US Stock Market
Considering that these two items are ‘in the mirror’ to each other (i.e. I expect one to top before the other bottoms), let’s review the state of the general US stock market and the gold sector.
We have covered technicals and associated targets for the stock market and also noted that it is at high risk from a sentiment standpoint. So I am not going to get overly technical with this update. It is more of a ‘notes’ type of thing.
While things are overbought and could use a pullback, the stock market is very bullish at a generally bullish time of year. So I think it is time to be quietly and systematically easing out the door, and that was started last week in taking profits on full positions in DXJ and AMAT. Today, I am adding AAXJ to the ‘sell’ column for a modest profit. Yesterday I sold medical laser company CYNO for a hard fought profit.
I have tried to play the anti-Trump end of the market, figuring for rotation out of the hyped stuff and into the stuff that got dropped on the election hype. So far GOOGL and FB are working well and I am inclined (though under no internal directive) to hold them for now.
I bottom fed a big drop in CVS, which as noted, fell on its its own negative guidance, as well as GILD, which smart fundamental people claim is a value at these levels. I claim that both of these are vehicles that I would like to get bounces from, but will only have limited tolerance on. So far so good with CVS. As noted, PFE was also added after we reviewed its chart in NFTRH. We’ll see.
There are other ‘steady Eddy’ positions that you have seen in the portfolio that I am inclined to hold on to until I see the whites of the bears’ eyes. But then there are also very profitable positions like CRY, on which I’ll not let the profit be lost. Generally, I feel I may still be a little heavy (relatively speaking) in the medical/healthcare area.
Bottom Line
The theme is to lighten up and build more cash over the coming weeks into year-end. In the interim while selling some items, I am looking to buy others on opportunity. But the bias is to leak out, not buy in to the stock market. The market itself is technically bullish (says Captain Obvious).
Gold Sector
The ‘potential bounce’ theme remains in play and with today’s weakness following yesterday’s pop, it remains a pathetic attempt thus far. Referring to the simple daily chart of HUI we have used to gauge the correction, the index continues to hold at around the original downside target after filling the April gap.
But HUI remains in a firm downtrend channel and would need to clear the SMA 200 at around 220 in order to break the trend. There are approximately 40 points between current levels and the point where the downtrend could be broken and longer-term bullish positions would be considered. Within that 40 points is where traders and bouncers can play if they choose to. But the gold stock sector remains in a bearish trend. Those are the technicals of it.
The fundamentals of it are that the precious metals will probably need the big bull rally in stocks to terminate or weaken significantly before the sector gets bullish again. While gold made a lower low to May, silver did not. That helps keep the prospect of a sector bounce in play. But again, if something generates (still a significant ‘if’) it is just a bounce. Silver’s upside resistance is 17.25 to 17.50 (with 19+ needed to break the downtrend) and Gold’s key resistance is 1210 to 1220 (with 1310+ needed to break the downtrend).
Bottom Line
Whether sooner (in the coming weeks) or later (a few months), I expect the precious metals to once again be a buy, possibly a table pounding one. But that is not the case at this time. The two items in this update need to play off of each other and item number 1, the stock market, is still enjoying the euphoria into the peak of holiday season. The precious metals could shape up to be a big contrary bullish play if/as the stock market shapes up to be a big contrary bearish one.
Anecdotally, I see gold bug entity after gold bug entity now reporting the bearish news to enthralled gold bugs. Things are becoming bleak and the only thing thicker than gold bug confidence during a bull run is gold bug angst and fear during a bear phase. We’ll let it play out. As noted earlier in the year when I did not do a stellar job of helping us take advantage of the big bull momentum, it would be at the first major correction in the bull phase that the opportunity to position would be at hand.
We are in a major correction and if/when the time comes that I see max angst juxtaposed against improving fundamentals (as in Q4 2008) I will be more than happy to put on my bull hat. We will gauge these most interesting of developments in stocks and precious metals all along the way.
