NFTRH; Pre-FOMC Market Setups (US Stocks & Gold Sector)

Admin note:  The sporadic email kick-back issue had disappeared after I made a complaint to Google.  I thought it was highly improbable they would actually do something for one tiny little entity that uses their services, but it was working for a few emails.  Then yesterday’s update saw the issue resume, so I am going to go back to thinking about alternatives, which may include setting up a site exclusively for protected subscriber content (thank you for the idea, PJ).  It may take a while to get this going, but a solution will be implemented.

A .25% rate hike is widely expected at tomorrow’s FOMC release, we have parameters on indexes and now just need to go through the event and be prepared for what takes place on the other side.

One wrinkle to the original plan is that the US stock indexes are bouncing pre, not post FOMC, but it is coming from SPX 2000, which was anticipated.  The indexes are buying the news before the news is even out as Santa just could not wait any longer I guess.

The important parameters are SPX 2050 to 2060 and then the channel top just below 2100.  Below that level the market has made a short-term double top and entered a bearish phase, above it the downtrend channel would prove to have been a bullish consolidation.  The bear still has the ball on the intermediate-term because the market failed to make news highs to the early November highs and SPX/DOW are making lower highs and lower lows with NDX going perfectly sideways after also not making a new high.

us indexes

Interestingly, headlines are noting that the stock market is rallying with oil this morning.  The Transports, which benefit from weak oil prices, dropped with oil.  What’s next, a bounce with oil?  In this market, probably.

Small Caps and Mid Caps continue to diverge and show a thinning market.  The Santa rally would normally be the time for the RUT to start taking over the momentum lead but so far, it remains a laggard.

rut, mid and sox

A rising interest rate environment is less favorable for small companies, as they tend to be more leveraged to borrowing costs.  From FactSet

small cap leverage

As for the Semiconductor index, since this weekly chart was last reviewed the potential right side shoulder has improved its potential.  SOX-SPX leadership (top panel) is still in an uptrend but also looks like a potential topping pattern.  The fundamental reasons for a bearish outlook (on the Semi equipment stocks, at least) relate to the most recent book to bill data and my reliable contact’s information that the sector is in ramp down mode at least through Q1 2016.


Moving to gold, I try to be afraid when it is appropriate to be afraid.  At the last FOMC, it was very appropriate to be afraid not of the FOMC, but of the terribly bearish Commitments of Traders data.  Now it is the opposite and hence, I continue to think this event can spur a bounce, rally or otherwise bullish expression.

Where am I called wrong on that stance?  A break down below the daily channel would potentially signal the final wash out and the target that is down at 960.  Why a final washout?  Because if it were to come amid this contrarian bullish sentiment backdrop and a highly publicized macro event (FOMC rate hike) it would have the makings of capitulation.


Silver made a new low yesterday and just can’t seem to get out of its own way.  Again, I’d rather this than having silver bugs flipping the bird to Janet Yellen pre-FOMC.  The channel needs to hold here.


The silver OPTIX (optimism index) is decently over bearish, which is where you want the silver bugs to be if you want to be bullish on silver.  One more drop in price (to the channel line) and in OPTIX (to previous lows) in the offing before a rebound?

silver optix

Precious metals are in a bear market.  We have consistently held that view.  But the short-term, with bearish sentiment and prices nearing channel bottoms all centering around a dynamic event could either signal a bounce or a capitulation breakdown.  I would not mind either scenario and in some ways would prefer a breakdown because I think it could be gauged as being a pivotal moment, just like Q4 2008 was.  It would finally be something for contrarian buyers to sink their teeth into.  That said, there is a setup in place for a contrarian bounce this week, with the FOMC rate hike.

Gold stocks have indeed failed (after a bull trap pop above resistance) at the first resistance parameter, which was GDX 14.50 and HUI 115 to 120.  The index is dropping back to support and that is all it has got going for it.  So, it is probably either bounce this week or strap in for a big drop (and in my opinion, buying opportunity).


I try not to put too much noise in your ear during FOMC week, but I think the above represents some pretty interesting situations.