NFTRH 743

Into the Sunset FOMC Rides…

…with man, machine, a crazy payrolls report and the usual mayhem in its wake we end the week as it began, with respect to the market’s macro signaling…

Well that was an eventful week. The Fed raised the funds rate by .25% as expected. Man and machine alike were whipsawed in its wake and then on Friday, the icing on this volatile cake… January payrolls: +575 K.

Yet the bond market continues to signal disinflation after that grand, theoretically inflationary cost-pushing employment number. Let’s not worry about the headlines. Let’s always be aware of what the bond market is saying because in my opinion, it is the smartest market out there in its signaling, with respect to the macro backdrop.

I got flamed a little by a commenter who did not like that I announced the 575k number and did not immediately start railing about false government numbers. That’s a good reminder that there are utopian idealists out there putting their emotions before cold market management. So especially in a chaotic, sometimes confusing environment like this it is all the more important to stay grounded and on track with continuing analysis as long as said analysis remains valid.

Regarding the above noted bond market signaling, the analysis is still valid and it goes like this: disinflation (potentially w/ a mini Goldilocks phase) first, a possibly dramatic decline in inflation expectations next (another way of saying “deflation scare”). NFTRH is not the service that is going to tell you the ghost stories you want to hear, affirm your biases or otherwise apply itself to anything but the reality that the indicators (macro, TA, sentiment, etc.) advise.

Had the alarmingly positive payrolls report instigated even a faint representation of renewed inflation fears I’d be on alert to alter the view. But instead, the week closed thusly from the vantage point of one inflation expectations gauge. While I hesitate to apply traditional TA theory to an indicator like this, it sits on a neckline that would imply a breakdown with a little more of a decline.

To paraphrase Babu Bhatt, “where is inflation expectation Jerry? SHOW me inflation expectation!”

US Stock Market

First let’s take a brief look at the sentiment backdrop, which became unhealthy prior to Friday’s whipsaw. Dumb and Smart indicators are near opposite to where they were when we began managing a coming bull phase back in Q4. This is a warning that Friday’s pullback was probably not just a one day thing. That’s the positive view. The negative view is that the bear market rally may be over.

This daily chart of SPX has not been altered since we reviewed it in an update on Thursday as it broke above resistance. In the update I left the red resistance line red despite the poke above it because an in-day move does not a break of resistance make. But the status has not changed. SPX is on a bear market rally, technically. The first objective is to fill the 4219 gap and the next, less likely, is the weekly chart pattern (also included in the update linked above) measured target of 4715.

To keep it a nice, neat bear market SPX should fail at or below 4300. To make it a really wild, bear killing bear market it could test its all-time highs by reaching the weekly pattern’s target. Of course, that would also force the “bear over” narrative to be considered as well.

Back to the daily chart, we have a fledgling Golden Cross of the SMA 50 above the SMA 200. Let’s see if that starts getting touted in the media to Ma and Pa going forward. Happy days are here again!!?? I don’t think so. But as always, we should just move forward with flexibility.

NASDAQ 100

Tech and Growth stocks would be prime beneficiaries of a Goldilocks environment if she did not expire on Friday. Big Tech, Cloud/SaaS, Cathie Wood’s ARKK and others put on big moves amid expectations for a softening Fed and disinflation. On Friday all of this stuff got clobbered. As it stands now, it’s just short-term gap filling time, technically. As applied to my two brief trades in the richly valued growth stock Datadog (DDOG), I am not buying this in the least as an investment atmosphere. But Tech/Growth is still alive as a Goldilocks play. If “dis” turns to “de” flation, all bets will be off. If “dis unexpectedly turns to “in” flation, we’d have to revise current plans.

Semiconductors

Frankly, SOX has a chart I’d buy as a bottom feeder. Indeed, I did buy it (ASML, AMAT & LRCX) but now hold only AMAT. The measurement on this chart rhymes with the less favored scenario noted for SPX, which is a test of the highs. But this is a chart bottom feeders would be (and have been) all over. With the poor contrarian sentiment currently in play, let’s plan on a potential pullback here to test the neckline breakout. Such a test, along with the Golden Crossing (ha ha ha) SMA 50 and SMA 200 should help provide answers as to whether the bear market rally (BMR) is over or just set to refuel for a real bear killer of a BMR.

