alice

NFTRH; Extensive Update of Precious Metals, Stocks and Commodities

Note:  A reminder that I will mostly be away from the markets on Thursday and Friday.  This update is an extensive review of where markets stand now.  We will update the situation on Sunday with an abbreviated NFTRH 391.

Precious Metals

HUI made it to the resistance line and the projected zone of 202 to 211 off the consolidation triangle (ref. daily chart reviewed in this update last week).  From the ‘bottom line’ of that update:  “Watch the gold miners.  A breakout (on a weekly close) here would signal a new leg to an initial target of 211.”

hui

At 209.24 we can call the target in, and this is very key resistance as it would be the gateway to a bull market.  Not only is HUI at resistance, but it became over bought and the sentiment backdrop as noted in NFTRH 390, is over bullish.  This zone is a logical one for some profit taking, which I have been doing this week as noted in several posts.

Now let’s look at some of the sector’s internals.

Gold vs. Crude Oil, a sector fundamental consideration, is still in its big picture uptrend but the rally in oil has hammered the ratio down significantly from its highs.

au.wtic

Since we used the big spike upward to help in projecting firmer bottom line performance of large, open pit miners in Q1 (results being reported this earnings season) we should also use the subsequent downside to project a potential softening of results in Q2, which of course has only just begun but this will bear watching going forward.

au.wtic2

A larger view per our oft-used weekly chart, for perspective.

au.wtic3

Here is the view of Crude Oil, along with Copper to show that not all commodities are on the ‘inflation trade’ bandwagon yet, but that oil is making a potentially important move to change the trend.

wtic

So in the event we go into a phase of readily identifiable inflationary effects, I want to remind us all not to be obsessed gold bugs.  For much of the previous bull market gold under performed commodities and still people touted gold mining stocks even as their fundamentals degraded.  Gold is not oil is not copper is not tin is not corn, hogs or even silver.  Gold is the 1st mover to inflationary phases during transition.

Gold would do well during an inflationary phase but gold miners would slowly but routinely suffer relative to other areas within ‘the trade’ for the same reason their fundamentals improve on a counter cycle.  The buoyancy of the stock market (thus far) and the bullish looking moves in energy are troubling to a gold stock investor.  So all I am asking for is a wider canvas on which to paint our investment theses.  Don’t let the promoters catch you obsessing on gold stocks.  There is a whole world out there.

Silver has made a move back above the weekly EMA 55 and this looks constructive.

silver

Yet silver vs. gold still has not made a signal, so let’s tap the breaks on the ‘inflation trade’ until market-based signals come in.  Earlier in the week we reviewed a bullish looking pattern on the daily chart but the weekly is what it is, in a long-term downtrend still.  Folks, trains are not leaving stations and nothing is running away from anyone.  If the silver-gold ratio breaks out and changes trend, there will be plenty of time to fully position for inflation.

sgr

Gold has been having trouble this week vs. many stock markets, which seem to want to just keep on bulling.  But ‘gold vs.’ these markets has not broken down.

au.spx

Since we are introducing the prospect of an inflationary period, lets introduce silver vs. SPX as well.  This could well be a bottom in the making.

ag.spx

Before leaving the precious metals, let’s get a look at gold’s weekly chart.  It is still nestled atop the support retest area and continues to look good.

gold.wk

And finally, HUI-Gold ratio (HGR) which, on the big picture shows a positive picture for the sector.  If we put the ‘inflation trade’ talk in its proper place (not yet confirmed) we see that the gold stock sector has made very positive strides in leading gold.

Here is the big picture of the HGR, having led gold for all of 2016 and on the verge of crossing the moving averages for a bull signal.

hgr1

Here is the same chart, blown up to show the current situation.  The trend is close to turning up for this key indicator, but historically it is at such times that reactions can come about.

hgr2

Stock Markets

The stock market is being persistent in nominal terms.  If this market is going to turn back down they are going to wring every ounce of sweat and bile out of the bears before it does so.  The weekly moving averages are on the verge of negating the bear signal.

spx.wk

Here are the multi-index, multi-market views.  The orange dots are the limits and Dow for one is testing its limit.

spx

Banks and Biotech continue to be in bounce mode, but bearish below thick resistance.  SOX is still at a decision point.

bkx

BKX (a key positively correlated sector) and Gold (counter-cyclical) show that the line is pretty fine between the existing bear backdrop and a much more bullish one.

bkx.gold

Moving on, let’s look at the more bullish items we have identified in the US market.  The Energy sector has broken above the channel this week.  I bought XLE back a couple days ago as I am not willing to let this potentially big trade go.  I have been in trading mode since we caught the bottom but plan to hold as long as it remains technically solid.  Check out the Medical Device sector.  If that breakout is real, the measurement is to 140.  General Healthcare is still in the channel but bears watching.

xle

As for the global picture, Europe, Toronto and Japan are bouncing but still in bearish trends.

stox

Emerging continues to look constructive and yet massive resistance awaits.  India continues to be interesting above weekly EMA 140.  A break from the channel could be a good long-term buy.  China is bouncing above resistance this week.  All 3 of these items should be watched closely by global investors going forward.

msemf

Meanwhile, the World is making a move out of its channel as is London.  Australia looks worst.  All 3 are technically bearish below thick resistance.

msworld

Commodities

Finally, another look at commodities.  Copper is going one way but the other items are bouncing in what looks like real bottom-making.

crb

Indeed, GYX, of which Copper is a component, is at a very key area by daily chart.  The likes of crude oil, the Energy sector and the Uranium ETF have broken through similar points.  Could the base metals be next?

gyx

Bottom Line

The gold stock sector hit the immediate target of HUI 211 (in essence).  This is also the gateway to a new bull market that can be confirmed technically, not just in gold bug hopes and dreams.  I would advise patience here as it could bounce up and down but the risk vs. reward became negative at this resistance level.

The US stock market is technically at high risk, by definition, because it has not exceeded the Q4 2015 highs.  But look at the bullish things going on, notably in the Energy and Medical Device sectors.  I also continue to have a positive view on the manufacturers we have reviewed (Faro, Stratasys and Hurco) and potentially, the broad sector of manufacturers and exporters.  On the general US market the bear case is on its last legs and needs to reassert very soon or else it will be done for now.

Globally, the theme is similar in that discrete items like China, India and even general Emerging look better than the markets associated with developed nations.  This is similar to the view within the US markets that pockets of bullish sectors exist due to the current macro fundamental backdrop (including pressure on the US currency).

It seems like each week a new commodity pops above its 200 day moving average.  Watch silver vs. gold and let’s watch the likes of this inflation barometer going forward.

10yrbe

There has been a lot of talk about inflation lately (including by your letter writer), but one negative market event would put all that on hold.  Best to wait for the signals to register before leaning too heavily.  If the macro picture does shift from a global deflationary to global inflationary phase, the trend should allow for an extended ride.  If the day comes that silver establishes an uptrend vs. gold and the graph directly above breaks out, we would have confirmation.  Those two conditions are still holding out for now.

See you Sunday!