alice

NFTRH; Gold, Stock Market & US Dollar

I’d love to say ‘hey look at me, market hog caller extraordinaire!’, with the stock market going down and gold going up (per our plan for coming pivots in these markets). But the fact is that the precious metals appear to be going up anti-USD, which was not part of the plan and the stock market appears to be weakening with the bearish USD, which also was not a core part of the plan.

But markets are about adjustments and gauging from where we are now, not where we thought we’d be in the past. Where we are now is the USD index making a new low by a hair (at 91.72 to 2016’s 91.88). Am I abandoning the dollar rally scenario? In a word, no. I am going to hold the Euro short (EUO) and USD long positions (UUP) until a conclusive breakdown occurs. At this point it is as much stubbornness (not usually an effective market strategy) as anything else.

usd

But more than that, the bigger plan does not involve really caring one way or another about USD. It involves a pivot down in stocks (for a correction at least) and a pivot up in precious metals (potentially for the next leg up that could confirm that a bull market began in early 2016). In line with that, bullish gold/silver miner positions are greatly outweighing the negative effects of holding the USD bullish items. So I remain stubborn for now.

The problem is that many gold bugs get very excited when the USD is bearish. We’ve been noting that both the stock market and the gold sector have changed character lately (for instance, stocks not breaking resistance on the predictable relief bounces and HUI not getting clobbered, but rather, actually hanging tough after making a false break above resistance last week).

Here is another problem, and it is significant. Gold bugs should understand why their metal is going up in the immediate-term. It is in large part because our hot headed, erratic and bumbling president is locked and loaded vs. their lunatic and his continued missile testing. I don’t want to downplay this “inflammatory event”, but gold’s short-term vulnerability would be if peace breaks out. From Bloomberg…

bloomberg

Now, on the big picture so many signs have pointed to a coming correction in stocks (I’ll not go over them again here) and simply by virtue of being “in the mirror” to stocks as a counter-cyclical sector, a rally (or more) in the precious metals.

Aside from the noise of the day, macro fundamentals and technicals will determine what is in play for the bigger picture. The macro funda for the gold sector have improved but are not fully in line. Of course, using 2016 as an example, the rally began well before the funda confirmed nearly across the board. So per the gold vs. commodities, gold vs. stocks and gold vs. the items of ‘confidence’, like junk bonds, the funda are improving but not yet complete.

As for the technicals, bearing in mind the geopolitical noise at a fever pitch, let’s play it straight and update the technicals for HUI, gold, silver. Again, taking out all the noise and simply looking at the daily chart, HUI changed its character by breaking the string of red arrows at the SMA 200. This firmness came about before Trump/N.K. started sizzling again. So taking HUI’s daily technicals at face value, the pattern measures to around 220.

hui

But more importantly, I think what is happening now technically can serve as a launch to the next leg up. Not because of war, the US dollar or any other single stimulant. Just because it may be time. The daily chart above is jerking the weekly out of the Symmetrical Triangle to the upside. Recall that this was the “scary” looking chart among the “happy” looking daily and monthly charts. Obviously, for the signal to firm up HUI needs to close the week in breakout mode.

hui

And then there is our old friend, the lumbering monthly. A monthly close (on Thursday) in the current state would be very encouraging as the Bollinger Band’s mid point will have held, the Stochastic RSI will have turned up from oversold and the consolidation handle would be in very healthy shape, at worst.

hui

As for gold, again, wearing a technician’s hat and not trying to out think global geopolitical mayhem, we had noted that a successful break above resistance would target the 1400 area. Regardless of the stimulants, gold is in breakout mode from its 2017 consolidation.

gold

The monthly chart shows why this is so important. A new bull market would be confirmed with a rise above 1400. That could be quite a battle. Incidentally, for HUI monthly above, the new bull confirmation would only come with a rise above 286.05, which was the 2016 high.

gold

As for the ratio between the above, HUI has broken above the daily SMA 200 vs. gold. Now, this is in-week and the signal is very preliminary. A weekly close in this condition would be very nice, but be on alert for any reversal in-week.

hui gold ratio

On the big picture view of HUI/Gold, which I’ve been fascinated by for months now, you can see that the handle consolidation has not yet been broken to the upside. So let’s remain tempered and patient.

hui gold ratio

As for silver, the bullish looking pattern has broken through the SMA 200 and its measurement is close to 19.

silver

So there you have it. I am concerned by the geopolitical involvement (and its hype value) on the short-term but am looking for a bullish precious metals sector on the longer-term. Hence, I don’t plan to out think myself. I am not going to buy (I added a couple positions early yesterday before the big pump) upside hysterics but also don’t plan to fully sell out – if I do any selling at all – on any upside hysterics. That is because the big picture plan is for a potential next bull phase. In that event, a ‘buy the pullbacks’ regimen should work well. Buying pure upside momentum is likely to get punished at some point.

As a side note, I am sure that selective hedging will come into play at hysterical overbought or over hyped junctures.

As for USD, I have a hunch it is going to rally. But the disclaimer is that I’ve had that hunch for a long while now. So, caveat emptor.

Finally, the stock market is due for a correction. Has it already begun? As noted, I think the highs are in. But for the same reasons I’d be suspect of gold purely on geopolitical fears, I’d be suspect of stock market bearishness on the short-term as well. It is important now to accept what is happening in the headlines on a daily basis, but not get driven by them. The intermediate plan has been for a stock correction and a precious metals rally. That seems to be what is happening, but there will be a lot of whipsaw action along the way.