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Notes From the Rabbit Hole, #718

Another edition of NFTRH presented as a post rather than a PDF. I feel more comfortable getting right down to the important points using this format where I tend not to worry so much about format and presentation, but instead get down to business.

Current Market Situation

From my point of view, here is where we are and how we got here. Please consider each point. I find that sometimes people take what they want to take, choose not to consider some things and then become frustrated for not having considered them.


Just because you or I may think that the stock market is illegitimate does not mean it is so. Indeed, I lost my would-have-been podcast partner Scott* because he is fed up with the markets and doesn’t want to spend his time talking about them. His views would have scared a lot of people and I don’t blame him for wanting to move on and just not look at it. He expects complete deflationary destruction of the inflated mess. But my experience is now 20 years after I fell down a similar rabbit hole of doom, recovered from it and have realized that belief and ideology are what they are but the reality that a majority see is what it is too. As long as it remains intact. Again, for me it’s 20 years and counting.

* I’ll have to do it alone or with a well chosen partner or guests. I’d prefer not to drone on alone.

History of the Current Phase

I could start from the beginning of my experience with markets in the late 1990s, but rather than write a book I’d like to mark Q1, 2020 as our starting point.

  • In 2019 gold took out the ‘bull gateway’ of 1378, signaling a new cyclical bull market. That year the stock market also bulled and blew off into Q1 2020 before the pandemic disaster hit and then crashed the market. After initially dropping under the deflationary pressure of the macro crash gold rebounded and did what it usually does, which is to lead the next inflation cycle. That leadership eventually became excess and the bull trades fanned out to the stuff that benefits from cyclical inflation (i.e. inflation working to the apparent benefit of the economy); stocks and commodities.
  • Gold bugs are always going to be gold bugs and they do not change.
  • Market bears are always going to market bears and they do not change.
  • The markets do not care about what they think even one little bit.
  • We appear to be at a time when ideology is running rampant. The political backdrop is a complete mess not only in the US, but globally. Darkness is overtaking the light and social mood sucks. But people need to be careful they don’t extrapolate that darkness to an end of the world view. Perma-bears and gold bugs have been humping that theme for decades.
  • Meanwhile, the broad risk ‘on’ world of stocks and commodities merrily rallied on into 2022, rotating sectors and asset classes along the way with interest rate dynamics and Fed hawk fears lurking in the background.
  • Today it appears everybody is wigged out, but let’s remember that we called this seemingly improbable rally that seems to be confounding so many people. We called it. Period. And it was not a difficult call in the least.

At any given time the markets – driven as they are by psychology… contrary psychology – will do what is not expected. I am getting tired of the belly aching I hear out there about illegitimate markets and some sort of entities propping them up. That bellyaching is actually the product of wrong positioning. Humans need to make excuses, even if they don’t realize they are making excuses (oh, how handy is the human capacity to rationalize and tell oneself stories of justification).

The Plan From June 2022 Forward

Nothing has changed. It may change, but as yet NOTHING has changed. We projected a tradable low in the markets based on sentiment that was as terrorized as it was at the depths of the Q1 2020 COVID crash. We established upside targets, including extreme ones that the market appears to be locking in on now. This was projected for a window in time mainly encompassing August, but the grinding beginnings of the rally was the bottoming process in June and July. It took a while to grind out a rally that all would come to see (and many would FOMO).

So I ask you this; if we projected it and it is doing as anticipated why should we be frustrated? Why should we be anything other than in control of the situation, or at least our own emotions?

Psychology Matters

I believe that humans tend to herd even when they are actively trying not to. For example, subscribing to the theories of logical, well spoken bearish analysts or gold bugs, the very message is ‘anti’ that which the normal population (and their normal financial advisers) promotes. But you… perma-bear and you… gold bug are part of a herd.

Another point I feel strongly about is that there is no correlation between intelligence and a well functioning market psychology makeup. None. Some of the smartest people out there 100% believe their own bullshit along with the herds following them.

