NFTRH; USD, 2yr Yield, Stocks & Precious Metals (high priority)

Here are the MarketWatch headlines this morning.

Nothing new here. China is slowing, as is global growth. There is a lot of headline noise and the US dollar is strong again. That last thing is really the issue, so let’s check the daily technical situation of USD, SPX and gold, silver and HUI.

USD is +.51 in pre-market, at 97.57 and a new high. USD has been the bringer of pain to global markets for some time now and it appears to be daring the Fed to keep raising the Fed Funds Rate.

The momentum indicators continue to either be negatively diverging or providing fuel for a hum dinger of a rally as they are anything but overbought (and yet not negative either).

But the 2yr year yield has been dropping lately. The Fed would usually watch short-term interest rates in order to get their signals from the bond market. The 2yr had been an ally of USD until November.

A couple points here; this is as yet barely an intermediate downturn in the 2yr yield and even if the yield is now entering a downtrend let’s recall that the Fed lagged by about 2 years before it finally got in line with the 2yr’s message (its yield had been rising), abandoned ZIRP and began lifting the Funds rate. So my question is about distortion and balance and evening things out on the other end. In other words, will the Fed lag the 2yr and over tighten just as it lagged previously and over stimulated?

FOMC is next week and the markets appear to be testing the Fed, because this bounce has run out of gas – at least temporarily – sooner than it might have, had it put on another ‘V’ spike within the grind pattern. The Death Cross (DC) of the SMA 50 below the SMA 200 is real as a negative signal for the longer-term and the question was whether or not it would be met with another vigorous bounce. So far, no. But that test might have already happened with the late November bounce, just before the cross. Other indexes had after all, already DC’d then.

Anyway you cut it, daily SPX is bearish below the SMAs 50 & 200 with only the support area at around 2580, which was tested on Monday as a level keeping the index from sliding into full on bear mode.

With the strong dollar, gold and silver are taking a hit. There is nothing like a strong dollar to get the bugs’ panties in a bunch. But let’s check out what’s actually happening, technically.

This morning’s activity has gold trading at around 1242, which is a hair below the daily EMA 10. Key short-term support here will be the EMA 20 (1236), which has risen to meet the lateral support from the October-November highs. But gold would still be considered intermediate up trending even with a drop to or through the SMA 50. It would need to then hold 1210 or it would be busted.

Silver has marched right up to the September, October and November highs. They say the more times resistance is tested the weaker it becomes. But this morning at least, it’s resisting once again. Also note how the approach to resistance was on declining volume, a minor short-term negative.

The target, if/when this resistance is exceeded would be the SMA 200 at 15.50. For now however, key support is at 14.49.

As for the miners, HUI has been pretty peppy lately in the face of a firm USD and crashing inflation expectations (to the wonderment of inflation-focused gold bugs everywhere). A pullback here could be looked at positively because if Huey had gone straight to the SMA 200 it would have become very overbought and likely, a short-term sell (for all but long-term diehards).

Key support is from the up turning SMA 50 (148) to the November highs (150-151). MACD and RSI look good, as they do for gold and silver. HUI’s intermediate trend (ugly though it would be) would not be broken unless it were to drop below the late November low at 142.50.

Bottom Line

US Dollar has made a new high but it is conspicuously diverged by the 2yr yield (Treasury yields are negative again in pre-market as risk goes ‘off’). FOMC is up next week and all eyes are now on the Fed. Normally I don’t even mention FOMC because it is usually a non-event as the Fed follows the bond market. But this time there has been some ‘one and done (for a while)’ speculation and global markets (now including the US) are testing Mr. Powell. USD hangs in the balance of this and there is a technical rationale that it could break down (negative divergence by MACD & RSI) or ramp much higher (MACD & RSI are completely NOT overbought). Okay Jerome, you’re up.

S&P 500 has tried to bounce again, but the technical condition is bearish on the daily chart with only support around 2580 holding this pig aloft. It too awaits the Fed.

Gold, Silver & HUI have done a lot of good work despite the firm dollar. Think about that; why are they not at new lows if the USD is at new highs? The standard view is USD up = Gold down and USD down = Gold up.

Well, it is not that simple. A big part of the real fundamentals are the decelerating economies and market pressures we see playing out now. But only insofar as they are levers that ultimately control the Fed especially in this case, but also global central banks.

So most elements are in place (except for a still flattening yield curve) and confidence is waning. As we have noted, there will be volatility – which is easier to write than sit through – but on a bigger picture the stage still appears to be set. Nothing about this morning’s activity changes that. Indeed, it helps it. Daily price action is one thing, but slowly evolving fundamentals are quite another.