NFTRH; Stocks, Gold Sector & Bonds

Outside of Japan (and its vulnerability to a rising Yen) and Russia (RSX may be declining toward the 18-19 buy area, for those bullish on Russia), most global stock markets are relatively stable.  This is largely a US thing, just as the ‘Trump Rally’ was largely a US thing.  So let’s look at some US charts again.

SOX made a new low below the SMA 50 and is getting oversold on RSI to the level it did the last time it cracked the 50 to this degree, in June 2016.  If another drop to test the SMA 200 (which is due) is in the cards, it’s obviously got a lot further to fall.  If that were to happen I’d expect there to be rallies and failures along the way.  Last year’s rally was born of excellent fundamentals as we noted at the time (ahead of time, actually).  But as we’ve been noting lately, the sector has been running on late stage ‘momos’ after exceeding even our best upside target around 940.  I remain short.


Small Caps did the ‘right’ thing by holding below the SMA 50.  I remain short.


The relatively less bearish Nasdaq 100 resides below the EMAs 10 & 20, looking for a test of the SMA 50.  Our ultimate upside target was 5500 (to go along with SPX 2410 and Dow 21,000).  Last week NDX got close enough on the upward spike and reversal to call the target in, should NDX decide to subsequently decline.  I remain short.


Again, a reminder that when I talk about my short positions I am not recommending them; merely stating my positioning (which can change with the markets at any time).  Also, I continue to hold all long positions, which have continued to do what I’d hoped on balance, which is to be relatively firm.  They are a collection of defensive (TLT), boring (VRSN, WMT, DVA, IBM, KO) and/or counter cyclical (gold miners) items plus a couple Pot stocks, Lithium producer SQM and SIMO, and as a group they were green during the market’s downside, which works to plan.  Incidentally, profit was taken on 1/3 of the AAU position, as I think this gold/silver explorer may have gotten vigorously pumped somewhere (+20% yesterday on no apparent news).

The US market now seems to be moving beyond geopolitics and if the charts above continue on their short-term path, into the ‘correction’ vs. ‘corrective consolidation’ scenario.  Here’s SPX for reference, finally dipping its toe below the SMA 50 for a daily close.  A real bearish trigger would be a lower low to March.  That would firm a downtrend channel.


So if geopolitics are being cast aside should not gold react downward?  Well, there are no shoulds in the markets.  All things being equal, yes.  But two other things are at work here…

First, if the stock market is taking a real correction, that is ultimately supportive of gold and the gold sector.  As we increment further toward the ongoing US market correction scenario the fundamentals for the gold sector improve.

Second, Trump talked down the US dollar and Treasury yields yesterday.  Apparently he thinks he can control the markets.  He cannot.  But I left with my JDST position solidly green and returned with it solidly red, I assume at least in part, because of Trump jawboning.  No big deal, I am used to precious metals shorts not working out now and on balance yesterday was a very good day, JDST or no JDST.

The technical picture on HUI remains good, but what is needed is a cross above the February high and then a pullback to buy.  Short of that, I am staying modestly to moderately positioned.  So the daily chart’s parameter is right there for the grabbing.  The weekly is above its EMA 55 and the monthly, as we have been reviewing all along, is constructive for a big bull phase out ahead.


Here is how Huey looks vs. the S&P 500.  All systems go… except the February high.  At some point, if the short-term trend continues, mainstream market participants will take note and start to buy the sector.

hui vs. spx

Finally, Treasury bonds are doing what I had thought they’d do and at least get a strong contrarian bounce going.  Yesterday TLT broke to a new high (it was positive before Trump tried to jawbone yields down; save your breath Donald, let the market do the work) and sure does look like this is a breakout.  The measured target would be the SMA 200 (currently 126.69).


Bottom Line

Barring a big reversal today or tomorrow, the stock market appears to be choosing ‘continued correction’ over ‘short-term corrective consolidation’.

The gold sector gains a fundamental underpinning if stocks continue to weaken, and is good technically.  But it is still on a bounce until miners and silver confirm gold by making higher highs to February.  Then, whatever pullback comes after that would be the buy (assuming stocks have not regathered and turned bullish again; always a big assumption).

Treasury bonds were always just a play.  A contrary bounce play.  TLT is providing 3 positives; it is acting as a counterbalance to a bearish flavored stock market, it is providing price appreciation and it is providing dividend income.  Not bad, but also not an investment (in my opinion).

Side note: Also still holding a short against crude oil.