NFTRH; Gold, Silver, HUI & US Stock Market

NFTRH 591’s Opening Notes segment detailed an intact but at risk stock market and a bullish gold miner view, concluding with this…

“The nearer-term pictures will likely include a lot of volatility violence in both broad stocks and the miners.”

“Volatility violence” has shown up on cue. It is rattling and it brings opportunity.

Personally, the opportunity it has brought me this week was to erase 2020 gains. So the focus shifts to protecting 2019’s gains while staying on top of what is happening out there in a fast paced sentiment event driven by fear of a very real health crisis (with a side of Bernie jitters?). Ah, but if it were easy anyone could do it, eh?

So the stock market herds are in motion, the precious metals got dive bombed and all is, while unpleasant, normal.

Let’s check the daily charts with no talk of the positive and/or negative effects of Coronavirus in the mix after this paragraph. We all know what is going on there; insofar as it is a destructive force it will help the gold sector’s case and hurt the stock market’s case by impairing economies. Insofar as relief from that fear would come about it could help the stock market’s case and hurt that of the gold sector. And then there is the Fed in the mix, under pressure to try to save the racket. Things are in motion.

Gold (1645 in pre-market) broke upward from consolidation and what that did was take it through a longer-term resistance zone. The chart is completely normal to a bull case and while the volatility has begun, the support at 1600 (with an unpleasant allowance to the SMA 50 at 1555 and rising) keeps it bullish as long as it holds that level. The trends are up and gold is fine technically at this time.

gold

Silver (18 in pre-market) touched short-term support and the SMA 50 yesterday. It’s key support however, is the 17 to 17.25 area. Unlike gold, it never broke out and is subject to more grinding at its trend markers, which are the SMA 50 (intermediate, 17.82) and the SMA 200 (16.92). Those trends are firmly up. The Monday bombing stopped silver right at the would-be breakout point of an interesting pattern that is still intact.

silver

HUI began to break from its handle sooner than I had anticipated as we noted in an update on Feb. 18th, when it crept above the SMA 50. The launch came about (on volume as the individual stocks and ETFs would show), and now the situation is getting a hard test. It is all normal, including the violence. This is the gold sector, not Consumer Staples or some other such normal sector.

I used to say in the last bull market “fear rides shotgun” in a gold bull market. Get used to it. You will be tested for your ability to manage risk, maintain balance and to not be part of the herd complaining about every damn pullback as if the fault of a conspiracy instead of normal behavior (in a less liquid and thus more readily manipulated market than broad stocks). These volatility events happened fairly often in the 2001-2008 bull market.

Back on the chart, the trends are firmly up and the 1st support area has barely been tested. There is no law that says gold stocks have to go up, but why don’t we reserve the angst for if/when they actually do something technically negative?

hui

SPX quite simply appears to be headed to the key support near the 200 day moving average. From NFTRH 591’s Opening Notes segment…

“SPX can test the SMA 50 and remain normal. It can even test the support near the SMA 200 and remain technically normal. SPX is in a pullback/correction of some magnitude, from very mini to possibly something more. It could drop all the way to 3020 and be called a ‘bend but don’t break’ situation. Much like Bill Belichick’s defensive philosophy, SPX could bend but not break even with a trip to the SMA 200.”

spx

Side notes on the US stock market…

  • The DJIA is already at its 200 day average and the equivalent support area as shown for SPX above. The question now is are the indexes going to disconnect with the Dow bottoming first or is there more downside for both per the SPX, with Dow losing support?
  • While DJIA is weak relative to SPX, NDX is strong relative to SPX. Only yesterday it lost its SMA 50 and was 713 points above its SMA 200.

So who’s driving the bus, SPX or DJIA? I don’t have that answer, but until the herds stop stampeding we would do well to respect what is in play right now, which is downside momentum. The Dow sure does look like it’s a good support level and yet SPX does not. Again, who will drive the bus?

The story goes that as the margin man calls on leveraged casino patrons, downside momentum can accelerate. The story also goes that gold stocks being stocks, they can get caught up in the event as well. The chart of HUI above however, looks nothing like the chart of SPX. They are both doing something normal, but it is actually broad stocks getting a good clean out and gold stocks, as of this time at least, taking a routine pullback.

As a side note, this event feels to me something like Armageddon ’08 (with a different trigger). That was my tag line for the Q4 2008 financial crisis that crashed the gold sector and then the stock market. It was also by the way, the birth and trial by fire of NFTRH. But anyway, into 2008 gold stocks needed a big time clean out in the worst way, and despite the cries of ‘foul’ in the gold “community”, they got what was richly deserved. This update is not the forum for me to go into why that was the case. But the point is that the 2012-2016 bear market cleaned out the sector and the fundamentals are much better today, so it is not under an obligation (in my opinion) to crash this time, even if stock markets do.

I never make predictions because that is only for snake oil salesmen gurus, so I will just leave you with the snapshots above. The markets are in motion and it’s dangerous out there. Everything is still intact, with gold and HUI bullish but testing breakouts, silver still working on holding support within a potential bullish pattern and the US stock market getting whacked but good.

And so, as I finish the update a quick look at the futures shows the market trying to rally and gold and silver getting whacked. It’s going to be a grind, and policy makers and politicians will be involved. Another day of “volatility violence”? When something breaks we’ll note it. In the meantime risk management and patience are the order of the day.