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NFTRH; USD, Stocks and Gold Sector as They ‘Should’ Be

The title of the update is a bit sensational because there are no ‘should be’s in the market. There is only what the market says. But what it is saying at the moment is that our view of USD strength, stock market weakness and a constructive gold sector is looking good. In a public post yesterday (I urge subscribers to monitor the free content at the site as it will usually dovetail with the work in NFTRH) we took a look at the USD’s progress and targeted a bounce objective in the high 90s.

Last weekend in NFTRH 460 the idea was that the stock market was due to bounce after the unsustainable short-term inputs from the North Korea nuke tensions. The market bounced pretty good to clear at least some of that over bearish sentiment. To my Euro short I re-added the short against the Emerging Markets and am going to look for a couple others, globally and/or domestically.

Going the other way, Monday and Tuesday were unpleasant days for the gold sector. I got the usual pit in my stomach and added SSRM (which dutifully pulled back, post-earnings), increased SBB.TO, which got walloped and held on to the others (AAU, KGC, KL.TO, KLDX, MOZ.TO, WDO.TO, NGD and SVM). I have SAND, BTG, PG.TO, PVG, AXU, GSV, GOLD, FNV, NEM, IAG, etc. on watch. But I would be fine holding and/or adding to the items already held as well, since they are my preference (except for the lame WDO.TO, which must hold a higher low to 2016 to maintain its post-2013 uptrend).

Now, have I gone stark raving bullish? No. Not until the sector (as represented by the HUI index) does something it has not done since Q1 2016 and definitively breaks above the 200 day moving average. Here is how Huey ended yesterday. Boy, that looks like a setup. Now it needs follow-through.

hui

For perspective, below is a longer-term view of HUI daily. The question since we became cautious on the sector last summer has been whether or not a test of the lows would be in order, perhaps to grind out a double bottom (to the 2016 low) support test (130-140) before a big new bull phase ensued. If HUI breaks above the SMA 200 per the above chart and holds that line, the odds that a bull phase is beginning right now would increase markedly.

The impulsive up surge in 2016 was not for nothing. It looks like it was the 1st move to break the bear. But of course, gold bugs got way too enthusiastic last year and the ensuing harsh punishment (2016 decline) and then grind (2017 up and down whipsaws) took place to fix that. I want to note here again that it is a good thing that the sector has biased down, not up for 2 reasons; 1, it has not been one of the big anti-USD plays and 2, in biasing down HUI has not formed a technical bear flag, which would have been the case had the consolidation had an upward slant to it.

hui

Nothing is assured in markets, but if the SMA 200 gets taken out (and importantly, held) it would probably be time to break the whipsaw consolidation and resume upward. Obviously, these same markers (failure of the SMAs 50 & 200) would negate the positives and keep the 2016 bottom retest scenario in play. But right now, that negative outcome is not what the market is hinting. This week it will be important for the sector to break the short-term lateral resistance noted on the 1st chart. This would be uncharacteristic of the bear phase that has gripped the gold sector over the last year.

One final consideration is that if we are right about USD going bullish, the gold sector will not simply scream higher. It could be pressured, probably to a lesser degree than broad stocks. In other words, even if the sector makes a bull signal and breaks/holds above the SMA 200, it could still be a battle if USD gets impulsive (which could happen as all those real and implied shorts against it are covered).