As suspected would be the case, the US dollar appears to have resumed its correction after rising to test the high. The first important support zone has been the shelf surrounding 94, which intersects a trend line from last summer’s lows.
In response we have firm stock markets, hard bouncing commodities and precious metals going along as well, still on their bounce.
With the recent deceleration in economic data and with the world very long USD (commercial hedgers very short), the case for a correction was a good one.
Fed rate hype is built in to the US dollar and now the Fed has sat on its collective butt for so long without any serious rate hike consideration that some of their jawbones and the media may have pumped the dollar on pure hot air with nothing to back it up.
We have planned for some economic deceleration and the signs are there. Counter intuitively enough, inflated stock markets may stay firm on a ‘Fed’s still dovish!’ story. But things could be different in that a dollar correction now, with a softening economy and a Fed rolling over would be a big step in the direction we are ultimately looking for. That would be a new down cycle in confidence in the Fed amidst a chronically stagnant or weak economy.
Taking it further, this could mean that other assets (that have been excluded from the stock party) could participate in an anti-USD rally. Below are some pictures of commodity and precious metals technicals with the idea that the USD can drop to or through 94 and assets can continue to bounce (precious metals and commodities) and remain in uptrends (stocks).
Given the theme that dollar weakness would be brought about by economic weakness and a questionable Fed, precious metals (still in a bear market, mind you) are the one I’ll be taking most seriously going forward, in keeping with our big picture theme of a long-term economic counter cycle.
The themes would be:
- Stocks in a late stage bull market
- Commodities bouncing but big picture bearish
- Gold sector bouncing, still technically bearish but with potential to grind into a new bull market
Meanwhile, bounce status/objectives on a few items…
Crude Oil, which we noted was constructive above the 50 day MA’s, broke resistance today. If it can hold that area the target is around 62.
The Uranium ETF bounced to resistance. Nothing proven yet.
Copper continues to bull flag its way up, but please keep in mind it proves nothing until 3/lb. is exceeded and held (ref. long-term charts and massive resistance at that level). Target would be around 3.
The Rare Earths ETF made a hard move up early in the year and we advised waiting for it to pullback. It did and that was buy #1 for ‘REE Heads’. Last week we noted the break to new highs and a target of around 30. Like copper, it is in a series of higher highs and higher lows, which is another way of saying ‘intact rally’.
At the same time we also noted the Lithium fund and its potentially bullish bottoming pattern. Yesterday the neckline was exceeded for the first time as the right side shoulder was made on good relative volume. If that can hold up LIT targets 13, as noted previously for any ‘Lithium Heads’ out there.
Turning to our oft-viewed gold stock ‘bounce’ chart, we had noted previously that the exploration ETF (GLDX) had made a higher high but that GDX and GDXJ had not. Well, yesterday GDX joined the club, leaving only GDXJ left to make a signal.
If these items maintain their rally, I am not going to be overly concerned about continuing stock market strength (i.e. that the gold stocks are rising with a general anti-USD trade) because as noted above, elements are falling into place indicating that a counter cyclical atmosphere may be engaging and that is the primary big picture fundamental underpinning for the gold mining industry.
Yield curves continue to rise on this bounce as well, and as constantly harped upon, that would be supportive as well if it keeps up and changes the trend.
The US dollar is expected to correct in line with increasingly bearish fundamentals and a very bad contrarian sentiment backdrop.
Various asset markets are continuing bullish or bouncing in response to a short or intermediate correction process in USD.
Stocks appear okay for now (but are of lessening interest and at continuing elevated risk), commodities remain of little interest beyond a bounce and the gold sector stands a chance to come out of the process as the best option beyond the short-term. Note however, that HUI is in a bear market and we do not confirm otherwise until 211 (Jan. high) is exceeded and held.
We will of course continue to qualify a range of signals to go along with these technicals in order to refine the plan every week. But for now, the above is how things look to me.