NFTRH 722

I’ve continued to receive positive feedback about NFTRH reports as online posts, so here is another one. I am not sure why but this format allows or encourages me to speak a little more like myself and a little less like a buttoned down financial guy. It’s probably because I tend to be more casual (read: funny, obnoxious, silly, grating, etc.) with public blog posting. This format sort of sets me free and is more enjoyable, personally.

Anyway, I think I am going to take it week by week as to whether to do it as a post like this or a formal report. But I would like to keep the PDF reports going as well because they include a standard summary update of markets, contents with page numbers and just a more professional feel, which I like. It’ll probably shake out as 60% posting and 40% PDF or 50/50%. Something like that. Preamble aside, let’s get to it.

Precious Metals

Let’s start with the area that has the potential to be a 2023 standout if the macro swings counter-cyclical as expected (of course I had already publicly labeled 2022 ‘the golden year’ last December, so I would obviously like to see a pivot to bullish sooner).

Bullish

  • The Commitments of Traders (CoT) are constructive (gold) and very contrary bullish (silver), respectively.
  • Gold Miners Bullish Percent Index (BPGDM) remains very oversold, which is risk/reward positive.
  • HUI touched another long-term support zone, which which coordinates with our target off of the small bearish pattern (178). Huey ticked 180 and is bouncing from there. It’s a bounce only.
  • Of particular interest to gold mining operations, the Gold/Oil ratio continues to be constructive. While the move is not definitive, it’s positive until proven otherwise after bottoming in June. This is a weak bullish for now. See Commodities segment for a look at the Oil/Gold ratio.

Neutral

  • Gold’s ‘real’ price as adjusted by general commodities (CRB) has made progress off the lows, but is still in a process of bottoming. There is no actionable signal yet.
  • Gold as adjusted by global stock markets as a whole (ex-US) is constructive and trending up by its 200 day moving average. But it has been in ongoing sideways consolidation since March.
  • Inflation signaling may have topped out. A confirmed reversal of inflation and the inflation trades would signal an oncoming counter-cycle (logically, since the cycle was built on inflation) and the best longer-term environment for gold stocks and gold relative to cyclical assets.

Bearish

  • As ironic as it sounds, the Gold/Silver ratio (GSR) continues to trend upward and the historical reality is that when the sector is ready to rumble silver will probably lead. So, patience with the process as GSR and USD continue to trend up (although they pulled back last week, which logically coincided with widespread market relief).
  • The Fed itself, in hawk mode. We can lampoon them all we want (I do) but the market’s perception is of a seriously hawkish, inflation fighting Fed and market perception – including all those bugs huddling in precious metals because of inflation – counts.
  • As an example of this, ‘real yields’ have turned back up again. See the St. Louis Fed’s chart below.
  • The yield curve, which would likely be beneficial on the next steepening is still inverted and the trend is still on a flattener. Again, downside risk is limited, but upside reward is not active.
  • The gold, silver & miner chart technicals. Proximity at support is not a bullish thing. A bullish thing is when support holds, items turn up and establish new uptrends. Lots of work to do.

Of course, the classic ending to a precious metals correction is a hard dump down or even a crash. While, not nearly a given on this cycle – considering a 2 year correction in process and sentiment in the dumps – it is still possible with all the dynamics baked into the current macro cake, like the hawking Fed, which is forced to be that way by the inflation problem now not only recognized by Joe and Jane Sixpack, but prompting them to man the figurative pitchforks and torches and figuratively march on the Fed to put Powell’s figurative head on a stake if something is not done about it right now.

Here is a very bearish input. The ‘real yield’ on the 10yr Treasury note not only continues to abort its recent pullback, but is threatening a new high. The implication, much like with the inverted yield curve, is that the Fed is in control. Gold bugs may want to deny that the Fed has such power but the market does not deny it and the market is what counts.

real yields

Bottom Line

Sentiment (CoT and anecdotal evidence) is not a timer. It is a risk/reward indicator. But that is NOT enough. Support (e.g. HUI & Silver) is not enough. The potential for a climactic ending (a nice way of saying crash) is still in play. You’d like to think that a great contrarian setup is in play with FOMC upcoming and that may well be the case.

But this market has been so logical lately. So much so that I have not trusted that logic (e.g. SPX turning down right as it was supposed to do at the SMA 200). The logical thing is for gold and the PM complex to bow down before the great and powerful Fed of Oz. It is not yet time to be caught gambling heavily as a contrarian.

