NFTRH; Stock Market & Precious Metals After the Projected Drop & Pop

In NFTRH 587 we anticipated perhaps one more drop and then a recovery off of the bearish engulfing candles in the main indexes and that is exactly what we got. Using NDX as an example the engulfing candle from last Friday worked to perfection. It foretold exactly one more bad day and then NDX reversed back upward to fill the gap down that was left. Now the bearish engulfing candles are done, of little meaning moving forward.

ndx

For the bulls: It’s an up trending market.

For the bears: It’s still overbought, there are many gaps lower on not only NDX but also SPX and others and the VIX is set up to do more damage as long as it nests on top of the 200 day average as it is currently. This after the divergence we’ve been noting in the Market Sentiment segment between VIX and inverse SPX.

vix

Of course, our old friend the Coronavirus is back in the news as the reason du jour for this morning’s re-weakening of the market indexes. It’s never that it was just time. The media must always feed us daily reasoning. But markets don’t usually work that way. Instead, the charts above tell us that there was a break in the market, a rebound in the face of the negative sentiment knee-jerk and now the potential for the market to resume a correction.

Again, with the S&P 500 having hit our 2nd target of 3300, it just may well have been time.

coronavisrus

As for gold and the precious metals, they are going with the fear trades, which to me is not desirable but better than going with the inflation trades. With cyclical copper and other commodities having completely pancaked along with long-term yields and TIPs ratios the picture is as we would want it to be, with the counter-cyclical gold stock sector remaining firm.

HUI held the 50 day average on the pullback that came on Corona relief. Silver also held its 50 day average after a sharp pullback. I added to the GDX position I’d started earlier in the week and also initiated SLV per the Trade Log. The reason I am going with these positions is to eliminate the need to look too far afield beyond current individual holdings. I like GDX’s gold stock holdings and I like silver (volatile as it is) more than trying to pick too many silver stocks.

As originally noted in initiating GDX, it’s the best way I know to remain firm on the long-standing HUI target of 375. In other words, should this be the real rally (and check out this intact uptrend, after all) I would not have to babysit an index ETF like GDX as I would individual stocks.

hui

Bottom Line

If I am a stock market bear I don’t love that it is pulling back on Coronavirus fears. But… the expected drop and relief has already played out. Bears that knee-jerked Monday’s fear got punished on Tuesday and Wednesday. Just because there is a fear stimulant in the market does not mean the market was not ready for a downturn on its own. It was overbought, over loved and at target.

If I am a gold stock bull I don’t love the Coronavirus either. The counter-cyclical sector would benefit from global economic contraction and waning stock and cyclical asset market liquidity. Who’s to say that is not what is in play?

At worst, the plan of balancing (counter-cyclical gold vs. cyclical assets, with inflation/reflation sensitive stuff having been eliminated) is working out. But it may be more than that. It may just be time. By stating that I am at risk of having us get played by the sentiment that the damn Coronavirus is stirring up. So ultimately I will let the charts decide. What they have decided so far is this…

Stocks hit target, painted bearish engulfing candles, dropped, recovered to fill the gaps and screw the knee jerk bears and are set up to decline anew. I’ve mentioned that I will not short the market without setups, and the setup on the NDX above (and SPX, DJIA, etc.) is a short-term one. I may wait for a bigger break and re-test, as this is day trader stuff going on right now. I have not decided yet. If I short without better setups it would be against longs still held and as more of a hedge.

The precious metals complex saw the gold miners never give up ‘intact’ status in relation to gold and nominal HUI never give up its bullish look (ref. weekly chart in NFTRH 587 and daily chart above), silver get whacked to a notable support area (see yesterday’s NFTRH+ update) and maintain a thus far ongoing ‘anti’ character to the cyclical risk ‘on’ stuff.

That’s what is going on at this particular snapshot in time.