As you know, I have had a bit of a mental whipsaw between the right side shoulder of the (monthly) 30yr yield Continuum (one indicator of inflation) and the duo of the rising Gold/Silver ratio (GSR) and USD (indicators of liquidity contraction). The question is for all the macro marbles, so to speak.
The theory being that if/when the inflationary mindset (expectations) and reality resumes the 30yr yield would again begin to climb, holding a fairly symmetrical right side shoulder to the one on the left. That potential is still in play despite the increasingly disinflationary backdrop in the short-term as the yield continues under pressure.
The forces of liquidity contraction (as embodied by the 2 Horsemen, GSR & USD) are in play in the short-term but as you can see above, the yield has not broken down from our original plan. The Gold/Silver ratio continues upward this morning with nominal silver negative and gold slightly positive.
USD is poking the resistance level that would set it free to explore target #1. It has actually ticked a new high for the rally.
S&P 500 ES (futures) is on a perfectly orderly and thus far healthy test of the rising SMA 50. This thing could go on to pancake in an epic crash, but as it stands now technically, it’s at what would be a buy point, a pullback to a logical marker within an uptrend. So technically at least (funda, negative divergences & valuation being a whole other kettle of fish) bearish aspirations are not backed by the chart.
NQ is doing as speculated in yesterday’s update, testing the SMA 50, which is normal. Let’s also watch the Semiconductor sector today to see if it holds support. If so, it’s a feather in the bull’s cap. If not, it’s a warning from a cycle leader.
Bottom Line
It’s the “summer cool down”, which we fully anticipated. Being summer with its slack trading (da boyz is in da Hamptins sippin’ da mahtinis) one scenario that jumps out at me is that we may get the disinflationary jitters handily in the summer to clear the tracks for the next inflationary phase. That would be dependent upon the Fed and its various jawbones. They too see and I would think appreciate this cool down in the hysteria about the inflation they created in 2020.
Our tools are aligned with that view. GSR & USD cleaning up the market on the short-term and the Continuum still intact to a longer-term view. I am going to lean toward jitters now, more inflation trading later (but not too much later).
However, if we go full frontal Bob Hoye, we’d get a classic Q4 liquidity alarm turned liquidity crisis. That too would jerk the Fed into action, but not before significant damage is done to asset markets.
So let’s take it a step at a time. Right now we’re in the cool down with GSR/USD winning out. But markets are not (yet) broken and the Continuum and other indicators of inflation are not dead yet.
As a side note, the current backdrop is the beginning of what would be a positive backdrop for gold stocks. It’s just that the average gold bug does not know it because she’s too busy puking because “NO INFLATION!”. If the process continues as is with gold stocks declining amid waning liquidity, there will be a good buy ahead. Our targets on HUI are 230, 212, 185 and at an extreme anything above the 2020 crash low of 142.51.