Per NFTRH 721, the ultimate big picture objective for HUI is to make a higher low to 2020. That means holding above 131.12 or preferably 142.51. If the crash scenario does unfold (actually it would only be a ‘mini’ crash from today’s 198.83) either of those levels should be watched closely.

As for gold, it dropped to support to fill a gap up from late July. That’s good. But as scores of Twitter chartists are advising, gold is at important but not very good looking support. Lose 1673 and it could get real ugly real fast.

Silver lost support in the 18 (+/-) area and is bouncing to try to reclaim it. Currently at 18.77 with a solid CoT behind it an argument could be made that this is a bottoming area. But the break of support, if it happens again, re-loads a target of 16. It could happen if markets do the logical and bow before Oz.

The complex could just continue to grind out a low but if a crash of some kind does come about, it will very likely precede a strong and tradable rebound rally at worst and a new bull market cycle at best.

#patience

Stock Markets

Speaking of logic, we noted last week that the September seasonal does not go in the tank until mid-month. Monday is the 12th day of the month. FOMC coming up on the 21st.

Market signaling over the last few weeks has driven the CME rate hike projection to an overwhelming likelihood of .75%. All other things being equal (like a nuclear war not breaking out) the Fed is going to hike .75% and stock markets (and precious metals, commodities, etc.) are doing a little contrarian bounce thing before it comes.

Turning to the chart of SPX, let’s add VIX in the lower panel and note that SPX has an upside gap that can fill and VIX a downside one. If they do fill it could come just in time for FOMC week, which should be eventful in one way or another.

SPX held the support we noted as critical last week before turning up. That is to no surprise as we reviewed contrary bullish sentiment indicators aplenty in #721. I’ve gone further and imagined a would-be bull pattern because I’ve seen everything in markets in my time, including improbable bull phases when you least expect them.

So I’ve marked up an inverted H&S of sorts as a low priority thing to at least keep at the ready for the sake of being prepared (my old boy scout self coming out again). The logical thing would be another selling (or shorting) opportunity at a gap fill or the SMA 200. But with the SMA 200 aligned with the pattern’s neckline if you see those taken out and the August high exceeded prepare for more bull (literally and figuratively).

Meanwhile, I am positioned as follows in the Roth IRA (non-taxable, no contributions)

Cash and interest paying equivalents, after adjustment is still nearly 92% with no bear positions. Also note that positions are divided fairly evenly between Cannabis MSOs (CRLBF, CURLF), Ags (DBA, MOS) and PMs (MAIFF, AGI, OGNRF) along with BioPharma/vaccine maker DVAX, which I failed to sell at a 60+% profit, now sporting a 6% profit.

Bottom Line

There is no Tech, no Semi and aside from DVAX, no broad market exposure. That is because while I may buy/sell such items at any time, the logical thing for the market to do is to resume its downtrend if/when SPX hits upside parameters like the gap and/or the SMA 200.

But I am not fooling around here. You know I am Mr. Counter-cycle. That is because the various data points indicate poor market liquidity and a thus far creeping economic deceleration (ref. manufacturing and other softening areas of economy) as the Fed tightens the screws and the Austrian ‘true money supply’ (TMS) tanks in the US and globally.

When considering the ‘real yield’ shown above implying tight monetary policy, also consider TMS as a ‘wax on’ (in 2020) and ‘wax off’ (today) situation. Steve Saville has a home cooked representation of TMS that is pretty stunning when you consider the tsunami of liquidity that central banks released to manufacture the inflation problem and the equally massive drop in money supply that should logically end it before too long. How will it end? The logical thing is for a market crash sooner or later. The illogical thing is for the would-be inverted H&S on SPX above to prove to be a bull pattern prior to a new leg in the bull market.

Let’s end the segment with the usual daily charts of global markets. Also as usual, you can use the daily SMA 50 to gauge the intermediate trends (the major trend marker, SMA 200 also included in the top panels) as a guide. These are still generally bear market trends (as with the US). Everybody’s bouncing to one degree or another within those trends.