US Stock Market Bottom Line

Sentiment advises that probabilities are that Friday’s pullback was not a one day wonder. It is more likely that a deeper pullback has begun (using SOX as an example, we’d watch the green neckline and moving averages as important support). If the pullback continues then a decision point will come soon enough as to whether it’s “BMR over” or “BMR gonna kill the bears before it’s over”. I would not want to get caught guessing. Cash is paying income, after all.

Global Stock Markets

EM, Asia, commodity/resources countries would theoretically be most impaired by a strengthening US dollar. We have been anticipating a counter-trend rally in Uncle Buck (updated in the Currencies segment) and that might have begun on Friday with false breakdown on Wednesday, which was reversed on Thursday and got upside follow-through on Friday.

While many global markets cling to uptrends vs. the US market (SPX), most have pulled back hard and some are downright failing (in relation). It all makes sense, because the balance of the world was impaired by the USD bull and outperformed during the USD bear phase that began last September.

But we are only managing a bear market rally (BMR) in USD and using EEM as an example, the chart looks much like the US Semiconductor index. In other words, a bottom/rally situation that may not be complete. But a pullback is likely in the interim.

One notable exception is the UK, which seems to have made a habit of often going its own way after it BREXITed. The UK market (SPUK) actually ticked a new high on Friday.

Global Stock Markets Bottom Line

Likely to pullback with a USD bounce/rally and likely to do so even harder than US markets for the same reason. The BMR in global stocks is not technically indicated to be over, but in my opinion and for my money, it’s currently a ‘no touch’ situation.

Precious Metals

Ah, the pet rock as a friend calls it. “THEY” attacked gold on Friday! How dare THEY?

Gold is fine, in part because it reversed and dropped on Thursday and Friday. We should always remember not to be sloganeering members of the righteous gold herd. We should remember that the herd, regardless of how monetarily self-righteous it views itself, is a herd nonetheless. One of the thickest, most ardent herds.

Gold is fine because the inflated macro did not revive itself by the bond market’s inflation signaling. It was a jobs report. It was strong. It will probably be revised one day as the flaming commenter to my ‘Payrolls’ post noted. It was noise. The view continues to be disinflation (and a possibly more persistent Goldilocks after a broad pullback and sentiment reset) first, and uncomfortable decline in inflation (i.e. deflation scare) second.

Silver, gold and the miners were leaders (but not THE leader, which was copper/industrial metals) of the Q4-Q1 joy fest to this point. Our plan has been that when the precious metals get cracked for a healthy correction they would lead the other stuff down as well. On a compact time frame, the PM complex (and some commodity/inflation stuff) reversed on Thursday and the broad markets got dinged on Friday.

We did a ton of micromanagement of the correction objectives in updates last week, so we can take a break here and simply summarize the situation.

HUI Gold Bugs Index (w/ GDX)

Short-term breakdown that is already well on its way to the 230 (+/-) correction target, which would fill the GDX gap below 29 (let’s note here that GDX also has a gap at 22.72, which I don’t expect to fill but which we should be aware of in case things get ‘off the hook’).

Back to HUI, the current price of 243.87 is just above the SMA 50 (240.65 and rising) and you may recall that 240 (+/-) was the resistance area we wanted to see HUI take out as an important forward technical indicator. It did so and it would be nice and neat for it to hold there on this pullback. But the problem is, this sector especially, always seems to go at least a step further than “nice and neat”. The takeout of 240 and rise to 267.35 may act as a bullish sentinel for the future.

Meanwhile, we watch for the 230 area (+/-) as the Golden Cross (as noted in updates using the daily GDX chart) does its thing in a temporary failure to do what naive participants had hoped. Long-term, I see no reason why our target of 500 is not still valid. Indeed, let’s review the monthly chart with that in mind. It sure does quiet things down, doesn’t it?

We are 100% on plan as long as that 230 (+/-) area holds up as support. Below that we’d have to reevaluate.

Gold

Big time smackdown! I’d advise us all to tune out the noise. Poor old gold was no different than any other asset market that got smacked last week. It was not the one world government. It was not the banksters. It was not the Fed’s clandestine operators. It was just time for a correction. Gold got dropped from 1975 to 1876 in a day and a half. 100 points right off the top, baby. If you’re prepared for it and/or if you hold the stuff over the very long-term as I do, it’s like it did not even happen. Let the ghost story tellers tell their tales.

