NFTRH Interim Update 1.23.13

The stock market is becoming dangerous.  This would in my opinion apply to bulls and bears right now.

Bulls have to make the decision to chase performance in a market running on pure momentum.  I truly believe the thrust here relates to the anecdote I shared about a financial adviser family member who stated at Thanksgiving that the fund managers he dealt with were not touching this market due to the Fiscal Cliff and the potential for a severe correction in December.  Well the actual correction was just about finishing up back then.  These managers are touching the market now.

Bears have a favorable risk vs. reward but not much else.  Stocks are over bought and rising up a slope and who knows if they will accelerate into a major top or take a hard (and cleansing) hit at any time, to provide further fuel out to spring time?

We noted in #222 that gold and silver could cool down now at any time after doing well recently.  The gold stocks?  Ah the gold stocks, that most ignominious of sectors continues to bottom dwell yet has not broken.

hui weekly

Nor has it broken in relation to the SPX.

hui.spx

But really, how much grind are gold bugs going to take?

Daily HUI is still in its bottoming pattern, but the HUI-Gold ratio has continued to degrade.  This is not a positive sign.

Elsewhere, the Canada dollar has followed through to the downside and with the CCI commodity index over bought, I wonder if that is a signal to take caution in the commodity complex.

I have taken profits on several items and limited losses on others and want to have a lot of cash and stand back for a while.  Until I see HUI actually break down from its potential bottoming stance (sub 420 ought to do it) I will try to give certain items the benefit of the doubt.  But it could all be sold if gold bugs get out of hand with the knee jerk selling.

Bottom Line

The market is dangerous, but with each day the mainstream appears to be falling deeper in love with the great US recovery story and the US stock market.

The ‘inflation trade’ appears to be taking its time in unfolding.  Commodities look vulnerable as the CCI shot to over bought (as did my CFD fund, which was sold).

The gold sector is setting up as a contrarian play sometime in 2013.  HUI still looks to be bottoming now, but 420 decides that issue.

As I see a stock like SAND dropping hard today I am reminded of why I have tightened up my game.  An over bought selling opportunity came last week and now another buying opportunity is upcoming?  AUY was sold for the same reason.  Nice profit?  Take the profit.  There will come a day when the sector can be ‘set and forget’ for holders of quality items.  But that day, at least for my taste has not quite yet arrived.

Despite what could be an old tried and true tactic of the hedge fund community (buy the metals, short the stocks) the HUI continues to try to bottom, but carries a potentially developing negative caveat in the HUI-Gold ratio.  No one indicator decides events and thus the 420 parameter on nominal HUI is important as well.

Good luck out there.  It’s an interesting market for sure and it should not be forced.  Risk should continue to be managed across the board.

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