I want to preface by repeating that we are all different investors and traders with different means, methods and objectives. NFTRH is not a service that tries to instruct about what is best for others because I do not know the detailed situations of others. So the mode is to interpret the markets as best as possible from a fundamental and technical view, and also show what I, a lowly individual market participant, am doing with my own funds per my own unique situation.
Preamble aside, I want to look at the broad market with a view that some profits have been booked but some are still ‘on paper’ and thus, vulnerable. I also want to do so with the summer seasonal (volatile, choppy as noted in recent NFTRH) and the knowledge that for me at least, it has been a little too easy to pick profitable stocks. I am not that smart. Most people aren’t.
The market seems to be rewarding risk taking without even thinking twice about it. It is in full Fed obsession mode. ‘Weak payrolls surely puts the Fed back in a box at least through June and probably July’ thinks the market. But we have illustrated the reasons that the economy is probably not as weak as May Payrolls implied. We have also reviewed several aspects of an ‘inflation trade’. This latter item is the one that would put the Fed in hawk mode.
Finally, corporate profits have been easing and by most metrics the US market is over valued. Sentiment is springing back to over bullish and I cannot shake the idea that maybe those very NET SHORT small speculators noted in NFTRH 398 need to get eliminated before the market tops, for a correction at least. If that is addressed and then sentiment is extreme across the board, the market will be ripe for a summer correction, breakouts or not. Now, on to some charts using a daily time frame today.
First up is the US dollar, which has been the foil to most asset market bullishness lately. Stocks, commodities, precious metals, emerging, etc. This is by no means a bullish chart but one thing to consider is that USD was dropped on an inflammatory news event (Payrolls and associated dovish Fed expectations). Inflammatory news events often do not last in their efficacy. Also, if we are correct to view the economy as not quite as weak as is the popular view or if rising price signals (ref. ISM) continue to indicate ‘push’ inflation, there will be a reintroduction of the Fed hawk theme in due time.
Technically, USD is at support. If this area fails (it is weak but still in the support zone in pre market) asset markets will likely continue to show strength in the near-term. But this area should be watched closely. A drop below 93.50 would target the lower channel line, probably below 90. If it holds, asset markets (stocks, commodities and precious metals) would be vulnerable.
With USD right at critical support it is not surprising then that SPX is right at key resistance. Just as USD is not a bullish chart, SPX is not a bearish one. What’s more, it becomes a bullish one if the April high (key resistance) is exceeded. A breakout here (break down in USD) keeps the party going and we might visualize all those small speculators rushing to cover their aggressive net short positions. If that happens, it could signal a mini blow off, with the market to correct afterwards. But for now, SPX remains below resistance.
CRB is channel busting upward. If this holds and plays out, the signal would be for a blow off of some kind also. This works to end bull markets and it also works to end impulsive initial legs of rallies, or even bull markets. Now, I said “initial” so the implication remains that we can get a bigger ‘inflation trade’ later on, pending ongoing analysis.
If gold breaks through 1260 and closes a week that way, no harm no foul. The bull is back on. But it is weak in pre market (interestingly, along side USD) and dealing with resistance. What I find interesting is that Payrolls gave it its best shot of bullish fundamentals and yet the technical state is still more bearish than not from a short-term perspective.
Silver bounced at the top of the support zone. If USD weakens further and stocks and commodities break upward the resistance at 17 could be next up for silver. That would be a caution zone. If USD holds firm, we remain aware that silver never did test the lower end of the target zone (extending to the low 15’s).
Silver vs. Gold thus far has not confirmed commodities and stocks. If they blow off with the SGR continuing to flag downward, that would be a sell and/or caution signal on asset markets. If SGR turns up for a new bullish phase, no harm no foul. One day, if we get another inflationary impulse as per the favored scenario, SGR would likely be rising strongly in unison with it.
If silver continues to drop vs. gold (i.e. gold-silver ratio rises) the implication could be for gold mining fundamentals to improve. As we have noted, with gold dropping vs. oil, stocks, etc. lately, the fundamentals have worsened. Think of it this way, the things that drive up gold vs. silver (economic contraction, loss of market liquidity, deflationary pressure, etc.) also drive up gold vs. fuel, materials and asset markets. This makes the sector unique.
But the gold stocks often rise with all those other things (under silver’s leadership) while the gold bug inflationist touts cheer them on. It’s just the way it is. But the miners tend to move first (after gold). Like most items above, HUI is at a key level. Having held the 200 area and the 50 day moving averages, we have 251 loaded as the next target. If that comes about with everything else in blow off mode, caution would be the word. Alternatively, if USD finds support and markets (including gold stocks) begin to correct sooner, the decline (first key support after 200 is 170-180) could be a buying opportunity if current inputs remain as they are.
I feel like putting a world full of charts up this morning because it is all in motion. But we will just stick with the basics per the above and realize that markets are generally at a decision point now.
It appears we will either get a short-term break down in USD and an upside blow off in stocks and commodities (which would then usher in a caution for the post blow off period) or USD would find support at current levels and end the party sooner.
My personal mode is going to be to look for profit taking opportunities across the board. Part of this has to do with my situation, which is a thus far nicely profitable year but more than that, because of my situation this summer. Both daughters at home and one leaving to start college in August (it is only now hitting me how profound this is after nearly 18 years).
My plan is not to be a hawk like (no pun intended) obsessive this summer, where the markets are concerned. My plan is for a summer of relative calm, regardless of what the market does. How am I leaning? Well, my gut tells me that USD can weaken further, stocks and commodities can continue upward and HUI can perhaps find 251 (if gold holds firm and silver tests upside resistance). In other words, that the ongoing rallies can end with upside blow offs. But that is all momentum stuff and time wise, the bulk of the rallies are likely done.
Meanwhile, watch USD support, SPX April highs, CRB for a potential channel buster and HUI at around 230. These things could also represent limits. So I am either going to take (at least some) profits sooner… or later. The market will decide per the above parameters.