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NFTRH 731

Welcome to another edition of NFTRH produced as an online post. Here I can just start typing and communicating with less attention needed for admin and formatting (as with PDF reports).

What I want to communicate about this weekend is the rally that came on cue during US mid-term election week, and yet was triggered not by that, but by a media amplified easing of the rate of inflation in October. We knew this (fade in inflation hysteria) was coming but I for one had no clue what CPI release would be the trigger.

So the seasonal market rally situation we’ve been planning for kicked off big time last week. The issue being that typical of emotional markets (in both directions) the asset market counterparty, USD, tanked harder than I’d like to see for sustainability and stocks rammed upward harder than I’d like to see for that same reason.

I guess we’ll have to deal with that, but it does bring markets closer to a proximity that could end the bear sooner rather than later. For example, the DJIA is now well above its 200 day moving average and actually thinking about a test of the highs. While big Tech and other market segments are still a million miles from their highs, with the S&P 500 not yet to a test of its downtrending SMA 200.

US Stock Market

One scenario (among many, so take it with a grain of salt) I could envision is for the Dow to test its all time highs, while the other indexes test their bear market downtrends. But SPX (3993) is pretty close to testing the SMA 200 (4081) already. Beyond the SMA 200 SPX does not escape the bear until/unless it takes out the August high of 4325.28.

If last week was the start of a seasonal party with any longevity, it will probably need to get corrected in the form of a pullback and/or ‘chop’ that the 2022 bear market has been known for.

Here is the daily chart of SPX. If it rises above the previous termination point at the SMA 200 in August then committed bears will have a problem. But it can bounce to take out the SMA 200 and fill a couple gaps and still remain in the bear market trend. The post-CPI knee jerk was impulsive and it came on volume, which implies eventual higher prices. It also left a gap down there at 3818 that will probably fill sooner (short-term correction to the seasonal party atmosphere) or later (after whatever seasonal rally – mini or maxi, time wise – plays out).

SPX is not overbought and MACD just ticked positive along with RSI. But as you can see, the mission is clear for the bears… do not let SPX take out and hold 4325.28.

Meanwhile, here are some index and sector views. Everybody is bouncing and Growth stocks are under performing. Those are the Cathie Wood type stocks with nosebleed valuations. However, Growth has been hampered by a relative rotation to Value in 2022 as interest rates have risen. But if the seasonal rally continues and its inspiration is fading inflation (and resultant declining yields, rising bonds) then I would not discount the possibility of Growth eventually taking leadership back.

But first the market would need to build up its bravado by swinging sentiment back to bullish with dare I say a little FOMO* style greed mixed in. Below the August highs, each of the segments on the chart below remain in bear market trends. Period. It would get very interesting at those August highs, however.

Part of my history includes calling bull phases when the average bull was still sitting in a corner sucking his thumb, but then abandoning an active bullish stance too soon while greed and FOMO spread across the land taking markets higher than I’d originally thought likely. In short, I’ve had history where I’d be contrarian brave while the masses were scared and then get lectured by bull speculators about my caution even though I felt I’d called the rally well ahead of time. It’s not a good feeling, but it’s all psychology I guess.

* FOMO, for those not up on the lingo = fear of missing out. Again, it’s all psych.

Moving on, we find Energy still ticking the highs of its cyclical bull market, Industrials doing similar to the DJIA and thinking about a test of the highs, Financials rallying even though my personal lean is for a top in long-term yields and Materials rallying hard despite being a cyclical, more yield correlated sector as well (along with Industrials, Energy and Financials). Real Estate is the one you’d expect to play some catch up if yields start to pull back.

The same can be said for Tech, Growth, Discretionary, Cloud, etc. Relief from rising yield pressure (and tax loss selling pressure) could get these items playing some catch up. Check out the Semis on a big bounce.

Referring to our Semiconductor leadership charts, we find a big spike in SOX/NDX  but a still routine one in SOX/SPX. The trends are still down in all of these items and it indicates that last week’s broad relief is either due for an interim pullback or a cyclical leader may start indicating a positive new economic cycle.