I am not going to name names but there are massively followed bears on Twitter. There are massively followed gold bug/inflationists. There are persuasive arguments aplenty as to why the typical stock market bull is doomed and how any time now the markets are going to crash and go to zero (their intrinsic value) as all that debt propping them up unwinds. At that time gold will reign preeminent.

Well, I not only understand the premise but I agree with it. Premise: noun, an assertion or proposition which forms the basis for a work or theory.

We have three main choices that I can see.

  1. Take the blue pill and let your financial adviser follow the herds with confidence that what has always worked to this point will continue to work. A problem at this time is that the Fed has been forced to adopt an unfriendly as opposed to supportive stance. But advisers and their herds will simply wait for the next cycle, on the premise that there will be a next cycle.
  2. Take the red pill and see all the ugliness there is to see, but also get paralyzed by it, never taking advantage when the macro does the unexpected (like this summer rally, for example). Okay, you are right. You see the system for what it is. But you are wrong. The market’s price (as of August 14, at least) says so.
  3. Realize that you are nothing but a tiny little human occupying a tiny little piece of this world. Tune out the analyst with a computer that supposedly keeps him impartial (just don’t look at all his non-computerized political diatribes), the gold bug touting inflation along with Bitcoin and a perma-anti USD view, the perma-bear expressing perma-frustration, the other perma-bear dressed up as an impartial manager with data points galore that will keep you paralyzed until finally the data are proven correct (every several years) and various other bears and bugs taking potshots at easy targets like the Fed and politicians (okay, me too, but you get my point).

I choose #3. I am an insignificant human of no great intelligence. I was an average student and don’t consider myself exceptional in the least. But I choose to keep a well tuned Bullshit Detector at my side at all times. That B/S detector is actually the product of my long-term interest in psychology and in particular, the herding that humans do.

The point is that psychology is working just fine. That has to be the case because we called the rally out of the 2020 crash and we called the rally out of the June, 2022 sentiment plunge. Personally, I am getting tired of the bellyaching because the analysis is working and the markets are making sense… assuming you have no lasting damaging effects of previous ideological associations.

Once again a reminder of one thing that NFTRH is not, from What NFTRH is, is Not.

Not being what one would call ‘smart’ in school or witty with banter at a social event, the main thing I have going for me is an ability to basically question everything, especially experts in the field of finance. I do believe that scientific experts, medical experts and astrophysics experts should be taken seriously. But finance? Ha ha ha. The world of financial markets is actually a haven for charlatans. Anyone claiming to be an authority or expert in this field is selling snake oil in my opinion.

Why? Because there is no breadcrumb trail out of this mess. With all the debt levered to the hilt we could just as easily lurch forward for 20 more years as watch the thing fall apart after Labor Day. Again, for me it’s been 20 years and nothing has changed. The same leverage (okay, more of it) and fiat chicanery are in play now as then. 20 years and counting.

Back to the Plan

Okay, let’s get this ‘report’ back on track.

We planned for a sentiment rally with logical upside targets. The markets appear to be targeting the more extreme targets, which will decide between bear market rally (as originally anticipated) or a cyclical bear market in the rear view mirror. After the herds are all back in the plan for a resumed bear market will either be proven correct or will have to be revised. A problem for ideologues is that they dig their heels in and fight the good fight in support of ideology. No thank you. If I am wrong I will not apologize but I will admit it and revise the plan. It’s the only logical and ego-free thing to do.

So what would force such a revision? SPX has risen to just under the 200 day moving average, which corresponds with clear lateral resistance. It is getting overbought as the FOMOs plunge back in (ref. Friday’s post about sentiment). It’s funny because there was a time that I thought it would be a no-brainer to short at this level but now I am not short. My own psychology could probably use a short-term tune up. All the talk in the first half of the year about waiting for a proper short setup? Well, technically speaking and if the bear market is still in force, this is it.

