A Look at Sentiment & NFTRH 220 Wrap Up

The following is an excerpt from NFTRH 220, published on January 6:

Sentiment (Data courtesy of Sentimentrader.com)

sector sentiment

Well what do you know?  Most US stock sectors are becoming unhealthy from a sentiment perspective (above), as the commercial hedgers have gone quite bearish (below).  Here is the graph from NFTRH 218:


…and a short-term sentiment timing graphic:


Sentiment Bottom Line

Note that Jason’s comments are in contrast to the current NFTRH view that markets could remain strong into spring and then go bearish.  A valid question is how long can markets continue higher while being sponsored by dumb, performance-chasing money?  The answer is often “longer than you might expect”.  But we should respect the idea that US markets are in a poor risk vs. reward stance now.

Referring back to the top graphic on page 21, there seems to be one lonely sector – one red headed stepchild – that is out of sorts with the whole process of a degrading risk vs. reward setup.  While it is painful in the short-term, it is certainly a positive with respect to the fact that there are phases when the precious metals go contrary to the broad markets.

Hulbert’s latest data available to Sentimetrader shows a -6.3% for gold newsletter writers.  Anecdotally, a friend advises that Lance Lewis has stated that Hulbert’s HGNSI was actually down to -12.5% on January 3.  The Sentimentrader data is delayed.  This would mean that gold newsletter sentiment is as bad as it was during the summer when prices were 100 bucks lower.  That is a bullish divergence, contrarian-wise.

hulbert gold

The bottom line is that the sentiment data backs up NFTRH’s stance of a bullish risk vs. reward on the precious metals (again, this does not mean lower prices cannot come about in the short-term), a bearish risk vs. reward on the broad markets and for sure a bullish risk vs. reward view of the precious metals in relation to the broad markets.

Wrap Up

Please remember that a perma precious metals bull did not write that last paragraph above.  Yes, the PM’s are in a secular bull market and I am big picture bullish.  But when the shorter-term risk is high in the precious metals NFTRH has consistently noted it.  When risk vs. reward is good in the broad markets we note it.  If at any point it looks like I may be serving up dogma, please contact me and let me know about it.

I try very hard to keep personal views as a rational monetary system and market watcher subordinated to what I see actually happening in the markets on a week-to-week, month-to-month basis.  But I have eyes, and as such I see inflation being promoted once again.  The work done to date pretty much comes down to the Adjusted Money Supply as being the final leg to be kicked out from under the table that holds Ben Bernanke’s carefully arranged place settings.  Rising money supply would bring on the next inflationary phase and most probably the next leg up in the precious metals bull.

But there is another scenario that most gold and commodity promoters will not mention.  What if rising Treasury yields stop the economy dead in its tracks and actually trigger a real deflation, as money simply seizes up and stops moving?  What if the money supply does not rise?  What if, just maybe the weakness in the precious metals is a forecast to this condition?

This question is not meant to scare people because I expect the opposite.  We are only 1 week into 2013 after all, with Operation Twist barely in the rear view mirror.  But various indicators in today’s report say it is important for the precious metals to begin to out perform other markets soon in line with favorable sentiment and risk vs. reward profiles.

We will continue to manage the process in-week with interim updates.

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