NFTRH; Stock Market / Precious Metals

US Stock Market

After a whipsaw on Tuesday the market made a hard move down yesterday.  Amid degrading indicators like bond spreads and sentiment, the Dow and S&P 500 declined over the last 3 days from all time highs.

Our parameters between normal and abnormal are very tight.  Let’s check up on them.

SPX smashed the parameter.

spx

NDX is below its parameter as well.

ndx

On the momentum leaders, BTK is right at support.

btk

SOX is just below initial support.

sox

Bottom Line

It is odd to have a headliner like the S&P 500 leading the downside.  But this is an index with its share of energy companies.  Given the breakdown in SPX (along with the Dow and NYSE) we should call the market bearish (pending bounces that do not reestablish the S&P and NDX above the gold colored EMA 10’s) until it finds support.  Here are the next significant support areas for some indexes:

Dow:  17,200 (+/-) near the SMA 50

SPX:  2000 (+/-) near the SMA 50, shown above

NDX:  4115 (+/-) near the SMA 50, shown above

SOX:  655 (+/-) per strong support shown above

A caveat to a bear view is that momentum leaders like the BTK and SOX are still intact, with BTK notable at support.  So we can watch for a ‘bear trap’ as well, although that is not the favored scenario for the short-term.

Dialing out to the bigger theme, this chart reminds us that the S&P 500 had been diverging from the recent drop off in post-QE money supply.

sp500.base

And this chart again shows how important policy has been to the bull market.

sp500

Thus from a macro fundamental view the market has been at risk all along.  Combined with compromised short-term technicals, the unhealthy spike in over bullish sentiment (as of last weekend) per  NFTRH 320 and diverging indicators like junk-to-quality bond spreads, the market is now bearish until proven otherwise.

Santa’s rally could come around later in the month, but there is downside potential in play now.  If and when support looks likely to hold, either sooner or later, we will note it.  But the NFTRH US stock market view is short-term bearish despite today’s pre-market positive indications.  10 day exponential moving averages should be watched as resistance to bounces.

This is what one headline (MarketWatch) thinks this morning.  It seems to be jumping the gun a bit, but again the EMA 10’s should answer any bounce vs. “market rebound” questions.

headline

Precious Metals

Gold turned its MACD green (zero +) this week and is at the top of an uptrend channel from early November.  The green arrow is inserted at the spot that would keep gold ‘normal’, technically.  That is where the SMA 50 meets the channel bottom.  It is also the round number, 1200.

gold

Silver is similar, with the low to mid 16’s being key support.

silver

HUI is dealing with the SMA 50.  170 (where it resides now) should hold to keep it comfortable.  A breakdown could put it on the Bottom Retest Express.

hui

HUI-Gold Ratio is consolidating similar to nominal HUI.  This would be an opportune time for gold stocks to assume some leadership.

hgr

Silver vs. Gold looks like it is bending upward.  It would be ideal if yesterday’s move above the MA 50 can hold.  Now let’s see if ‘ideal’ meets reality.

sgr

A Clarification

A subscriber’s email asked about my view that deflation rather than inflation is when gold would see its value more clearly established.  I want to clarify that view (which is not accurate) per this response sent in reply…

John, for gold I think it is a systemic question, whether or not the system is threatened by inflation or deflation. Gold has a place in my opinion.

For gold mining, I have and continue to suggest that it is economic contraction (and any deflationary pressures that may go with it) that is the best backdrop as gold retains value (though not necessarily rising to heights many gold bugs expect) vs. commodities and stocks.

i.e. if gold stocks rise during an inflationary phase with commodities and stocks, then they are a sell on that rally because their product is not out pacing other items, including their cost inputs.

But it is the grinding and painful phase where global economies (incl. the US) contract where they could actually get a bull market, although its early stages would not be nearly as exciting as an inflationary growth phase like for example, the 2003-2008 period.

I hope this helps clarify a bit.

In other words, in my opinion gold has value (though not necessarily pricing power) in either case but gold mining needs an environment of economic contraction in which gold out paces most other items, regardless of whether or not it is rising strongly in nominal terms.

Also, if a real and strong deflation were to come about, cash (and in my opinion, some amount of gold) would be the place to be although from that, could indeed come an excellent environment in which to take gold mining positions for the INITIAL STAGES of an ensuing inflation or just a long-term phase of gold’s out performance to deflating (of previously inflated) assets that are positively correlated to economies.

A little confusing, I know.  But it is very important to have frames of reference on as many potentials as possible.