What would turn this from a bear market rally to another failure for the bears? Taking out the down-sloping SMA 200 would be a start and taking out the ‘fake out’ high of 4637.30 would technically send the bears packing. But within the parameters of our original plan, with SPX at a key resistance level, getting overbought and with sentiment reversing hard from the depths of June risk is by definition very high now.

Frankly, I feel over exposed even with high cash levels (84%). But let’s also consider that the market is rotating out of some areas and into others as the macro backdrop shifts in favor of sectors favoring declining bond yields, but potentially back to the pro-yield stuff as noted in an update last week. Of course, things shifted back again to the anti-yield plays on Friday. So yeah, I get the frustration from this vantage point. The machines are moving the markets on a compact time frame.

But let’s remember that the window was from mid-July (after the last FOMC) to mid-September (before the next FOMC). With the markets generally approaching limit points however, I am not prepared to just set it and forget it until after Labor Day. With SPX a hair below target right now I am paying close attention.

That attention may result in a revised view toward bullish or a confirmed view of a resumed bear market. The second option would be the logical thing, but oh how many times have I seen the market choose ‘bullish’ at similar decision points? Importantly though, and as noted above the Fed is not in position to be the market’s benefactor this time. Especially with certain inflation markets joining in on the festivities.

So it is inflation expectations and lagging Payrolls vs. the obvious signs of economic deceleration in manufacturing and other areas. If the inflation trades are briskly recovering into FOMC the Fed will be hawkish first and worried about the fallout of too much tightening second. Currently, CME Group traders see at least a .50% or quite possibly a .75% hike in the bag.

Bottom Line on US Stock Markets

Indexes are approaching the more extreme of our originally projected upside targets. That brings a lot of risk but it also brings the potential for another vanquishing of the bears. My personal lesson from 2020 was when I had SPX going a bit lower to a logical bottoming target. It never quite reached that target prior to its massive rally that lasted through 2021. I got bullish, but did not position as aggressively or as quickly as I would have had the downside target been hit. This time I have SPX to 3200-3400 as a minimum downside. The bear at least temporarily aborted at 3636.87 in June.

The downside into June brought a sentiment profile that could have ended the bear. But a still hawking Fed and a combination of inflationary inputs and economic deceleration could spell a different outcome this time. Remember, the Fed was historically dovish in 2020. Not so now. Not by a long shot.

So personally and as a speculator, I’ll be open to shorting this mess should the original plan remain intact. If it does not, I’ll nimbly play bull boy as has been the case over the last couple of months.

Global Markets

As is the case in the US, the ‘anti-USD’ rally globally is pushing some upside limits as Europe has a date with its down-sloping SMA 200.

Japan’s Nikkei continues to be of interest as it has a bullish look ticking a higher high above the June high. Also note that Nikkei is above its SMA 200 (not shown, but at 27548). Potentially in play here is the dynamic noted above for 2020’s SPX where it never did decline all the way to ‘no brainer’ support. In this case we’ve been talking about Nikkei 24000-25000.

India is also bulling along while commodity/resource countries Canada and Australia bounce strongly. As a point of reference however, TSX is well below its now down-sloping SMA 200 (not shown but at 20731).

China large caps continue to wallow after the May-June rally failed. Interestingly, China led the broad global rally to the upside. Could its failure be leading it the other way? Also, is FXI and blueprint for the current Nikkei rally? Could be. But a difference is that FXI never took out its SMA 200. It was successfully resisted by it.

German DAX is on a bear market bounce that at this time looks like little more.

Asia and EM show the faintest signs of an ongoing bounce. If I were fundamentally bullish on these areas (like for example, with a bearish intermediate-term USD view) I’d be interested in bottom feeding AAXJ and/or EEM.

Brazil is really ramping again as BVSP took out its SMA 200 (not shown, at 107698). It is overbought and its moving average trends are still sloping down. So if it’s going to fail it should do it soon or it may break the bear.

UK (EWU) is bouncing in a clear downtrend with the SMA 200 above at 31.88.