I’ll be clear that that is not my current view. But as in early 2013 when the Semi Equipment sector gave clear cyclical signals, we’ll keep it on watch. Of note, back then we watched the Semi Equipment book-to-bill ratio, which is no longer publicly available. So the next best thing is probably to gauge out performance by Semi Equip stocks like LRCX and AMAT. The Equipment guys lead the cyclical leader’s (broad Semi) cycle, if that makes sense. LRCX, AMAT, KLAC, etc. bear watching now.

I am not charting individual stocks this week but still favor Biotech (IBB) and DVAX, technically and even to a degree, fundamentally. Healthcare in general (XLV) is also in good shape technically. Medical Device heavyweight MDT was added as a bombed out tax loss situation. I have a few other items on watch with the personal bias being those that are less inflation and yield correlated.

Market Sentiment

Smart/Dumb money indicators show smart fading the rally after leading it, and dumb elevated. This is a picture that agrees that the sentiment-fueled bull burst could see interim volatility. Short and medium-term risk measures agree. Bond sentiment jumped, perhaps allowing for a short-term bounce in yields. Gold and commodities are not overdone, sentiment wise. From Sentimentrader…

Nor was gold (or silver) overdone CoT wise, at last check. However, last check was as of Nov. 1 in a very contrarian bullish alignment, and a lot of bull activity manifested since then. So if gold and silver bottomed they are likely beginning an extended trend to a future high risk sentiment situation. But those trends can go a long way before something very negative happens. More on the precious metals shortly.

Investment managers were still over-bullish as of Nov. 9. In my opinion there is much FOMO among those who manage other peoples’ money not to miss out on market moves. So they are quick on the draw.

While newsletter writers are more dogged once they’ve dug into a stance and on Nov. 8 that stance was bearish. A perfect contrary bull signal that subsequently played out. After the cut off date it is likely that newsletter writers are also starting to FOMO. Graphs below from yardeni.com.

Ma & Pa bounced but then recoiled on last week’s volatility before getting served with a massive rally by the end of the week.

Here is the CESI shown two ways. First, the stock market’s price is spiking to get back in line with CESI after over compensating to the downside in 2022 (following 2021’s stock market excess to the upside).

The second graph shows professional market analysts having hastily adjusted their earnings projections downward after grossly overstating them in 2021. By these views it looks like it’s all back to reality now. No divergences to speak of.

Bottom Line

All in all the sentiment backdrop does not appear terminal, but it is set up where a normal seasonal rally can get interrupted by bursts of volatility. Whether or not we are right on the seasonal, it’s not going to go up every day. At least for the sake of the rally’s longevity it had better not.

Global Stock Markets

The world (ex-US) has broken its downtrend channel but not its downtrend. That could happen if ACWX were to take out and hold the SMA 200 while also taking out the August high. Meanwhile, it’s global party time as in the US and it’s getting overbought.

Let’s look at some global items in comp to the US S&P 500. When you consider the firm leadership of India (not shown on this chart but purely uptrending vs. SPX) we realize that there is a world out there and much of it has out performed the US for most of 2022. China is the exception but a look at Asia in general and EM would show similar downtrends still in force. If the US dollar were to take a severe correction that would probably change.

Meanwhile, as in the US I don’t think bullish (beyond any seasonal speculation we may engage in) is the way to be as the global economy is indicated to be slowing if the Baltic Dry index means much anymore. Some say it doesn’t. I say things come and go in phases, but that BDI is in phase with the prospect of a slowing global economy in 2023. That obviously would include commodities, which could get a double whammy of fading inflation and fading economy.

Notice how BDI crashed at the end of 2021. That crash led a roll over in global stock markets. As BDI has ground its way lower the pull of this negative economic and negative inflation signal is reaching commodities as well. If BDI means anything – and I believe it does – then what it means right now is a bearish future for commodities and an ongoing bearish message for global markets.

Precious Metals

As yet, it is premature for worries about gold and silver topping from a sentiment (CoT) perspective even as gold has tacked on $150/oz. over the last couple of weeks and made notable bounces vs. crude oil and commodities in general. If that continues it would be in accordance with our best plan for gold mining sector fundamentals, which is disinflationary/deflationary as would be indicated by gold outperforming commodities and stocks as inflation fades.

