Yesterday’s market decline was a little more than the recent gentle downward slip and we have been noting markets at short-term risk, sentiment-wise. So I think it is a good time to review a few pictures of the progress with respect to important support that would act as a buying opportunity for an extended rally or a failure point that would call the July bounce a shorter-term throw over and suck-in.
SPX broke down yesterday and we have been looking at SPX 2090-2110 as an area that would a) hold as support for a new rally leg up or b) end the rally with a failure. I prefer ‘a’, but the market will decide. I raised cash per the “cash too low” notes in recent NFTRH editions. Gains will not be given back. That said, all SPX did so far was test the EMA 20, which is often a (very) short-term support point.
Here is the chart of IBB we reviewed yesterday morning. Well, there was a test of the breakout line and it is interesting that it held despite the rough day in the broad market. This is a positive divergence to the market as it stands now. I bought it, though still was a net seller in taking a small profit on EEM (preferring INDA & AAXJ) and a small loss on CY in the same account. I like the clear ‘stop loss’ below the breakout line/SMA 200.
Small Caps are only at the EMA 20, as with SPX. A real test would drop RUT to the 50 day averages in the low 1170’s. 1120 (SMA 200) is an outside possibility as well.
SOX has barely come off its over bought high and remains bullish. But within a ‘bullish’ context the 50 day averages can be tested down at 700-710. So ‘bullish’ may not feel so bullish if that happens. It’s why I stated that things could even feel a little scary in the short-term. I have sold all Semi related items except KLIC, which I’ll not give too much leeway to. Again, I am not giving back gains, even if it is on the way to higher prices eventually.
Bottom Line on US Stocks
We have anticipated a correction to around the SPX 2100 area. This would either be a buying opportunity to a resumed and extended breakout rally or it would be the support parameter which, if lost, would paint the big July upside as a ‘throw over’ and quicker suck-in. While I favor the ‘buying opportunity’ scenario, my personal over riding plan is to keep 2016’s gains so the market needs to prove itself to me, not the other way around.
India and Asia (ex-Japan) are in bullish (weekly) patterns and relatively strong in their daily chart up trends.
Here is our standard weekly chart for more perspective. Emerging is at resistance, Bombay in an uptrend channel and China 50 still above support.
Europe looks plain bearish. No touch.
Japan is only marginally better.
Canada is up trending but looking somewhat similar to the US. 14,200 would be the first key support level.
CRB is dropping below the SMA 200 and on the verge of a lower low to May. No sign of a bottom yet, but it is in a support zone that coincides with a 50% Fib pullback. This bears watching, as do bonds (for potential inflationary signals).
Bonds are either going to keep dropping (interest rates rising), as has been our contrarian thesis for the longer-term (i.e. deflation is played out) or fail to continue upward on this move. If interest rates continue upward and the USD continues downward, commodities will likely be a buy. But I want to see signs of a bottom.
Here is the 10 year yield, bouncing a bit.
Yield curves are bouncing but still down trending.
As is the TIP/TLT ratio.
The above are some would-be indicators of an inflationary environment that are not yet indicating such. I will add that although TIP is bouncing vs. TLT, it is likely to go down if yields rise. It was highlighted as an ‘insofar as one wants to hold bonds, TIP might be preferable to TLT’ type of thing. It is another item I probably won’t hold if it goes against me.
It’s an up trend. I’d have loved to have gotten the test of the MA 50s/lower channel line and maybe that can still come about. But it’s an up trend and I don’t think it is wise to micro manage the 250 to 300 range within that uptrend. I have decided to trade the launch phase, but holders should keep on holding unless the channel is violated. The key support levels are green shaded, FYI. We have recently opened up targets for HUI in the low 300’s and even up to the old ‘375 neckline’ using monthly charts. We will use the channel and MA 50s as a guide and parameter along the way.
We had noted gold’s relatively bullish look on its recent corrective consolidation. As long as gold is above that visual support and the MA 50s at 1300, it targets 1400.
The standard weekly chart shows the next resistance area. You can see how important 1300 is as support to keep the rally going. A loss of 1300 would bring on a test of the EMA 75, currently at 1227 and rising. That would be the kind of thing that would come with the first real correction (when ever it gets here) and end to the ‘launch’ phase (stage 1).
Silver has refused to hit reasonable pullback levels as it has been the momentum leader (that is what a silver bug is, after all) since taking over from gold in March. So I am not going to micro manage it now.
Here is our standard weekly chart of silver showing the next resistance level upcoming at 21.50 to 22.
The Silver-Gold ratio (SGR) continues to be fine, although over bought. So while this indicator says all’s good for the precious metals, commodities and even stock markets (risk ‘on’), you don’t tend to see corrections in the SGR coming. They tend to blow up out of nowhere in quick, violent fashion.
Bottom Line on the Precious Metals
The technical situation is just fine. That can change in a nano second in this sector. But it is a fool’s game to chase would-be corrections around. The sector is bullish, but risk vs. reward is unfavorable. I try to choose my words carefully. Any rally has a diminishing risk vs. reward proposition as more and more momentum oriented money comes in to replace the value and/or contrarian oriented money that got things going originally. So please don’t be intimidated by the language if you are a buy and hold investor.
Personally, I plan to continue trading until after the first real correction, when ever that may be. Gold, silver and the miners are indicated to be in a bull market. Some may prefer to ride, with the full knowledge that the ups and downs will represent large swings. We have to all understand who we are as investors and traders.
Report Bottom Line
Everything I hold is up for sale at any time because 2016 has been the best year I have had since 2011. I am hoping that the previous sentence is theoretical and does not become literal. But I am serious about profit retention.
That said, despite the developing bearish whiff in the air, the backdrop continues to be ripe for a turn to inflationary. So this pullback in markets could possibly be the next buying opportunity for an extended ‘inflation trade’. With silver leading gold, the precious metals are a good indicator there. We’d want to see some signs in bond spreads as well. Commodities could do very well and select stocks/markets too. We will update the moment something happens to indicate ‘inflationary’, whether that be this afternoon or later in August.
But right now it looks as if the anticipated summer decline (and support test) is taking hold. Individuals should proceed according to personal plans for the event. A test is a test, not a given. That is why they call it a test (def. noun: a procedure intended to establish the quality, performance or reliability of something, especially before it is taken into widespread use).