As for the speculative commodity/resources areas, TSX-V continues to bounce and as such has not diverged the summer party atmosphere in the ‘resources’ patch. It should be watched for continuation or divergence.

Bottom Line Globally

In tow with the US markets and much like the varied US sectors, the US dollar and the state of sovereign interest rates will have varying effects on various markets. EM for example would benefit if the USD were to weaken further into a correction of something more than the usual tap of the SMA 50. Such a signal would mean that the bullish USD play is already saturated by Fed hawk drama.


USD offers another view of why this market can be so frustrating. It broke below the SMA 50 and closed two days in a row below it. I did not call attention to it because I had already whipsawed you with the move in long-term yields. Enough chasing in-week market signals driven by machines is enough!

Uncle Buck took back the SMA 50 on Friday. It’s summer trading and the algos and HFTs are roving the landscape for any scalps they can make. Don’t take the slack summer season overly seriously.

Notably however, USD has been weakened enough to send RSI below 50. If the anti-USD trades are going to continue the buck should break down shortly. That would have to be a ‘sell the news’ play on the still-hawking Fed. Meanwhile, if it turns up from this consolidation it’s all bets off in line with the current high risk situation.

I actually like the look of Bitcoin and almost added BITO last week before sitting back on my hands. It continues to look like a constructive bottom/bounce situation for any speculators interested. If I give it a try I’ll use the short-term (orange dotted) EMA 20, which the price has been riding, as a tolerance. As it is it’s a little too far above the EMA 20 for me to add it just yet.

Here is the rest of the global currency cavalcade. Note that the Swissy (CHF) is right at the down-sloping SMA 200 and also Canada and Aussie dollars are testing their SMA 200s (not shown). In line with the USD above, its an important juncture for the ultimate anti-USD trades in global currencies.

The situation is also in agreement with the high risk status of US and global stock markets. If markets swing back to the bull these currencies will likely also do it. If not, they will fail. Key juncture, here and now.

Precious Metals

Here is where the idea of tuning out the perma-bugs comes into play. Gold should not under-perform stocks! Gold is real and stocks are a scam! Yeah? Well, if this chart does not fix itself soon there is going to be disappointment in Goldbugville. The Gold/SPX ratio ticked a new low on Friday.

I have also seen a lot of bellyaching about how bad gold stocks are and that they will NEVER go up again. What a poor investment! Yes, if your time frame is not right and if you’ve swallowed the orthodoxy. The gold generals will never tell you about vulnerability such as what is clearly displayed above. They will muster the troops into battle. They will pull on your honest heart strings and sense of right and wrong. Well, to me it is wrong to be wrong when there is evidence like the above that you are wrong.

We are on a broad market relief rally, as projected. In its best suit gold has nothing to do with such things. In its best suit gold is contrary and ready to receive liquidity when things are falling apart. Tune out the promoters.

The time is going to come and it could come as soon as Q4 2022 if the bear market in risk ‘on’ assets resumes. If it comes with everyone having given up on the precious metals, so be it. Actually, that is favored. You don’t want to be running with that sheeple gold bug over there spewing his leaders’ dogma. You want him in full retreat from the damage his leaders put him in.

Meanwhile, the HUI/Gold ratio is making the slightest hint of a potential low. It’s something, folks.

And despite gold’s tick to a new cycle low vs. SPX the HUI/SPX ratio has maintained its composure. This could be meaningful, especially when you consider that last week featured some crappy gold (and silver) miner quarterly results. Eh?

So we should take it a week at a time, realize that there is a lot of information flying around, including a hawking Fed and realize that the market is going to do what it is going to do whether you like it or not. One thing it could do, if our view of resumed macro bearishness holds up post-Labor Day is to shift to a favorable environment for the very counter-cyclical gold stock sector.