Here again is the chart of gold vs. cyclical assets and an inflation gauge. The market signal last week was disinflationary but not necessarily anti-cyclical as gold is bouncing vs. inflation fears and commodities, including mining cost input crude oil. Those ratios need follow through, obviously. Gold in relation to stocks got dinged to end the week as bull endorphins got released. It’s still a potential new uptrend in Gold/SPX and Gold/DJW, however. Industrial metals are getting bid and that is in keeping with the relief we’ve anticipated for months for copper and its fellows on a strong oversold rally.

Gold/Copper ratio has taken a hard hit and if this ratio goes on to fail then get ready Wayne, Garth and a disgusting display of greed as casino patrons party on. However, at this time it’s a consolidation and at any future time that the ratio may break consolidation and if it turns up again everybody get out of the cyclical/inflationary pool.

Here is a big picture monthly chart we’ve used on occasion to show over/under valuation of the gold mining sector as defined by gold’s (miners’ product) relationship with crude oil (primary mining cost driver). What we see here is that despite a little bump over the last week HUI is still generally in line with the Gold/Oil ratio. Point being, if gold starts to rise for real vs. oil then we could strap in for a longer, fundamentally driven bull phase in gold stocks.

As yet, this chart shows no actionable call but also no negative divergence. One thing we can say is that risk/reward has been heavily in favor of reward from this fundamental indicator.

As for the nominal TA, in bursting upward gold (daily chart) has established support in the 1720 to 1740 range. That should hold to keep things well and normal for a seasonal rally (at least). RSI is getting overbought just as MACD is readying to go positive. As with stock market indexes, if gold is to have some longevity in its rally it probably needs to cool off a bit after this initial launch.

If it’s going to go bullish for real a pullback at or below the resistance coinciding with the SMA 200 (1800 +/-) would be preferable with the above noted support zone then becoming key. With thoughts of the Gold/Copper ratio and other counter-cyclical indicators in mind let’s recall that in 2016 silver shot upward, led gold and the whole play blew out by August after we raised the caution signals in May (amid oncoming cyclical economic signals with commodities and stonks out-performing gold).

If you’re a gold bug in it for the longer haul you don’t want that. 2016 was terminal and for good reason. It’s important to tune out a majority of gold ‘experts’, who will still be pumping at hysterical tops just as they were in 2016.

Silver (daily) has already made it to a key target zone where it lurks below resistance but above the SMA 200. Remember that June high (22.57) was a key failure and is now a key level that must be taken out to send silver bullish. Support is at 20.80 and there is more at 19.50 (not drawn in) should that not hold any pullback that may start. But 22.57 is and has been the key for silver since it failed 5 months ago.

HUI Gold Bugs index (daily) halted at a minor resistance area. The SMA 200 at 241 could be registered before a pullback comes about, but regardless key support to this rally is 205 to 209.

The Gold Miners Bullish Percent index resumed upward after we noted in NFTRH 730 that the pullback that was then happening was nothing to worry about. It’s a monthly chart so the most recent blue arrow is sitting there looking out of place. But last  week the price was there before the rally resumed. This move has started to turn the EMA 20 back up a bit and that needs to continue because the 2.5 year old correction came close to taking the EMA 20 to a new low, but did not.

Meanwhile, HUI/Gold ratio is still looking constructive as the miners bounce in relation to gold even as the latter has tacked on that $150/oz. Now what we – we who would buy/trade gold stocks for an extended bullish period – want to see is a trend change. The trend in HUI/Gold is still down by the SMA 200.

HUI/SPX is similar and if the miners can keep both of these charts progressing we’ll have a good internal sector signal ongoing.

Curiously, the Silver Miners ETF is not doing much vs. silver. This supports the view that one might just as soon simply buy silver or a silver bullion vehicle rather than riskier equities. I don’t see the silver miner ETF as being as pure as GDX or HUI as there is gold in the mix along with base metals, as silver is often a byproduct of base metals mining.

