Precious Metals (Negative)
- Bearish Engulfing candles aplenty yesterday (‘BE’ is only a very short-term bearish candle, with implications over the next 1-3 days at most)
- Lack of bullish follow-through from Tuesday
- Metals and stocks in downtrends and no sign of bottom confirmation *
Precious Metals (Positive… well okay, less negative)
- MACD and RSI still look generally constructive on many charts
- Volume was not compelling yesterday
- Large volume reversals to the upside happened last week. That was notable then and still is today. Remember, the ‘stop loss’ to the potential bottom (even if just for a short-term recovery) is fresh lows. The volume of last week implied some conviction.
Precious metals stock players are back to looking for an upward reversal. Yesterday came out of nowhere, as HUI lost the 349 “normal” parameter and kept going down. Since the sector remains in the grips of a downtrend, then downtrend rules still apply. In my case, that means profit taking and risk management and not being afraid of what I might miss on the upside.
But this remains an opportunity for the gold sector to find a bottom of some kind, whether it be for a good trade or something more important. Again, new lows would decide that issue. The HUI low last week was 337.29.
* Of course, a confirmation of a bottom will only come well after the fact. Right now we use things like a positive RSI divergence, volume and MACD cross to gauge probabilities that a bottom (of some kind) is in the making.
Stock Market
The target for SPX was 1550+, later refined to 1564 and 1587. It is easy to lay out targets, because they are just measurements on charts based on established patterns. It is harder to not be sitting long the SPX and touting to the world “look at me, genius… we at NFTRH are long because we were effective contrarians when everybody was bearish!” Well, that is show biz.
SPX sits at 1554 this morning and I want no part of it. That is because contrarian instincts tell me to be cautious just as they told me to be optimistic last summer. What followed the initiation of a risk vs. reward bullish stance was many months of more bad than good trading as the precious metals sector sucked away any profits that were gained, even with all the hedging done there.
So the result was a great target on the SPX and net-nothing to show for it. The headline US indexes can go to the equivalent of SPX 1590 as the pervasive bull atmosphere continues to drag on. Another near term mitigating view for the precious metals and positive one for the stock market by the way, is the target on the SPX-Gold ratio, per the previous post and NFTRH 229. The target does not need to be registered, but it is an objective and it does square with the idea that the bull can drag on in stocks.
Bottom Line
It is possible that the gold “community” is getting ahead of itself in looking for a reversal of current trends just yet. We may believe that the stock market is providing a great opportunity to sell or go short, and the PM’s to buy. But trends can hold on longer than we humans might find comfortable or convenient.
There could easily be another month or two of the current bullish stock market backdrop. Within that I note a new strain of rabid bull, who seems to have been waiting in a closet to come out and eviscerate anyone who would be bearish, with a political agenda in one hand and a trend follower’s resolve in the other.
There seems to be vehement rejection of those that would question policy makers and their inflationary agenda; a rejection of those that would call the economic and market recovery anything but organic. In short, there is a growing acceptance and support for man-made economic policy as being a good thing. It is almost as if some sort of mass hypnosis has taken hold that prevents people from realizing that it was less intense versions of the same policy that caused the crash of 2008.
Perceptions are being cemented in the bull camp, just as they were in the bear camp last year.