Meanwhile, nominal gold is still on a bounce and looks okay. I don’t like the diminishing volume on the rise, however, and the proximity still below the SMA 200 is a concern as well. On the plus side, daily RSI and MACD are now positive and gold is not overbought. The objective here is to take out the SMA 200 and then importantly, the June high of 1882.50.

Silver has also ticked RSI and MACD green. It is nesting on the SMA 50 and even an ill fated bounce could target the downtrending SMA 200 (22.79). If that were to happen silver would likely be above the June high of 22.57, which would open the door to a new cyclical bull market. But first things first.

Meanwhile, gold and silver Commitments of Traders (CoT) remain constructive with large Specs and Commercial traders in gold still early in a new trend (in spec bullishness and commercial shorts). Very notably, the little guy hates himself some gold. That is what we want him to be feeling. Revulsion.

Silver’s CoT is very early in the new trend and if things go the way they normally do there would be a lot of upside in the silver price before the CoT get stretched to contrary bearish proportions. On that note, the little guy is up off the mat. That’s not overly negative, but he is taking note and it would be better if he were not.

As for gold stocks, I think it is notable that even the sector’s biggest boosters are now disgusted with these crap stocks that never go up. Many of these people also boost copper, crude oil, uranium and what have you. They – as gold stock enthusiasts – have set themselves up for failure exactly because of their inclusion of gold mining in with their other ‘resource’ related assets. A faulty premise leads to a faulty conclusion. Eh?

HUI has broken the severe downtrend in favor of a potential bounce pattern. Again, it is notable that this is coming after several high profile gold miner results grossed out the markets. And why wouldn’t they gross out the markets? The Gold/Oil ratio alone told us way ahead of time that inflation was not going to be good for gold mining bottom line performance as costs rise relative to product.

But while we are busy getting confused by the present and getting our heads spun by smart people with persuasive viewpoints markets do what? Anyone? Bueller? Yes, look ahead. Markets look ahead. The reasons they do what they do are not often apparent in real time. So this could be a little hopeless bear flag in preparation for a next savage leg down in gold stocks or it could be a preparation for big time macro changes to come in Q4. I don’t have the answer, but I sure as shit do have the patience and wider angle perspective to remain intact and ready for the answer when it comes.

Technically, let’s just say that the downtrending SMA 50 and lateral resistance are just above at 223 (if it were to fail as a bear flag, that could do it) but thicker resistance comes into play at 235. For now it’s a bounce until it either fails or eventually takes out the SMA 200 and the June high of 269.64.

Gold Miners Bottom Line

Everyone hates ’em. That’s good.

The little bottoming posture could be the start of something big. But the orderly decline in June and July was not a crash or a capitulation. Let’s be aware that gold stocks often present a major buying opportunity when they crash. Watch the HUI 220-225 area and the 235-240 area for signals of failure or continued rally.


The CRB tracker is in a ‘W’ stance of sorts looking upward at the SMA 50 and clear resistance. The major trend is up and as such it has a shot at breaking through.

Crude oil is below its SMA 200, however, and this is a drag on the commodity indexes where back in June it drove them to new highs while many commodities like Ags and industrial metals were already in correction. Today those others are keeping the indexes stable while oil drags.

Gas has held the SMA 50 and turned back upward. As such it is technically bullish, having held its intermediate uptrend after failing to break down to indicate a double top.

The Energy sector held the SMA 200, broke back upward and took out the SMA 50. As such, it is once again bullish as long as it holds the SMA 50. RSI and MACD are both positive and not overbought.

Copper has bounced to the downtrending SMA 50 but the real resistance enters the picture at $4/lb.

Copper miner ETF is at both the SMA 50 and resistance. So what it does here may be telling for the metal. COPX could zoom upward to the 200 day average (36.81) while maintaining a suspect (at best) technical situation. As with other markets the June high would be the real proving ground to exiting the bear.

Palladium continues to carve out a recovery as it is above both the SMA 50 and 200 with positive momentum indicators.

