Pre-market indicates that stocks are poised to take back yesterday’s losses and this is in keeping with our short-term theme that the market is not just going to go down obediently each day in line with our registered top-test target. SPX shaved off 11+ points yesterday and this morning is green by those same 11 points. The process continues and the current stance leans toward a further pullback at least to test some support levels, with the key one being the “Trend Killer” below 2700. Currently at 2822 SPX is good distance above that level.
We reviewed the chart of SPX and most sectors in NFTRH 512, but as an example of why we should not put the bearish cart before the horse, take a look at the Materials ETF (weekly chart). It is one of the more bearish US sectors relative to SPX and yet here we have an unbroken Symmetrical Triangle. Considering that TAs usually think of a Sym-Tri as a continuation pattern, we can keep the alternate plan (stock market resumes rising; SPX target 3000) in mind.
The global picture continues to degrade as EM and the Frontiers lead lower under pains of the strong US dollar. There appears to be little support until the 43s on ACWX.
If you believe that the US dollar is going to remain firm and like me, you hold long positions in US stocks, an effective hedge could be to short global stocks. We noted some bearish markets in NFTRH, but simply going against the world as a whole could be effective, given this chart from the Market Internals segment.
Now, do you believe the US Dollar will remain bullish? We introduced some sentiment headwinds developing for Uncle Buck, but sentiment is wildly bullish (contrary-wise) for gold and look what it’s gotten the ancient relic; a nose dive.
Going by the (daily) chart, USD is on a bullish breakout with an implied target of 102. I would continue to be on alert for stresses in global equity market liquidity as a possible result of a bullish USD and considering that the Trump economic agenda is built on fiscal reflation I would still stack the odds on a strong dollar hurting many US sectors (like Materials, shown above), while potentially aiding those doing more domestic business, like Retail, Small Caps, etc. on relative basis at least.
One thing I find curious is that Trump is banging trade partners left and right with tariffs and as he does so their currencies fall against the USD. It is counter intuitive to his agenda… one would think. Maybe it’s Larry ‘King Dollar’ Kudlow whispering in his ear; who knows? Or maybe he is just an economic madman unwittingly bent on impairing his own economy. But at some point large US multinationals are going to suffer relative to global multinationals. So maybe the setup is for a future global ‘buy’ and a US ‘sell’. But for now, the ACWX/SPY/USD chart above holds sway.
US Long-Term Yields
Yields are green this morning but that is not the key takeaway. The key is the Yield Curve is still flattening and this morning’s signaling furthers that (2yr yield is stronger than the 10yr yield). That continues to be Goldilocks and/or risk ‘on’ signaling and as long as it holds true I for one am not going to put the risk ‘off’ cart before its horse.
That includes holding off from going full frontal Gold Bug. Which leads us to…
The rising SPX/Gold ratio (Amigo #1) and the flattening Yield Curve (Amigo #3) are still completely intact to their trends, which are gold and gold stock negative.
Gold is also positive this morning but again, the macro signaling is still adversarial. Volume started to come into the metals and the miners yesterday implying that a capitulation phase may be beginning. Here are the next two support areas on the weekly chart.
In a fairly recent report or update we noted that silver had a wide ranging downside target of low 14s to 15 based on the swoosh down and reversal from mid-2017. But the weekly chart instructs that assuming a capitulation has not yet played out, the low end of that range is best. Noted are some pretty compelling touch points for previous silver swan dives.
A public post last night noted the increased daily chart volume on GDX and GDXJ. This could have started a gold stock capitulation phase. Let’s use weekly HUI for a look at a bigger picture. For a view of the 2008 & 2002 support ref. the monthly chart included in NFTRH 512. Huey is in that zone now. With gold positive in pre-market the sector may try to bounce. You notice I did not add positions on yesterday’s drop… well, then I am certainly not adding on a sector pop. Not with the US market still strong and yields in the arrangement they are in.
I am not saying that 150 support will not hold. But that is why I have some positions; so I won’t have to stress out about it. What I am saying is that an epic buy – if the macro plays ball in its signaling – could be at a 2016 re-test. So as advised, I am thinking like a predator now, not a hopeful gold booster.
If HUI follows a successful support test script it could hold logical long-term support at 150. But if it follows the ‘final flush and capitulation’ script we could be looking at the 120 area, which would be preferred (although there is more minor support in the 130s at the top of the 2015 bounce).