alice

NFTRH; Pivotal Points Upcoming in Stocks, Bonds, Gold

So here we are.  The president gave his first address to congress and the Fed’s Dudley and Williams ate microphones and jawboned a rate hike sooner, rather than later.

The Trump address (to the extent I watched it) seemed like a minor event compared to expectations, but the Fed is again playing this game of rolling over like gentle doves with not even a hawkish murmur at the FOMC meeting, yet a month later individual members jawbone hawkish.  That is a good thing because IMO they should be raising rates.  The thing that bothers me is this limelight seeking that contradicts the flaccidity shown at the meetings.  Raise the damn rate and shut up!

In line with what we have shown to be the case on previous cycles, the market often goes up during early stages of a rate hike regime.  It’s all good; the Fed is on the job and the president is going to create jobs.  Nice, high paying factory jobs for the U.S. middle class.  He’s going to build a wall to protect our border.  He’s going to fix healthcare and make businesses more profitable, etc.

Bloomberg even projects the S&P 500 to nearly double in 8 years per the chart below.

S&P 500 Could Top 4,000 in Eight Years and it’s Not Because of Trump

Based on technical analysis, where past charts are studied for clues on where a stock or index is headed regardless of fundamentals, an 85-year trend for the S&P 500 Index shows the equity benchmark could rise past 4,000 in the next eight years — an 81 percent increase from its Monday close of 2,362.18.

Before anyone places a call to their broker, it must be noted the same trend channel is necessarily wide and its lower bound suggests the S&P 500 could fall as much as 42 percent to 1,375 by the time 2024 rolls around.

So they make a splashy title, which they need to do during a bullish mania, and talk about why a long-term chart (that you, I or a 3rd grader could interpret) says SPX could go to 4,000.  Then the article gets mealy mouthed and tells us how it could also fall to 1,375.  Thanks guys, informative article.

bloomberg

Look, I will not be the one hoping against such positive outcomes.  But lets stay plugged in to reality.  The above is media muck raking.  It means nothing.  We also have a long-term Dow chart that implies the market under Trump is a very high risk affair.

But backing all that stuff out, the market mania is either going to gather steam, blow off to a spectacular high that blows away my puny SPX 2410 target or it is going to top out soon, amid what is already a pretty impressive backdrop for a top (of some kind) to form against.

In pre-market SPX is +12.75, which projects it at 2376.  Still below the 2410 target.  But here is where I want to be clear.  That target was cooked up last July.  It is and has been a marker ever since.  It is not a stop sign.

While this update is not going to get into specific figures, I am going to watch various support levels and chart structures for items like Treasury bonds, gold, even the gold miners along with market and economic indicators and the stock market itself.  What is at hand is a pivotal time where either…

  1. The stock mania is going to run with the Fed’s rate hike regime (to whatever extent it unfolds) with gold, bonds and the counter-cyclicals getting buried again, or…
  2. The stock mania is going to blow out, against the expectations of the majority and the counter-cyclicals will be in play.

So far the stock market is 100% in line with what we have anticipated and planned for.  Gold has not proven much technically and the miners are on the cusp of failure.  Treasury bonds are bouncing in line with expectations, but the 1-2 punch of Trump and Fed rate jawboning is hammering bonds, along with gold this morning.

So it will come down to confidence, which is really the thing at the heart of all of NFTRH’s analysis.  Is confidence blooming or is it fully expressed, soon to wilt?

I’ve had a pretty good year 2 months in, and intend to keep it that way.  I have slapped my hand away from the ‘short the market’ button so many times it’s not funny.  I have also slapped it away from the ‘sell all longs’ button.  Further, if the gold stocks lose the equivalent of HUI 195 I’ll probably let the sector go to whatever low it is going to grind out without my sponsorship.  Life’s too short to fight lost battles.  The same thing would apply to long-term T bonds if the bounce fails (although at least these are paying out income each month).  Ditto the Utilities.

However, we are not there yet.  In fact, we are according to plan.  Is it not going to feel the most bullish to the most people at the exact time people should be cautious?  Yes it is.  But again, animal spirits can drive things further, without a care in the world about a stupid chart with the number “2410” written on it.  So I am going to maintain discipline both in managing my portfolios (will be as long the market or risk as averse as the indicators tell me to be, while continuing to take profit/limit losses, and rotate as needed) and in providing hopefully well founded short-term analysis that we can use to manage the process going forward.

The pivotal point, as expected, is upcoming.  True to such a bullish atmosphere, it’s got me doubting my own 7+ month old target (as a potential limiter).  Maybe that is the point.  If I am in doubt that the bull will be restrained, what’s the average market player thinking?