Notables: Japan and India continue to look good. Japan’s little hammer candle that stopped the correction came right at the SMA 200 (not shown), which is trending down but the SMA 50 is turning up. If a bull were to emerge this is what the start would look like. India is ‘golden crossing’ its SMA 50 above its SMA 200 (not shown) and if that is not met with the traditional harsh pullback that these bullish signals are usually greeted with it could also be flip bullish.

Aside from that, with respect to whether or not global stocks will go bullish, keep an eye on the previous highs from August. Those would be the initial objective.


Brazil continues to be the relatively bullish market here. EM/Asia got a pop on the USD pullback to end the week. There’s nothing conclusive there whatsoever. DAX and UK are lame much like their odd bedfellows EM and Asia.

Notable: The guide for inflationary speculation, Canada’s TSX-V held its SMA 50 and so the bounce (within a downtrend) lives on and by extension, so do inflationary spec trades pre-FOMC.

Commodities

Friday looked like some kind of joyful anti-USD b/s going by the Commodity index tracker, DBC. There was a breakdown and then a gap up on very low volume. Not exactly inspiring. It looks like a classic whipsaw to mess with those who sold or shorted the breakdown.

As you will see by the charts to follow, while DBC/CRB, Energy commodities and base metals are questionable at best, certain outliers like Uranium, Lithium and Rare Earth materials are looking more interesting (although Gas got hammered) from the bullish side as referenced last week in NFTRH 721:

That said, there are still combined inflation/supply chain/simmering global war pressures that could pop certain commodities at certain times, especially strategic commodities and materials like Natural Gas, Rare Earths, Uranium, Lithium, etc. Despite the negative (vs. gold) analysis above, oil can also be a wild card subject to politics as much as inflation or economics at any given time.

Let’s look at some of the outliers first. The Rare Earth ETF (including a significant amount of Lithium stocks) is in a more valid looking inverted H&S than SPX above. Upside volume was pretty good on the forming of the right side shoulder. Aside from currently held UUUU (Uranium w/ an REE side), MP is my watch item for REE.

This Uranium ETF was added with a quick profit taken (while keeping UUUU and NXE) but the chart is still good as it attempts to undo the moving average fade that neutralized the previous uptrend.

Here is the Uranium price having held the first support level and now, the daily SMA 50 and 200. This can only be described as a bullish chart after breaking a healthy consolidation that began in the spring. Yup, Uranium has potential as a macro wild card.

So if the world is ending for all commodity/resources stocks what is Lithium producer ALB doing at a new high? And that’s not just a daily chart high, it’s an all-time high. As such, I’ve got favored Li play LAC on watch as it is lagging ALB’s performance but has a constructive chart.

So there is interesting stuff going on with the outliers. But back in the dirty world of old fashioned commodities, crude oil, not long ago touted to $200/bl. in minor and major media, remains in breakdown mode.

Importantly for  gold miners, the Oil (mining cost input)/Gold (mining product) ratio continues to have an ugly look despite the bounce to end the week. Sure, the ratio could easily take out the moving averages to revive the uptrend but as yet it has not. Simple, eh?

Gas took a hard hit to the uptrending SMA 50. Considering the SMA 200’s ‘major’ uptrend, this can only be called ‘still bullish’, and the Energy sector (XLE) is also fully intact, technically. NOG, EOG, CVX, XOM, etc. are my watch items.

The Ags continue to hold my interest as the pattern is intact and RSI and MACD are green. Currently holding GKX tracker DBA and ‘fert’ guy, MOS. NTR is also looking good as it recovers from a harsh pullback. As also highlighted recently, wheat fund WEAT is making nice progress on its bottoming pattern.

Quietly, Palladium continues to lurk constructive. SBSW and GENM.TO are two on very casual – as in little current interest – watch.

Doctor Copper has a better CoT situation than silver, and silver’s CoT is excellent. So what gives? Well, our bounce target has been to 4 and clear resistance. If nothing else, CoT sentiment could continue to drive Doc to that level or the down-sloping SMA 200.

Commodities Bottom Line

It continues to look like a game of Whack-a-Mole, where one commodity pops its head up, gets bashed down (e.g. oil) and another pops up (e.g. u3o8 and some of the outliers). I remember this kind of activity from back in the day. It felt like hedgies, quants and black boxes roving the landscape playing one after the other.

