NFTRH Update 6.27.13, ‘T2C’, Broad Market & Precious Metals Status & Review

It looks like the opposing action of gold and silver to the stock market will come into play soon.  With the metals free falling (conveniently right to what look like strong support levels), the setup is in place for a coming end to this precious metals melt down (and possibly the bear market) as the stock market resumes its summer correction.

That is the favored view.  But the favored view is hindered by the fact that our ‘taper to carry’ (T2C) thesis is working a little too well and appears to be moving from the realm of thesis to active plan.  The weekly view of the BKX-SPX ratio remains on signal.

bkx.spx.tyx

Furthermore, the regional bank ETF has made a move upward over the last 2 days and looks healthy.

kre

Recall that I had wanted T2C to bide its time and wait patiently over the course of a summer correction for the stock market.  My questions are ‘will the banks continue to look bullish in the near term and how bearish can the stock market get if they do so?’

spx

We will know shortly because the parameter is clear for the S&P 500.  The bounce was predictable and so is the bounce target at the confluence of the trend line and the moving averages.  Note that SPX has already hit some lateral resistance.

So the market should resume its decline soon or else the bulls will have pulled a rabbit out of their hat, with the backing of some suddenly dovish Fed jawbones.  It is difficult to see how market players can be eased by a Fed that talks too damn much and waffles all over the place apparently trying to manage every squiggle in the financial markets.  Which brings us to…

Precious Metals

Gold and silver are opposed to all this stuff.  NFTRH tries to strictly remain the ‘don’t make excuses, manage risk’ service but I think most of us know that there are active governmental and commercial goons operating within this market.  It is part of doing business.  Since Q4, 2012 when we first asked “who are those guys” with respect to silver’s CoT data, which was steadily marching in a bearish direction despite what seemed at the time like a bullish macro backdrop, the goons have had to be factored.

So here we are today.  This chart of silver was produced 14 weeks ago in NFTRH 230, before silver had even lost the support (now resistance) zone at 26-27, but after it had lost an important weekly moving average.  I did not hear much complaining about manipulation when silver exploded to bubble territory.  The chart – manipulation or not – is simply taking on an equal and opposite stance to ridiculously over bought and over loved conditions.

silver
Silver weekly

It is funny how a chart can illustrate a possibility months in advance and do so in a cold and uncaring way.  Some people respect the message and others don’t.  But when the event actually happens everybody’s paying attention and emotions run high.  Why don’t we just view the current situation as something that we knew was a possibility, which became a probability and is now a reality?  On the plus side, that looks like a strong support zone, which is being attained against a pervasive bearish backdrop and is therefore contrarian bullish.

gold
Gold weekly

Here is the weekly gold chart from that same newsletter.  The chart was produced while Au was still above important support (1591) but had lost the EMA 70 (red).  But the green moving average (which has also since failed) and the lateral support levels (the higher of which has failed and is now red as resistance) were noted for a reason.  That reason was that they became probabilities if gold were to lose support.

Again, the initial warnings on both metals were the loss of the weekly EMA 120 on silver and EMA 70 on gold.  These failures told us to be on alert for a threat to major support, which when broken, activated the downside targets.

As for the gold stocks, you know my stance on the chronic bottom calling that has persisted in the sector.  It has been almost comical to watch various callers take a shot at being the new Richard Russell or Bob Prechter (both circa 1980) only to be routinely told by the market ‘no sir, you are still just you, and furthermore there are no great Swamis in this market who can look into their mystical crystal balls and predict much of anything with any accuracy anymore; give it up kid.’

Speaking of taking a shot, the NFTRH speculative portfolio has endured a slow erosion [within predetermined and acceptable bounds] due to my own periodic prodding of the sector.  If I had just left well enough alone and netted out bull and bear trades in other areas, a streak of many years of positive returns would not have been interrupted over the last couple of years.

But my method is to be in or around the game as long as there is fundamental reason to do so.  Poke here, prod there and get the hell out of the way when I sense a problem.  Well today the gold stocks have big problems with respect to price destruction.  But this is only a problem for holders or sellers.  It is the opposite for buyers.

I will continue prodding until such time as – for example – T2C puts an actual fix on the economy (it’s possible folks) and/or the gold vs. (positively correlated) commodities ratio (Au-CCI) fails on its big picture climb, indicating that the macro is exiting an era of persistent economic contraction.  Here again is that view after yesterday’s precious metals price destruction.

au.cci
Au-CCI ratio, monthly

Short of that, gold bulls should watch what looks like a capitulation develop and be prepared with what they consider quality (as a money barometer, gold is the ultimate in quality) get hammered and liquidated.  Here again you know the items I consider quality; the best royalties, cashed up and prospective explorers, young producers that say what they’ll do and then do it and established miners with proven track records within safer locations that make sensible acquisition deals and do not routinely screw over shareholders with hair brained financing, bloated management structures, etc.

The industry is going through what should be a healthy shake out now.  It is not our job to share in that misery.  It is our job to capitalize when the time is right.  With ending action looking like it is engaging, those of us who are gold bulls should stand ready to do our job.  Here is the cold hearted monthly view of HUI once again.

hui
HUI monthly

The waterfall has now come to the secular trend line and a higher low to 2008.  If this general area fails, a fast event to 100 is possible.  I will not pretend to lay odds on what is going to happen.  I can only tell you that I am feeling greedy, sitting in cash and watching like everybody else.  The index could bottom here or we could experience one of those ‘ya just know you gotta buy’ moments as the unthinkable suddenly becomes thinkable and puts a punctuation on what has been a very draining (literally) 7 months.

Forward with patience, perspective and… greed (which, unlike in 2011 is now appropriate with all due risk management in the form of a healthy questioning of our macro fundamental assumptions per the report above).


Above was pre-market.  Update by email @ 10:09 ET:

Notes:

1) I do not make recommendations.  In my opinion, nobody should because nobody is smart enough to tell another person what is right for them.

2) I do however, try to illustrate generally what I am doing, which is to buy a few items this morning including the gold fund SGOL, in my opinion an okay way to buy gold in an IRA.

3) I have poked the stock market short per the SPX resistance level noted.  I will not be committed to this position if it proves more than a bounce.

4) I could just as easily go all cash again; no problem.  That includes precious metals positions if things do not work out in the very short term.

5) I do not want to have to mentally whipsaw you or stress myself out making announcements with every move.  So please do not expect this.

6) But I thought in light of this morning’s update these notes would be a good follow up.

7) Cash is still by far my largest position.  Overwhelmingly so.