alice

NFTRH; Multi-Market Update

The US stock market has bounced back (near or at all time highs again) off of the North Korea jitters and whatever else it has found to worry about lately. Who can say they are surprised? We have seen these supposedly bearish news items manifest in a bullish market outcome time and time again since late 2012 and the “Fiscal Cliff” anxiety that led directly into the Semiconductor Equipment sector’s upturn, which in turn led the broad markets and the economy. Case closed, you never go bearish simply because the news of the day is bearish.

That said, there is no reason to abandon the 2nd half of September through Q4 as a projected time of change. The story is the same as it had been the last time the market was making new highs; current technical status was not a reason for projecting a correction because as then, trends are fully bullish. The reasons to expect change are less obvious on the surface. They are…

  • Fed Funds Rate proximity to the 2yr yield (signal not yet activated, and the 2yr yield has actually bounced this week as bonds weakened).
  • The 30 month cycle, which put a good probability on Sept. (+/- a few months) for a market top.
  • The prospect of a US dollar rally eventually weakening stocks just as stocks strengthened as the dollar declined. Here we should realize that on the last dollar bull cycle it took many months for the stock market to eventually roll over.
  • Volatility is once again put to bed as players rest comfortably. The VIX is back down on the mat at a paltry 10.50. Every decline is bought and the majority of man, machine and casino patron feels little fear (aside from the pop up jitters like the above-mentioned news items, which quickly pass). This is not a timing condition, but it is a higher risk indicator.
  • The simple fact that the Dow, SPX and NDX have acquired and even surpassed big picture measured targets. This is not a director, but it is also not a bull objective still open. The bulls have hit all the milestones they were obligated to.
  • Market breadth had been fading, although it has firmed this week, more in the SPX than the NDX. I’ll bet that some of that is due to the SPX’s Energy components. But NDX, a market leader, is still on a weakening signal.

spx

ndx

Today is September 14, which sounds to me like ‘mid-September’, which is the beginning of the rough seasonal patch (on average).

sept

The seasonal, like everything else in market management should not be considered a driving factor in and of itself. But it is a factor, and that is the whole point. We are viewing the market from several different angles in service to probabilities.

I am going to stick with the view of a US stock market at risk over the next couple of months. I’ll also keep the view that the risk is for a significant correction (unlike these little pullbacks on media jitters), not necessarily a crash or massive bear market. That is because I don’t have a crystal ball or an agenda. First things first, we have not even been proven out for a correction yet!

If a buying opportunity results, it looks like global stocks would be a focus over US stocks due to general global growth and relative value. In the case of Europe, a currency play may enter the picture if the USD strengthens and the Euro weakens as expected. Europe is also earlier in its economic cycle that is being managed by the ECB just as the Fed has managed the US cycle ever so obsessively.

As for commodities, lets generalize with a look at the CRB. Details are that some outliers like Lithium and REE are booming, others like Uranium are not (though I am still holding CCJ and NXE) and copper is taking a really good hit (down to $2.98/lb. from $3.17/lb.). Putting on his hospital whites, Doctor Copper could diagnose an inflationary phase or a deflationary asset price contraction over the next few weeks. Let’s keep an eye on it.

CRB remains in the bullish daily pattern we’d noted for DBC in an NFTRH+ update last week. DBC dropped to the 15 area by the way, where I added to the position. This pattern projects to around 199 on the CRB index. It’s a short-term thing and seems at odds with an imminent deflationary contraction. So perhaps this needs to play out before getting too revved up from the bear side of broad markets.

crb

Crude oil has been strong and looks constructive, although not quite bullish like the CRB. No doubt the Energy sector is gaining attention again for its daily chart break above the 50 day moving average. Here is the bigger weekly view showing resistance and 2 moving averages that remain triggered down. Notice how the EMA 25 dropped below the EMA 50 before the worst of the 2014-2015 bear phase kicked in. They turned up in mid-2016 and turned down again on the current decline. How about we get above resistance and trigger the moving averages before getting too excited?

xle

Finally, let’s check the precious metals. Really, nothing is of note here because HUI hit the 220 target and turned down. That is all logical and pre-planned. What’s more, it has not approached the anticipated key support area of 195-200. So we should not obsess on the sector as some do, until it does something of note outside of our current plans.

I can tell people what I think the index may do (key support is shown) but I cannot tell people what to do. Some will sell at target, some will take partial profits, some add pullbacks and some, like me, will take partial profits, hedge (took profit on gold shorts, but replaced that with miner shorts via DUST) and add on pullbacks. I’ve increased a couple of positions and bought back AXU on this pullback. The chart gives no reason not to expect a test of the 200 area on HUI. But we’ll of course fine tune if/as needed in NFTRH 465.

hui

Meanwhile, gold’s big picture also told us to be on alert for a pullback and sure enough…

gold

Tune out the conspiracy stuff and realize that this is like any other market. Anyone talking about a gold “smack down” is promoting agenda. Gold always was going to encounter resistance here.

On the plus side, the daily Silver/Gold ratio is having none of the bearishness at this time. If that holds up it is a bullish divergence beneath the surface for the precious metals. Recall that silver’s CoT data have not been as bearish as gold’s. Gold got caught up in the media sleaze related to North Korea and needed a cleaning.

sgr

Finally, the HUI/Gold ratio (HGR) has given up its status above the 200 day moving average. That is not a big deal and was probably even predictable. We’d become alerted to some negative possibilities however, if the HGR were to go below the SMA 50 and especially if it were to lose its series of higher highs and higher lows out of the July low.

hgr