But supply chain issues, global asset grabs, tensions, war and a generally devolving civilized world are probably at play as well. If the hawking Fed causes a real market crash I would not expect any of this stuff to remain bullish uninterrupted. But that is an ‘if’. Some of these do not really need the ‘inflation trade’ angle to bull as they have their own discrete fundamentals (alt. energy, need for critical materials for technology, etc.).

Currencies

Let’s start with the most important currency chart of the moment, USD attended by his fellow horseman of the liquidity Apocalypse, the Gold/Silver ratio.

horsemen

To review, the US dollar is the global reserve currency and as such is an ‘anti-market’ to cyclical markets inflated by central bank policies. The Gold/Silver ratio (GSR) is a market liquidity indicator. For example, it spiked during the Q1 2020 pandemic-driven liquidity event and then got hammered when it started to become obvious to markets that the Fed was inflating like nobody’s business.

Today both USD and GSR (daily chart) are grinding an uptrend and with the hawking Fed in play the logical view is that liquidity is being removed from the markets (ref. ‘real yields’, TMS and a host of other indicators). The logical view is bearish for risk ‘on’ assets.

GSR dropped last week but holds its intermediate uptrend at the SMA 50. For both USD and GSR, the August low is key to be held if we’re going to stay on the logical path of market liquidity removal. In the unlikely event that changes the equally unlikely SPX inverted H&S imagination could become a reality. But we need to go by market signals and they indicate liquidity problems and bearish markets as they currently stand.

Here is the chart of global currencies and the trends remain down. A new subscriber asked about the Swedish Krona and while I cannot include it on this chart (stockcharts.com only allows 6 panels) we’ll note that it is in a pure downtrend, much like the Euro. Indeed, everybody – including the relatively firm Swiss Franc – remains bearishly trending down in relation to market liquidity destroyer, Uncle Buck.

Let’s update Bitcoin (daily) and note that there was a big pop last week… right back to resistance and the SMA 50. That is the work it needs to do if it is going to bounce more strongly to 28000. Daily RSI and MACD sport positive divergence at the September low.

The weekly chart shows a potential double bottom, a MACD up-trigger and more and massive resistance at 35000. That said, I’ll continue to wait for 10000 to 12500 as the ultimate potential low.

Bottom Line

USD is riding with the Gold/Silver ratio to drain market liquidity and if that continues to be the case, global currencies and cryptocurrencies will suffer. Last week GSR and USD got stopped for a bit and speculative rallies ensued. The logical thing is for resumed liquidity pressures but staying open minded, we’ll simply gauge the process as we move forward.

Market Sentiment

It was important to cover sentiment last week because it was set up contrary bullish. Now a market bounce has manifested. Logical. This week let’s simply bullet point some details and close ‘er out.

  • Dumb money took a bite out of the market and smart money faded a bit. No big move here and the bounce can continue in the very short-term, but the setup noted last week is over.
  • Market risk for stocks has spiked in the very short-term to the degree that Monday or Tuesday could be red.
  • NAAIM remained very depressed, but the data was harvested on September 7, before the market bounce. The reading is likely less contrary bullish now.
  • Investors Intelligence (newsletter survey) was in full retreat as of Sept. 6, but also likely perked up a bit when the market rallied.
  • AAII (Ma & Pa) were back in the dumps by Sept. 7.

Bottom Line

Market participants are not over-bullish by any means. But the pure contrary positives noted last week no longer exist. It appears to be a typical bear market sentiment profile at this time.

NFTRH 722 Bottom Line

  • Markets are bouncing off of over-bearish sentiment.
  • The logical path is bearish, given the market’s obvious liquidity issues.
  • However, we have started to look at some parameters to a more bullish view. It’s a low probability.
  • The precious metals are also rallying on the sentiment bounce and that is not positive for gold or the miners, which will have their best suit one day if/when the economy resolves counter-cyclical.
  • Traditional commodities like energy and base metals are mixed. A game of macro Whack-a-Mole or maybe Mac-a-Mole.
  • But outliers like Lithium, REE and Uranium are looking to re-bull. It’s interesting and part of why I keep an open mind about parameters that would argue against a pervasively bearish view. There is more than inflation at play here. There is a global ‘asset grab’ scenario among increasingly hostile enemy countries.
  • Generally however, it is USD and the Gold/Silver ratio riding together in uptrends. As long as that remains the case the general view remains bearish. It’s only logical given that the Fed is on the warpath against inflation and inflation is what created the cycle.