Market Notes

US Stocks

This headline says it all.  Playing its assertion straight, we acknowledge that what was a bubble in asset market supporting policy could morph into a bubble and blow off (i.e. mania) in stocks.

Playing it asymmetrical, the headline looks like a contrary indicator.

headline

With the Russell 2000, Biotech index and Bank index conspicuously strong and the Semiconductor index just a little wobbly, we have key sector leadership that is near fully intact.

I am taking note with respect to my short position on SPY, which now sports a reduced profit.  Here is the 60 min. chart from a previous update that shows my tolerance point from the short side.  Since there is a gap above, I’ll extend it to 2080 or so, depending on what I see in other sectors (ref. bullish leadership noted above).

spx60min

Frankly, I am seeing some bullish things and am ready to reverse course.  The healthy thing for the market would be a drop to at least 2000 +/-, with the potential for a drop to 1900.  These could refresh as opposed to kill the bull.  That remains the plan, but given the bullish leadership, a revision could be coming.  It is all up to the market and the nature of the bounce now.

Final note: Sentiment has reset from extreme over bullish, but not to a degree that typically ends a market correction.

indicators

Global Stocks

Europe is leveraging the USD’s strength (Euro weakness) for economic growth.  The USD is late in a trend (there is a 101 target per the chart in NFTRH 333) and so through that lens Europe remains vulnerable to a correction.

Other global stocks (esp. Emerging Markets) could benefit if Uncle Buck finally blows out.  But we are not there yet.

I added long-term India exposure to my kids’ custodial accounts.  The only other long-term thing there at the moment is gold, which after being decimated is still +72% (the rest is 1-3 year T bonds).  I mention it because these small custodial accounts force a ‘hold’ mentality upon me for tax reasons.  So when I take a position it needs to be something I believe in, assuming the asset in question goes profitable.

Precious Metals

CoT comes out today.  You can check the CFTC CoT link in the left side bar at exactly 3:30 if you want to get the info immediately.  The graphical representation of the data comes out with a lag, sometimes before markets close on Fridays.  Those are the CoT (Au) and CoT (Ag) links.

I expect the data will show solid improvement, possibly near an ‘end of trend’ level.  Anything else would be surprising, but anything is possible, especially with FOMC (w/ Yellen press conference) coming up next week.  There is a little tin foil hat in that comment, but I have seen this movie too many times.

In other words, the precious metals tend to do poorly during FOMC week.  But with the impulsive US dollar, if the Fed even mentions USD strength in an unfavorable light during one of these meetings, the result could be a total opposite from usual for gold.  With Intel talking about what we have been expecting since last year (USD strength affecting revenues) for many US corporations, this could be on the table for coming FOMC meetings.

Moving on, we reviewed the Sentimentrader stuff yesterday and it shows a likelihood of a bounce at least and a strong rally at most.  I say ‘show me’ and I also say ‘show me a hard decline in US stocks’ because gold is at a new low as measured in S&P 500 units as of this morning.  Also, yield spreads remain adversarial although the USD scenario above would play in to dropping short-term yields if it were to come about.  More than anything, it is short-term yields (anticipating a Fed Funds rate hike) that are hurting gold.

So gold sector, and all the gold sector aficionados obsessing on gold in a vacuum, show me something and I’ll gladly get more exposed and eventually NFTRH will get bullish.  As of now I still only hold a very few items, bought on the pukage per a previous update.

Without Treasury yields and gold vs. developed stock markets playing ball, the fundamental story remains not yet baked.  Meanwhile, here is some improvement in the OPTIX data (in essence an aggregate of data to form ‘public opinion’) from Sentimentrader.

Gold

gold.optix

Silver

silver.optix

It appears that the elements are coming into place for a bounce, rebound, rally… what ever you’d want to call it.  But if it does happen, it is not yet backed by macro fundamentals.

Bottom Line

We are entering a time window (March to June) when cyclical changes often occur in markets.  ‘Sell in May and go away’ is the obvious one for stocks.  For examples, the secular stock bull blew out in this window in 2000.  Silver and commodities blew off in this window in 2011.

The current plan is for US stocks to resume a short-term correction (i.e. this could be an opportunity to add to shorts or create more cash).  But market leadership is flexing its muscle and this little bear is taking note.  I added a couple long positions and would get longer if the signals mount.  If it turns out that this is all there was for a correction, it would be likely that markets are on the drive to a blow off (Russell 2000 target is 1350 for example) into the cyclical window.

Precious metals can bounce.  If they fail to do that and instead head south again, it would come against an already greatly improved sentiment and CoT backdrop, meaning that it could be a final downside blow out, from which long-term positions would be taken (assuming that the stock market blows off and reverses and the Fed withdraws support for the USD).

This update got very talky.  We’ll condense and update the situation on Sunday in NFTRH 334.  Be open to several scenarios and time frames.