NFTRH+; Goldilocks [w/ edit]

[edit] I did not note below that despite the hammering gold is taking, it is still in a short-term uptrend of higher highs and higher lows. So technically at least, the seasonal rally is still in effect. If it takes out 1780 on the downside (current: 1798) that ends the short-term trend.

That is the current signaling. Not inflationary, not deflationary, but at least on an interim basis, Goldilocks.

  • Yield curve is flattening to its lowest level since April.
  • Treasury yields are pulling back slightly.
  • USD (97.16) has broken through the SMA 50 after holding support #1 and is close to our upside target #3, which is 98+/-.
  • US stocks are positive, in pre-market at least, with Tech relatively firm.
  • GDP came in hot and that backs the hawking Fed.
  • Gold is getting hammered. Silver too. And industrial metals are negative.

With inflation expectations already strongly in pullback mode (and likely topped for the cycle) it looks like one of two ways to manage this over the next 2 months leading into the 1st rate hike, which could be a buy the news signal in gold, as it has been in the past.

But for now as gold and silver each flirt with losing their SMA 200, it looks like the seasonal rally is done and if so, then we are back on the gold handle-making exercise, which in its bullish view allows for a drop to the mid-1500s.

As for commodities, I am not a fan. Not with the drop in inflation signals.

Stocks? Well, if Goldilocks does carry the day for a while think about all those Tech and Growth stocks that have been annihilated (down to maybe only quite over-valued rather than grossly over-valued). It will depend on what the quants and machines want to do with the market, but there is a play for a rotation back into this stuff as the economy continues to hold up and inflationary pressures wane. That is what Goldilocks is.

The alternative, which sometimes happens, is that gold would lead stocks down too. But at the moment I am leaning stocks up in the near-term because they’ve already been clubbed over the head and gotten a well earned clean out. If they break down I will look for setups in which to short and add more defensive positions (like Treasury bonds, Utilities, etc.).

On the plus side for gold, if Goldilocks plays out on the interim and gold declines in the face of it, it would then be resuming its ‘anti’ status to the cyclical, risk ‘on’ markets. That is the setup we will want one day when the cyclicals are tanking and defensive positions other than cash and shorts are desired. That will be the time for gold stocks.