Anecdotally and one by one, I see more and more sources out there getting bullish with the market’s advance. We are hearing about ‘the cloud’ and the internet in general in glowing terms seemingly in justification of the recent blast upward in Alphabet/Google, Amazon and Microsoft. Funny how we don’t hear as much anymore about the wonders of biotechnology. Promotions don’t resonate when they don’t have something that can be pointed to as evidence, after the fact, like the big rallies in the 3 items noted above.
The point is that while you are not going to find me predicting doom and gloom or negating the slight possibility that the next big move is ‘manic up’, all of this was in essence coded to happen as sentiment needed to be re-booted. Promoters are not talking about manufacturing, discount retailers and economic data that continues to ease (unless the bullish pitch is ‘QE 4’, per below).
Within the context of the ‘bounce’ rally, I think that this little pause is probably just that, a pause, before the market makes its high (prior to a reaction or resumed correction). We’ll see what Apple’s earnings and then FOMC (and its aftermath) have to say about that. Another thing I have noted in the wake of Draghi is a growing drum beat about the US easing again, implementing another round of QE, which could send stocks soaring.
Again, anything is possible but if we remember back just 2 months ago, we had the opposite going on… ‘the Fed is going to tighten in September!’, the media highlighted the oncoming BEAR and investors were in a shoot first, ask questions later mood. Today the mood could not be more different. There is a growing greed centered around not missing out. All I can tell you is that if the bear case was going to be sustainable, there would need to be an interim spring back to a sentiment backdrop like the one coming into place now.
A final anecdotal observation is that a technical analysis service (left unidentified) that tends to follow momentum, has gotten mighty bullish on US stock markets after recently noting bearish Head & Shoulders topping patterns and bearish trade setups. In line with the bounce (and its job well done) they now appear extremely bullish. They also once predicted the HUI Gold Bugs index to 1400 (making my ill-fated 888 look like child’s play) based on upside breakout and momentum, FWIW.
Here as well, we may be looking at a pause prior to rally resumption. STOXX 50/HEDJ have higher targets and indeed, if they pull back enough this week maybe there will yet be a trade in there for those wanting to be bullish for a Euro QE ‘me-too!’ trade. STOXX has thus far pulled back from 3450 to 3392 as of this writing. If it can get back to 3300 to 3350 and if one is willing to put confidence behind Draghi’s inflationary jawbone, the daily chart’s implied target is 3600 (HEDJ 63).
I am still thinking about the Emerging Markets as a short, but first I want to see how US interest rates and USD shake out, post-FOMC. Generally, the global picture remains one of ‘bounce, to varying degrees’. This spans from Europe to China to Australia to Canada to India. All of this stuff is still in bearish trends beyond the short-term. Let ’em break those trends and we’ll change our tune. But not until.
Gold and silver Commitments of Traders (CoT) data are bad to the tune of an alignment that has been a condition to some very harsh corrections. Gold is still in its flag consolidation that looks more bullish than bearish. Silver looks suspect, technically. Tuning out the FOMC week noise, it looks like gold can pull back to 1140 and silver 15 to 15.25, each of which we have been noting as support areas. I am trying to temper the influence of the bad CoT on my chart views.
Using a 60 minute chart, I hallucinated a beautiful topping pattern on GDX that targeted it to the support area we had been expecting to be hit on a pullback (by daily charts). This was within the context of a still valid upside rally target in the high 17’s or 18 (HUI 150’s) and the SMA 200 sooner or later (prefer later). Then, through the magic of short-term charts, the pattern disappeared, grew another hump (shoulder) and came back. We updated this yesterday.
Gold is a metal with a Ph.D. in economics, while silver has got its high school equivalency diploma. In flopping after the last round of QE these two (along with Doctor Copper) instructed that the global backdrop was going to be deflationary, with only US stocks and confidence in US policy a bright beacon of light.
A narrative I am picking up on out there is that a US QE operation (competitive to Europe’s QE, China’s easing, etc.) will boost stocks as has been the trend during the last few years. This is people following the trend they have been trained to follow. Once upon a time gold bugs knew to their very core that any QE by the US would launch gold and absolutely send silver skyrocketing.
Considering that the precious metals complex has been rallying for over a month now, and a bad CoT situation that looks ripe for a hit, I would not expect FOMC to do anything dramatic this week to the tune of jawboning QE or even backing off its stance of pretending to stand guard, ready to tighten policy ‘any time now’. But if the economy continues to show wear and tear (with Draghi driving the USD up) that could change at any time.
Whether or not they do a couple of token 1/4 point increases going forward, any QE talk or action that comes against a decelerating economy would eventually be another chink in the armor of confidence in this policy regime. But first, gold and silver seem to need a correction if CoT is going to not be different this time. As well, a little positive ripple (60 min. GDX chart’s temporary negation of the topping pattern) went away in gold stocks yesterday. What will happen today? Back to bullish? That is sarcastic, but it is how the market has been going as it decides whether to correct or simply consolidate.
A final note; it was interesting that the gold stocks (unlike gold, silver and commodities) rallied with the post-Draghi strength in USD on Friday. Yesterday they declined with USD also declining. What to make of it? Not much yet, but given that we had called the current rally in gold stocks little more than part of the ‘anti-USD’ bounce trade, it bears watching with definition and meanings to come if/when they come.
Meanwhile, it is FOMC week and this on its own often begs a tight, cautious stance until the dust settles.
US Stocks: Still in bounce/rally mode. The little short-term pullback does not affect this. Sentiment continues to march toward over bullish.
Global Stocks: Europe is on the Draghi pump (STOXX 3600?) and most items are bouncing within still-negative trends.
Precious Metals: Vulnerable by CoT. FOMC noise could drive sector up to make a high, but that is not usually how FOMC week goes for the precious metals. Especially when the CoT is aligned as it is. In the gold stocks, yesterday brought back the favored scenario, which is that a correction can visit in the short-term (GDX 14-14.50, HUI 110-115, gold 1140, and silver 15-15.25 as viable pullback targets). The less favored but still-viable scenario is that a noisy week could drive the complex up to rally targets before the correction hits. If that happens, the ensuing correction could be severe.