Deutsche Bank: The Sword of Damocles

A major “Sword of Damocles” overhanging global stock markets has been the situation with Deutsche Bank, which has a monumental derivative book and whose stock has been plunging to new lows. We have largely ignored this situation up until now, on the assumption that everyone else will until the SHTF, a strategy that has until now paid off. However, we should keep in mind that this is potentially a very dangerous situation that could dwarf the Lehman debacle and send world markets into a tailspin. That said, however, we have just seen a turnaround on stupendous record volume in DB stock on Friday, which suggests that the crisis is set to ease at least over the short to medium-term, and if so world markets could rally. Mrs. Merkel and the German government have been caught in a dilemma over DB – after lecturing Greece and other southern European governments about the virtues of propriety for ages they can’t very well wade in and rescue Deutsche Bank, so it looks like the bailout will have to come from an international consortium of banks, via the simple expedient of printing up another few trillion, which gets more habitual the more times you do it, and there’s always the fallback position of a coordinated international bail-in, although for obvious reasons they are unlikely to resort to this until they have implemented the cashless society. Cyprus was a trial balloon for this. In the meantime, various creditors might take pity and engage in debt forgiveness. The movie Wall St 2 with Michael Douglas is recommended viewing for senior management at Deutsche Bank.

Thus it is ironic that at a time when there are a plethora of “end of the world” articles inspired by Deutsche Bank’s troubles, Deutsche Banks’s latest chart shows what looks like a convincing reversal, with a prominent bull hammer appearing last Monday, the 1st sign of a reversal, then a Double Bottom with Monday’s low on Thursday, followed by a big white candle on titanic record volume on Friday. This could be a major bottom here and the bill for bailing out Deutsche Bank can surely be pushed onto either German taxpayers or international taxpayers, or both, in time-honored fashion, perhaps with a special exemption on this occasion for the Greeks, as an exercise in diplomacy.

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There is a lot of hypocritical humbug written about this industry. For example, a subscriber based in the UK had trouble taking profits in one cannabis stock a few days back, because a market maker had a “moral objection” with trading these stocks. Presumably, this market maker would have no such dilemma with trading tobacco or defense (war) stocks. As far as the writer is concerned cannabis is a herb that, properly used, has far more beneficial properties than tobacco, especially in respect to treating various illnesses, and if that market maker has “moral problems” with trading these stocks, they should be fired on the spot for failing in their duty to trade a stock listed on the exchange – it is not their place to pass moral judgment on what stocks investors trade. Those who are not comfortable trading them should perhaps take a look at one of our Cannabis stocks, Cannabix Technologies BLOZF $0.254 which is in a strong uptrend and is a company that makes a device for law enforcement to test whether drivers are “stoned”. Again, as with alcohol, the problem is not cannabis itself, the problem is its misuse.

Gold and silver stocks have continued to consolidate in recent weeks. Gold has been consolidating since early July after a sharp rise during June and looks like it is waiting for its 200-day moving average to catch up more with the price. There is an important support in the $1300 – $1310 area, and since the price has dropped down close to that it is considered a buy here.

The pattern in silver is similar and looks to be morphing into a Symmetrical Triangle. The bullish inverted hammer of Friday means that there is a good chance that it will rally during this coming week.

Gold stocks, as represented by GDX, appear to be completing an intermediate base pattern above its rising 200-day moving average, and this looks like a good point to pick up the better ones, especially now that Deutsche Bank looks like it is pulling back from the brink, thus averting, for now, the risk of an all-out market implosion, although here it should be pointed out that DB is certainly not the only bank in trouble. Only in the event of the entire market caving in would the sector would be likely to break down into a C-wave decline.

Originally Published October 2nd, 2016.

Reprinted with permission from CliveMaund.com.

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