NFTRH; Observations Upon Returning

I committed to barely looking at the markets and not making any trades while I was away over the last couple days. I had work to do and quality time to be had with my daughter. Now it’s back to business. In bullet form here are my observations, as it appears things are in motion.

  • Tuesday’s post, Gold Miners Are Leading Something is still on track. That something is that the drop in long-term yields (which were viewed by the markets as bearish when rising) and the drop in the formerly well correlated gold and miners may be a negative sign for broader markets. So far, that is playing out.
  • Gold and the miners rightly declined as yields rose to compensate for inflation (i.e. the negative real rates were being remedied) but now they are dropping again even though the fundamentals may be getting the first inkling of improvement much needed since last summer.
  • That is classic selling behavior by inflationist bugs who think the fundamentals improve when inflation rises. They don’t. The fundamentals improve when inflation fails or at least fails to boost economies and associated cyclical markets.
  • As noted in the last update, the next objective is the HUI 230 area and perhaps a test of the lows or marginal new low for gold.
  • As for broader markets, it looks like that pattern I observed in Tech and growth stocks is on its last legs if not already cooked. “Again, note that I personally don’t consider patterns to be core TA so much as play time with pictures. But this pattern is popping up in various growth/tech stocks.”
  • DJIA and SPX are intact while NDX, SOX and just lately the Russell 2k have dropped to suspect status.
  • Major trends are intact for the broad markets and that includes global markets, some of which are dropping hard (e.g. China large caps have smashed to the SMA 200 and are either at a buy opp. here or are going to break down) and others are on normal corrections.
  • The interest rate (and inflation expectations) backdrop will continue to be very important to strategies coming out of this correction that the precious metals guided broader markets into. The US dollar is just now ticking the SMA 200, which was the next upside objective. USD is the world’s anti-market and if it fails in and around here, stock markets should hold intact status and eventually recover. If USD puts on more than a bounce (there are no rules that it must fail at the down-trending SMA 200) it will be time to consider that the whole macro souffle’ they’ve been baking over the last year could be ready to let the air (i.e. liquidity) out.
  • Let’s watch gold closely in its relationships to the things of positive correlation to economies, inflation, etc. It should be the first mover as usual (ref. 2001, Q4 2008, 2016 and last spring when the monetary relic led recoveries from major and minor corrections).