The 50 day average is at 1846 and that could be a short-term rest stop. But clear short-term support begins at 1820 to 1830. Then comes the SMA 200 at 1785. After that, if applicable, the next support area is 1730, which I don’t currently expect to be hit. Let’s also include the monthly chart of gold (and silver).

It’s a large Cup & Handle pattern with one of the sloppiest handles you’ll ever see. The false breakdown, which you may recall I for one took seriously while it was happening, actually preceded a big bull move. As a side note, I didn’t hear too many conspiracy theorists calling that market manipulation at the time. No, it was righteous gold shaking off the manipulators! If these yarns weren’t so destructive to naive bugs it would be funny. Hilarious, actually.

Bottom line is that a test of the daily SMA 200 noted above (1785) would line up with the support defined by some highs from 2011 and 2012. Let’s call that our key support area going forward. As a reminder, the technical implication of this chart, if/as it eventually resolves bullish, is 3000+, which could be out in 2024 or 2025.

Silver

The silver price finally rolled over from the consolidation I had expected a rollover from. The problem being it persisted long enough and even compromised its “rollover” look before doing so, as it had me questioning whether or not the rollover would come. Yes, your letter writer can get as technically whipsawed as much as the next woman who stares at charts.

Silver has already dinged the top of the 22 (+/-) area support, closing at 22.41. But we have also noted there is support at the 20.50 to 21 area. The “sentinel” concept applies here as it does for HUI’s 240 area. It’s like these markets have left cookies above for future reference. Silver can lose 22 but bigger picture technical good has been done after it failed 3 times to take out that level and finally did so on December 1.

Let’s revert back to the log scale monthly chart (HUI and Gold above are linear scale) for its elegant portrayal of the Andrews Fork TA novelty. If silver were to pull back to 20.50 per the above, it would keep the price within the fork. Ultimately though, a higher low to the 2022 low of 17.40 is need to keep the bull prospect going. Such an event would line up with a less expected tank job by GDX to fill its gap at 22.72 as noted above. But it would keep the bull prospect going even as many a bug gives up the ship (I myself would be shaking my head as well because at some point this sector goes from challenging to downright abusive of its adherents).

Commitments of Traders

In NFTRH 742 we noted that the CoT data for gold and silver were ripe for a pullback and such a pullback would be within an intermediate bull phase, while also noting that CoT for USD was set up for a bounce/rally within an intermediate bear phase. Check, Check & Check!

There was no CoT data release last week but you can bet that the alignment had worsened from a sentiment perspective into Thursday’s upside burst and downward reversal. So with no ghost stories or hype we can just realize that right here in these pages we were prepared for what happened. Let’s continue to manage markets like adults as best we can rather than like children, as some do.

Precious Metals Bottom Line

While I personally got mentally whipsawed a bit (no big surprise there) along the way, the plan was for an interim sector correction and that has come about amid over-bullish sentiment, daily chart overbought readings and a logical reversal event week that included FOMC and a wild payrolls report.

I consider it good news that GDX did not fill any, let alone 2 or even 3 gaps before correcting. In other words, they are sitting up there waiting for the survivors of the current correction (moderate or otherwise) to come and fill them. The technical positives made by the sector into last week should provide the platform after the correction plays out.

The initial phase of the rally is over but we remain on the bull market theme, especially for the gold miners, which would leverage the gold price that in 2023 is expected to resume its out-performance to risk ‘on’, cyclical and inflation sensitive stuff. In other words, as inflation morphs to disinflation and potentially to a precipitous drop in inflation the setting would be right for gold miners to take fundamental advantage as the product out-performs cost inputs like energy, materials and humans, and psychological markers like stock markets, which mainstream investors have been trained for decades to adore.

But… patience. Also, while not a primary expectation please keep in mind the potential extremes we’ve noted above for the correction in the miners and metals. Again, we have to be adults about this and part being an adult is to bear information that may not be comfortable even if it is low probability. We can do that, eh?

Commodities

Well, let’s just say my interest has gone from minimal to nearly none at all. While I still hold a couple commodity related stocks (Uranium prospect NXE and Nickel prospect TLO.TO/TLOFF) I will have no problem at all dumping them this week if things go that way. NXE and the Uranium sector as a whole got whacked to short-term support that needs to hold here and TLO has been bear trending (and printing me a paper loss) forever.