Gold & Silver Miners/Royalties (daily charts)

AEM is a quality miner with a good country risk profile. It broke upward from the bottoming pattern last week to test the SMA 200. It’s not overbought and the pattern measures to around 54. Taking out the SMA 200 is step 1 toward changing the trend. Currently holding.

AGI finally broke through resistance at 8.20 to 8.30. We’ve noted a sideways trend with a positive bias and now it is more positive. Currently holding.

I sold FNV too early as it had another leg up (at least) in it. But it is interesting as a quality sector leading royalty and we can consider whether the likes of FNV are guiding the way for the sector to break its general downtrend. A gap was left last week and support #1 is around 133. Then 127. This could be a buy on a pullback. On watch.

I increased the MAAIF (MAI.V) position last week (relative to the sector’s bullish move) with the idea that it’s having a tough go of it with tax loss sellers. But I’ll try to keep the position in the same general size range as the others. It’s just that it appeared MAI was on sale last week so I took advantage of that. I think it gets pulled by the general TSX-V and its highly speculative components. But for a mine developer I don’t think MAI is particularly speculative. It is a patience play, obviously.

Another I sold too soon, NGD is approaching an important juncture where the downtrending SMA 200 meets lateral resistance. On watch, but my preference is to buy a future tap of the upturning SMA 50 if possible.

ORLA popped and halted right at resistance and its SMA 200. The implication of the 2nd flag break would be a new high and SMA 200 take out. Now let’s see if what’s implied becomes reality. ORLA was originally reco’d fundamentally by Fred Lacy. Currently holding.

OGN.V (OGNRF) is a small royalty play that may have some news up its sleeve for H1, 2023. Currently holding, and will look to add on opportunity in the coming months. This one was brought to my attention by a sharp subscriber who’s paying attention to the company’s funda.

I have RGLD on watch to see if it can pull back, fill the gap it left last week and maybe test support around 99. It may pop to the SMA 200 and resistance first.

Okay well, it seems like most people I check with either dismiss or flat out dislike SBB.TO (SGSVF). Reasons being remoteness of property and length of time to production. Despite this I have SBB on casual watch for a possible spec position going forward because I believe the property itself, Back River, holds too much high grade gold not to be a consideration. Also, it’s financed and permitted.

Extensive DD doer JF advises WDO.TO (WDOFF) had a crappy quarter as expected. But results should starting improving from here and obviously as with any gold miners, a turn in the macro fundamentals for the sector could really help out. On watch.

WPM has rallied all the way to a potential limit area at the downtrending SMA 200. If positive on the sector at such time, a pullback to fill the gap at 36 or a test of support at 34 would be a buy opportunity. On watch.

Well, I saw the precious metals rallying and then looked again at sedate ABRA.V (ABBRF) in its bull flag at the SMA 50 and picked it back up again, despite reservations due to my limited knowledge of how to navigate Argentina and really, LatAm in general. I’ll let the chart (and its SMA 50) guide here as it has flagged to a point where it is a rare not overbought stock in the sector.

The Silver Miners ETF is expressing itself out of the bottoming pattern with a measurement to around 31, where clear resistance resides. There is also a somewhat disturbing gap at 24. Better to be aware of it than not I say. It could be a ‘breakaway’ gap or if volatility picks back up again, it could fill on what gold bugs call a “smackdown”.

HL was added last week as its underwhelming earnings knocked it down and I wanted some silver miner exposure. It is dealing (still constructively) with its downtrending SMA 200. It’s another that could be an upside guide if it takes that out and sets about its gap at 8 and resistance just above that.

Well, MAG finally did it. It took out the downtrend channel after holding the SMA 200. This too is a sector indication as a quality junior is snapped up by greedy hands. It’s getting overbought and I have it on casual watch. Ideal buy area would be 14 (+/-) at clear support.

SILV is looking at its downtrending SMA 200 and also getting overbought. If you want the stock – and I know several people who hold it or want to hold it, including subscriber MC, who is a geologist – a buy at around 6 could do it, assuming a positive sector view. On watch.

Commodities

While noting that I hold commodity related equities (AR, UUUU, NXE, TLO.TO/TLOFF and a couple silver stocks above) let’s keep the segment compact as I am running short of time, and with the expected fade in inflation (and the BDI signal above) commodities are not viewed particularly positively beyond the potential of an ongoing seasonal play.