Platinum has boinked the downtrending SMA 200 and this is an important juncture. Taking out the June high could set it on its way. But be aware that this snapshot is of a metal in a major daily chart downtrend (below the downtrending SMA 200).

The Ags have bounced as anticipated off of support with the seasonal lows generally centering around September. We can give it +/- a month should this be a real rally as opposed to a bounce. Resistance #1 is in the 490s and #2 is at 530.

The Uranium sector is wallowing around below the SMA 200 with positive momentum indicators. I see this chart as neutral at this time.

Commodities Bottom Line

This class continues to bounce with the markets and last week Energy got back in gear to rejoin the party. Interesting though how oil continues to look suspect while NatGas is bullish. I am ready to maintain or even add positions or get rid of them. Your decision market and the associated internals with respect to inflation (like yields, inflation expectations, etc.).


Taxable ‘savings’ account (very conservative)

As you can see, a couple minor positions amid the very high cash and gold. This account has made sure to keep itself out of harm’s way as risk rises in the markets. I’ll consider adding a couple positions if I back off the risk signals a bit and feel the rally has more legs. Otherwise, this is not for speculation.

Roth IRA (non-taxable, no contributions)

IRA holds a mix of sectors along with what most people would consider high cash.


Commodity/resource related: LAC (Lithium), NOG (Energy), MOS & WEAT (Agri), MP (Rare Earths) & NXE (Uranium)

Stock market: DVAX & JAZZ (BioPharma), CRM (Tech/Growth), CRLBF & CURLF (US Cannabis MSOs)*

* A significant amount of profit taking (on balance) has been done here but I’ll be open to replanting some positions as for example a big profit was taken on TWST and re-seeded into JAZZ. This is of course pending the high risk market view. 

Bonds: Short the long bond via TBT and holding SHY & SHV as cash equivalents

NFTRH 718 Bottom Line

Markets are doing as anticipated. Using SPX as an example, the market price is just below an important objective.

The original analysis was for this rally to suck ’em back in and then for a rug pull after Labor Day. Punishment of the FOMOs and MOMOs would be perfectly to plan. In that situation gold stocks might also put on a spectacular failure (another way of saying classic crash), which would be a big time buying opportunity for a subsequent slingshot upward.

But the analysis has no claim to continue to be right. It seems almost too logical that the markets will go bearish again before the great and powerful Fed of Oz. I see no reason yet to alter it. But it really does seem obvious.

I’d like to continue to take the market in chunks. For example the top in January and subsequent decline to a terrible sentiment low in June was a chunk. The recovery from June to today within the anticipated time window is another chunk. The next chunk is going to be a resumption of the bear market as favored, or a negation of it. Let’s really start thinking about that chunk upcoming.


This Post Has 6 Comments

  1. Michael Beeson

    Great write up. The contrarian in me has a hard time seeing the logic in the general markets yet the realist in me has to take a stoic approach and accept what is, not what I THINK it should be. The overall market lost me in 2008 bailout when I thought it best to let nature take its course instead of artificial “earning”
    This a way of saying it’s a conflicting feeling One day though it’d nice to be a lone wolf and feast off the sheep.

    1. Gary

      Agree, Michael. The issue is that our brains fire off in real time and this mess takes years, decades even to resolve itself.

      1. Apple

        I noticed you did not comment about the VIX.

        1. Gary

          Dog gone it! I had a note to do it too. I’ll do it as a public post tomorrow. Sorry about that.

          1. Dave W.

            Great, the sub-20 VIX has been of interest to me as well. Looking fwd.

  2. Dave W.

    Solid report, Gary. I appreciated the brief historical context, the ‘How we are where we are’ segment in this report. I think that would be super helpful on occasion, when noise overtakes signal. Your last paragraph of the Summary (about taking the market in chunks) was another good context-maker, it gives me some confidence in an actionable approach going forward. For me, it’s going to look like increasing my cash levels into that bear favored/negation market decision. One way or another, good cash levels will only help going into the next chunk.
    Cheers and thanks!

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