Post-FOMC

The Fed rolled over again, which was not surprising given global economic slowing, global monetary easing and a would-be firm US dollar’s continued negative impact on US exporters and manufacturing.  While I thought they might try to live up to the ironclad confidence market participants have had for the Fed post-2011, it was not to be.

Let’s update how the chips fell after the non-decision.

VIX rammed down into the revised target zone of 18-20.  At that point I took some profits on a couple of trades, shorted the S&P 500 and added to a short against the NDX (per an NFTRH+ update on Wednesday.  I also limited a loss on KBE (also per an NFTRH+ update), due to the Fed-induced drop in interest rates.

Enough about me, the days immediately post-FOMC can be erratic and volatile as man and machine react to what their brains and algorithms instruct.  But the initial plunge into the support zone by VIX brought us back to the anticipated relief zone where bearish positions – for those who would go that route – should start to be taken.  Remember that cash and patience are never a bad combination when scouting future opportunity as well.

vixThe S&P 500 thought it was just great that the Fed decided to give it more of what it has given it since 2008; namely, ZIRP.  But then evidently SPX thought about the now obviously decelerating manufacturing sector (Philly Fed is the latest to drop after the very negative Machine Tools information we reviewed back in July).

SPX did not get to the anticipated resistance zone (#2, after #1 @ 1975 had already been attained) of 2040, at least not yet.  But it did get to 2020 and the EMA 50 (orange dotted line).  So I shorted it with the idea of scaling in.

spxWith the US dollar looking suspect now, in its elevated state with a lack of Fed support and a sloppy looking chart, we might think commodities would benefit.  Perhaps that will be the case, but we should remember that these are generally positively correlated to economies and the global economy is not healthy and the US is wobbling, at least.

What could benefit from this environment is gold, and more than that, the gold sector.  That is because as we have noted for well, forever, the best investment case here is economic contraction, not inflationary growth.  If an ‘inflation trade’ whips up the precious metals would benefit (with silver leading), but real positioning – as opposed to a shorter trade – would be taken when things are falling apart, amid a deflationary backdrop.

If US and global stocks are weak and the US dollar is weak, the only real perceived safe havens would be US Treasury bonds and gold.  The Fed’s inaction forces conventional players to strongly consider bonds, but gold is where the real, long-term quality is (if by quality you mean something of stable value – as opposed to price – that is not all about leverage).  The daily chart shows a couple points of potential resistance at roughly 1150 and 1180.

goldHUI once again targets 130 on its bounce.  There is positive divergence in MACD and RSI.  A break above 130 would target 160, which is the old ‘last ditch’ parameter below which HUI was completely broken down.  From there the target of the pattern was 100 and Huey made it to 102.  Speaking technically, we will have to call this a bounce only (though the pom poms are sure to be waving in the “community”) until/unless it gets through 160.

huiWhat could hurt the gold stocks in an environment that continues to shape up well, fundamentally?  The only thing I can think of is that if the stock market gets bad enough, it could pull down the miners for a variety of reasons, not least of which is larger entities scrambling for liquidity (i.e. cash and US Treasury bonds).

Bottom Line

With the Fed rolling over amid signs of economic weakness in the US and even worse economic conditions world-wide, the conditions are coming into place for a conspicuously over priced US stock market to resume its correction.  Market sentiment backed off its extremely over pessimistic state, but ‘dumb money’ remains over bearish.  We will update the sentiment picture in NFTRH 361.  But the VIX has settled down and that was our number one guide to a would-be next leg down.  SPX 2040 is still open on the upside however, so let’s see how volatile the immediate post-FOMC period is.

We continue to be slowly transitioning to a positive macro fundamental and sector fundamental environment for quality gold mining operations.   Daily, weekly and monthly technical trends are down.  So speaking as the TA robot I am, we must call this a bounce only (while keeping the fundamental view in our back pocket at all times.  ;-) ).  It is improving.