NFTRH; Updating the Options, pre-FOMC

According to CME Group, rate cut probabilities declined yesterday to even odds from a previous reading that was near unanimous for a cut. Today it is back to 59% for a cut, 41% no cut. But the odds allow for a legitimate chance for either outcome.

In NFTRH 568’s Opening Notes segment we looked at 3 options.

A caveat to ongoing analysis is that change in rate cut probabilities. To this point I’d been operating on the assumption of a rate cut and today I am not. So let’s assume there is a potential ripple in play here and not set anything in stone until we are on the other side of FOMC and into next week and are able to review the event and its aftermath.

Unless this morning’s weakness in gold and silver leads to an outright tank job, #3 is out the window. The metals have risen into FOMC and I for one don’t care for that. But a rate hold could spur a hard drop post-FOMC, and that would legitimize a variation of #3 with the difference being that the PMs tank after, not before FOMC. Please do not react emotionally to that. My job is to present possibilities. Yours is to maintain composure, consider and manage risk as appropriate (cash and profit-taking have worked best).

The stock market is doing as expected however, and maintains the SPX “drive to 5” potential. Options 1 & 2 are still in play.

SPX, while weak this morning in pre-market is still in line for a try at fresh highs and point #5 to finish the triangle. Now, I do not want to be over confident about a bear case for all the reasons stated to date, including positive trends and a ton of support for the market. Also, per yesterday’s post Canada’s TSX, while also in a symmetrical triangle, is just plain bullish. Several other global markets are flashing bull as well.

So we have our SPX reverse symmetrical triangle and we have bullish sentiment turning toward the extreme direction (per #568’s work) with which to build a bear case. But the bulls have the ball.


As for the precious metals, I actually thought about adding DUST (3x miner bear fund) to my gold (DGLD) and silver (DSLV) holdings as HUI (and GDM, GDX & XAU) have bounced to test the SMA 50 breakdowns once again. If not for the FOMC wild card I might have done it, leaning into a bear position as opposed to the current indirectly hedged position. I still may, but… FOMC.

I am a relatively conservative player and things have gone well this year in that mode, so I’d be happy just sitting and waiting as well. But taken at face value, if I am an impartial TA I am thinking that the bounce to the SMA 50 within a short-term downtrend could be ill-fated. That thinking would probably change if HUI takes out the SMA 50 and the EMA 20 at 215 on a weekly closing basis.


Bottom Line

Balance is still the play as personally my portfolios are at the year’s highs. I am not yet ready to sell (other than routine profit taking, loss limiting and re-seeding) or short the broad market, but for now cash is doing a good job of keeping balance. Remaining gold and silver stocks are indirectly hedged and FOMC, and its greatly reduced rate cut odds, is on deck.

The best setup or at least the most seemingly predictable setup in my opinion would be to get a good downside event in the precious metals (to key supports) while the stock market drives to upside targets. That could set things up in the coming weeks/months for new gains being bullish on the gold sector and bearish/neutral on broad stocks.

But again, FOMC… precious metals could also buy ‘rate hold’ news after the decline from the late August highs, buy ‘rate cut’ news, sell ‘rate cut’ news or whatever else have you. Balance for now, even after this update that is probably over-thinking things and increasing your own noise level. :-)

Or per the last part of #568’s Opening Notes…

So the favored plan would be for a re-buy on the gold sector at key support areas while the world is falling apart again. Oh how we’d shoot fish in a barrel in that event. But given the firm Semiconductor sector (due for a cyclical bottom in H2 2019) and the most recent Citi Economic Surprise index readings we should not discount either an inflation trade (in which precious metals would also participate) or damn her, Goldilocks.

So it is best to carry the balanced view into FOMC and possibly SPX point #5 and evaluate/update along the way. But oh what a setup options 2 or 3 above would be.