• CRB Index: still intact technically, but flagging upward since September beneath the SMA 200 (the tracking ETF, DBC, is above its SMA 200). Bullish until proven otherwise, but for fundamental reasons I am not overly interested beyond the short-term.
• Crude Oil: still in a bounce posture and looking much like CRB, which is logical since oil informs CRB to a large degree. Oil/Energy have political wildcard considerations beyond inflation and the global economy, but for the same reasons I am not bullish on CRB in 2023, I will have caution on oil as well (along with most commodities).
• Natural Gas: it made the big ‘V’ bounce off the pattern we’ve noted and then got roughed up again. In having ticked a new low (below the July low) and considering its state below the death crossing SMA 50 and SMA 200, the view is bearish. *
• Copper/Base Metals: Doctor Copper and his industrial bros are sure putting on a show. Anecdotally, I see the usual pumpers getting frisky again. People who were BULLISH… no BEARISH… doh… BULLISH on Copper. Cu has been expected to test the downtrending SMA 200 and that is what it is doing. If it and its bros break through, fine, we go with it. But as yet it’s a bear market rally.
• Ni/Li/Battery Metals: Lithium futures ticked a new high last week. Watch items are ALB, LTHM and LAC. I considered adding LTHM on it in-day reversal downward on Friday but left it alone for now. Nickel futures have elevated from 22 to 25 over the last couple oif weeks. I hold TLO.TO (TLOFF), which took a hammering and is trying to bounce back. Probably tax loss selling pressure.
• Agricultural: GKX continues to wallow below the daily SMA 50. Index price is 468, down from 605 in May. Not looking good technically. Corn bottoms in December (on average) and Soybeans are bullish (on average) until next summer. But I am holding off on positioning in the Ags as they were a premier inflation play in 2020 and I am not an inflationist in 2023.
• PGMs: As per last week Platinum has busted bullish above former resistance and the SMA 200 (947 vs. current Pt price of 1038) in what could lead to a trend change. Palladium, is bouncing but still suspect, technically.
• Uranium: U sector (URNM) is attempting to undo a bearish short-term look to the charts. The price of u3o8 (futures) is still bobbing around 50 after basing and starting to trend up in 2018. This is a segment I keep interest in for the longer-term, hence current positions in NXE and UUUU (URNM on casual watch).

* All due consideration for the large percentage of times that a death cross sees an interim rally just as a golden cross sees an interim pullback before these signals often take hold later.

Currencies

Whoa! It looks like a global jailbreak from the prison built by the US dollar’s strength due to the hawking Fed. Trends are still technically down, but the Swiss Franc sure does look impulsive to the upside and the Euro seems to have bottomed. Yen is spiking as well and the whole global contingent is popping. As a side note, CHF/USD tends to correlate positively with gold, so this is a minor yet helpful indicator for gold.

That is what the currency world should look like if we are going to continue a seasonal rally in asset markets. We have updated USD and the Gold/Silver ratio enough during the week (all updates are located here). We also took a look at the tank job in Bitcoin as the crypto world comes apart at the seams. BTC 10k here we come? What a #clownshow

Portfolios

Taxable ‘savings’ account is all cash and equivalents, balanced by gold. Family related expenses (education, living, home renovations, etc.) have been very high over the last several years and this account has taken it on the chin. Hence my complete intolerance now with speculation. The situation will start to ease next June.

Trading account is all cash/equiv. at this time.

Roth IRA (non-taxable, no contributions) is in the seasonal rally game with gold stocks, healthcare related stocks/ETFs and a few commodity related stocks. I am aware that there is little ‘pressure’ to speculate because cash is… Beuller? Cash is paying income now. FYI, 80% of CME Group traders see a .5% rate hike on Dec. 14th.

I will adjust positioning as needed but am giving the gold mining sector some benefit of the counter-cyclical doubt into 2023. Again, you may hear all kinds of things out there in the wider financial analysis world, but here you will hear about how a disinflationary, counter-cyclical economic backdrop is best for the gold mining industry.