolic price action is unsupported by momentum indicators like the RSI. This technical divergence suggests the rally was fueled primarily by short covering and dollar weakness rather than sustainable organic buying. Traders should remain cautious, as these continuation moves often signal exhaustion rather than a fresh breakout.
Second, the unwinding of the Yen carry trade is a critical driver of current volatility. As the Bank of Japan intervenes or checks rates, the Yen strengthens, forcing investors to unwind positions where they borrowed cheap Yen to buy high-yielding assets. This triggers a ripple effect of selling across global markets. Structural shifts indicate a repatriation of capital back to Japan, as the country needs domestic investors to support Japanese Government Bonds rather than US Treasuries.
Third, a dangerous Cash is Trash psychology is accelerating sector rotation. Investors exiting winning trades, such as the Magnificent 7 tech stocks, are refusing to sit on the sidelines. Instead, capital immediately seeks the next moving asset, such as small caps or commodities, creating rapid and volatile shifts. The prudent move in this environment is to resist the urge to redeploy capital instantly and instead embrace cash as a strategic position while waiting for technical pullbacks.
Finally, traders should closely monitor the 97 to 98 level on the US Dollar Index, as a stabilization there could remove the tailwind for metals and foreign currencies.
Episode Overview
- This episode features a technical analysis deep dive with trading coach Dale Pinkert, focusing on the violent price action seen in precious metals, currencies, and indices at the start of 2024.
- The central narrative explores whether the "Great Rotation" out of US tech stocks and into other assets (like silver and the Russell 2000) is a healthy market broadening or a sign of a blow-off top fueled by a collapsing US Dollar.
- Dale analyzes specific charts including Silver, USD/JPY, the US Dollar Index (DXY), and Natural Gas to help traders navigate the unwinding of the "carry trade" and extreme volatility in commodities.
Key Concepts
- The Blow-Off Top Mechanic: Dale characterizes the recent moves in Gold and Silver as "blow-off" tops. While the trend is bullish, the move became parabolic and unsupported by momentum indicators (RSI divergence), suggesting the rally was fueled by short covering and dollar weakness rather than sustainable organic buying.
- The Carry Trade Unwind: A critical concept discussed is the relationship between the Japanese Yen and global risk assets. When the Bank of Japan "checks rates" or intervenes, the Yen strengthens. This forces investors to unwind the "carry trade" (borrowing cheap Yen to buy high-yielding assets), which creates a ripple effect of selling across global markets.
- Repatriation of Capital: The strengthening of the Yen signals a repatriation of capital back to Japan. Dale explains that Japan needs its domestic population to support Japanese Government Bonds (JGBs) rather than US Treasuries, fundamentally shifting global capital flows.
- "Cash is Trash" Psychology: A driving force behind the market's erratic rotation is the psychological refusal of investors to hold cash. As money exits one winning trade (like the Magnificent 7), it immediately seeks the next moving asset (like Silver or small caps) rather than sitting on the sidelines, creating rapid, volatile sector rotations.
Quotes
- At 1:07 - "We're not making new highs [in RSI], there's divergences. This is a blow-off... These are continuation moves that were fueled by a short-term breakdown in the dollar." - explaining the technical warning signs in the silver market despite the price rally.
- At 3:20 - "The only thing that made the carry trade affordable was the Yen weakening... this also means that there's repatriation going on. Because they need their population not to support the US bond market, but to support the JGBs." - detailing the structural shift occurring between the US and Japanese bond markets.
- At 10:52 - "What everyone hates right now is what? Cash. Cash is trash. And no one wants cash... It might be prudent to raise a little cash in all kinds of different instruments and then look to recommit after a correction." - highlighting the dangerous psychological bias currently driving market rotation.
- At 15:23 - "There isn't a law that you have to purchase something else... but people feel like doing that. I don't want cash... so they rotate." - illustrating the compulsive nature of current market participants who refuse to sit out of the market.
- At 22:52 - "Don't be afraid of missing things because there's one thing I can guarantee: there is always going to be another trade." - offering a core philosophy for traders feeling "FOMO" (fear of missing out) on parabolic moves like Natural Gas.
Takeaways
- Monitor the US Dollar Pivot: Watch the 97-98 level on the US Dollar Index (DXY). If the dollar stabilizes or reverses higher here, the tailwind for metals and foreign currencies will vanish; tighten stops on any long positions in these assets.
- Wait for Technical Confirmation: Do not chase parabolic moves (like the recent spike in Silver) or try to catch falling knives (like the USD/JPY drop) instantly. Wait for a "reversal candle" or specific technical divergences on the daily chart before entering a counter-trend trade.
- Embrace Cash as a Position: Resist the urge to immediately redeploy capital when selling a winning position. In a volatile, rotating market, holding cash allows you to wait for a true "reset" or pullback (e.g., waiting for Natural Gas to pull back to 4.50/4.20) rather than buying at a potentially exhaustion top.
