As per recent analysis, the gold and silver CoT are constructive for a bounce/rally and so too are the Silver/Gold (SGR) and HUI/Gold (HGR) ratios.
While SGR is constructive for the precious metals, it is also a tailwind for commodities and stock markets. i.e. it is something of a risk ‘on’ signal with an inflationary bias.
HGR has maintained the SMA 50 and so it has not broken from the bounce scenario.
Gold has been relatively lame lately as it lurks at a higher low below the SMA 200. That is just fine because gold has heavier risk ‘off’ tendencies and we are still in a risk ‘on’ phase.
Silver on the other hand has popped above the moving averages once again and done so on volume. MACD, RSI and AROON are all looking good. If it rallies as expected, it’ll probably be one of those hysterical spikes the likes of which it has had all along its consolidation. That is how silver rolls.
But what I continue to find most interesting with silver is the long, seemingly unending consolidation of the big upside burst in 2016, that coincided with the launch of the current inflation trade. Weekly silver may break another fan line here and that is just a lesson about trusting lateral support/resistance more than trend lines. All trend lines eventually break. The key to a new bull market phase will be to take out the 2017 highs. Until then, we should play by bounce rules, all else being equal on the macro.
We began a ‘bounce’ theme for HUI back in March. It did that, but never reached our target of 190. Yet Huey has been making a Handle since mid-April, refusing to give up on the bounce. That looks like a bull flag of an initial leg up. The trends are obviously down by the SMAs 50 & 200 but this thing still appears capable of a test of the SMA 200, at least.
So the SGR indicates inflation, we have been on a grinding ‘inflation trade’ since Q1 2016 and the Fed is talking somewhat soft on inflation (to my ear, listening to Mr. Powell yesterday). Yet the CRB index has declined below the SMA 50. To boot, it looks like it may be in a bear flag. What’s it got going for it? Both the SMAs 50 & 200 are in rising trends and the index is in a series of higher highs and higher lows. So it is intact as long as the SMA 200 is intact and the April low is not taken out.
Crude Oil, being run by its own supply/demand fundamentals and much global hype is of course driving the CRB. That is why I prefer to look at other areas than the broad CRB; it’s too single-commodity dependent.
The Industrial Metals are more tuned to the global economy with less price manipulation built in (in my opinion). The GYX uptrend continues apace. As long as the US and global economies remain firm and inflation is in the air I’d expect the IMs and their miners to remain in good standing. Recall that our ultimate upside target for GYX is around 440, when viewing a monthly chart. A target is not a directive of course; it’s just a target. But GYX continues on its uptrend toward that marker.
As for stock markets, we noted resistance for SPX at around 2800 in NFTRH 503 and it is halting just below that level. It probably always was going to stop to think about things at that point. The trends are up and there is no technical reason for concern yet. The short-term support shelf and the gap just below 2740 could be tested but SPX has more support at the rising SMA 50. The rally would only be broken with a lower low to the spike below 2680 a couple of weeks ago (that was Italy & Trade War hype day in the news).
NDX took a reversal on relative volume yesterday and that could have some short-term follow through. The first notable support area is the shelf at around 6950. That could be triggered if last Friday’s low is taken out below 7100.
So the US is a little bit suspect on the short-term and Europe is more so as it bear flags below the SMA 50.
Canada on the other hand continues to threaten the blue sky breakout point shown on a monthly chart in NFTRH 503.
Japan as well has a big picture objective as we have been noting. If NIKK clears 2300 it could be on its way to another test of the highs, which would be a test of breakout resistance.
China Large Caps should hold the SMA 200 in order to be constructive.
EMs and especially LatAm have been weak. They are either providing a bargain sale for investors or negatively diverging the macro (similar to the Semi Equipment/Semi divergence we’re following).
Long-term yields are easing as is the US dollar as the FOMC rides off into the sunset. Precious Metals appear ready to resume the rally that started what seems like months ago (it was!). Right now it’s just bounce potential, but I continue to be somewhat fixated on that long post-2016 consolidation in silver.
Certain commodities are okay and others are relatively weak. The outliers like REE, Lithium and Uranium are suspect to bearish as REMX breaks down, Lithium stocks flounder and the U stocks pull back. I continue to like Industrial Metals best.
US stocks have hit resistance and can pull back some more. But generally the theme of a top test is still in play. Now, NDX and SOX are already making that test and the latter especially is not looking stellar in that regard. What’s more, there is the divergence in Semi sector dynamics (Equipment vs. broad sector), so I do not want to be casual about the US stock market. I believe no matter how you cut it the rally is mature.
Global stocks continue to be the mixed bag they have been. Canada’s TSX is very strong and Japan’s Nikkei is also flirting with big picture bullish technicals. Europe is in tough shape, curiously despite the weak Euro. China L/C is okay but not yet on an actionable signal.