CRB Index: Once again failed a climb above the daily SMA 50. As such the intermediate downtrend remains fully intact because said SMA 50 is trending down and the SMA 200 is rolling over.

Copper/Industrial Metals (GYX): The heretofore stars of the Q4-Q1 bear market rally got cracked last week. Of course they did. They remain in intermediate uptrends, however. Copper’s key support comes in at the downtrending SMA 200 at 3.80 with the uptrending SMA 50 at 3.94. As a side note, yup, the 50 golden crossed over the 200 and then of course the thing dropped. GYX is also in a technical uptrend that like copper has used its SMA 50 (461.92 vs. current price of 474.47) as support.

Crude Oil & Natural Gas: So much for the bullish Inverted H&S on WTI Oil that an inflation promoter inflicted upon naive investors * back in early January. I have turned over a new leaf in not directly critiquing other analysts who are not of the larger media, but I exhumed the post highlighting that bullish promo (but not identifying the source) from the trash bin. I mean, I want to be less of an jerk about it, but I don’t want to be vanilla! The guy wrote it, put it in Ma & Pa’s naive and greedy faces, and should own it. I hope he does. Moving on, in failing the SMA 50, oil has held within its intermediate downtrend much like CRB, and also like CRB, is turning its SMA 200 down as well.

* Again, it is not being wrong that I critique. Otherwise, I’d have enough material with which to criticize myself often enough. It is the style of writing I abhor; a style designed to titillate less experienced investors, and is a tradition in the newsletter industry where writers must always seem like they have the answers (direct from their crystal balls).

Gas was highlighted in this NFTRH+ update for its seasonal average that bottoms in February (all due caveats on seasonals, which are under no obligation to play out in any given year), its over-bearish public sentiment (contrary positive) and its net long Commercial hedging data (also contrary positive). While a falling knife, it is positive on a risk/reward basis, much like we were noting for gold during its correction through much of 2022. I did not buy Gas (UNG) or the stock I watch for it (AR). But they are both on casual watch.

Palladium & Platinum: Palladium is firm in its downtrend. It is also firm in its negative global economic signaling. Platinum got cracked badly on Friday and is a tick away from making a lower low (to the December low) that we noted it should not make in order to keep its intermediate uptrend going. Pt has important support in the 920 to 940 range (current: 980). No current interest in either of these.

Uranium: This man stared at the charts and thought that maybe the sector will make a move. This man also stared at the long-term u3o8 price chart last week and saw a larger move out of a bottom/base that was consolidating. The consolidation continues and the sector is not broken. But if/as inflation bugs paint Uranium with that brush as they do gold, I’d have a measure of caution on it in the near-term.

Lithium, REE, Specialty Materials: Stocks like ALB, LTHM (each of which I sold during the spike rally) remain conspicuously aloft, but are of no current interest. REMX and MP got dinged on Friday, but are not broken. The issue is that the rallies in these items came out of neutral trends in Li stocks and downtrends in REE/Specialty stuff. No current interest.

Agricultural (GKX): Soybeans, which we ID’d as seasonally bullish into next summer are still uptrending. I sold SOYB and really don’t care. For now I can probably get the same performance (without the risk) from cash. GKX put on a rally but is neutral trending at best. Ags are a bit of a wildcard where the inflation trades go, but while projecting a disinflation phase (at best) I have other things on watch before this.

Currencies

Ladies and Gentlemen, I give you… UNCLE BUCK!

Again, we were not surprised. Last week (and for several previous) we noted the positive divergence by the Gold/Silver ratio to USD and used this weekly chart last week to plot a possible course.

The daily chart shows that a theoretical A-B-C upward bear market correction could see its ‘A’ leg find resistance at the convergence of the 38% Fibonacci retrace level and SMA 200 around 106 if it does not stop at resistance #1, which lines up with the SMA 50 (103.69 and trending down).

Whether the first leg of a bounce ends at the SMA 50 or SMA 200 will likely determine the intensity of the bounce/rally. In other words, if it terminates in the 103s it will likely be a weak affair. If ‘A’ terminates in the 106s it will likely be something strong and more damaging to financial markets, especially the anti-USD and inflation stuff.

Meanwhile, the cavalcade of global currencies has not aborted its intermediate uptrend just as daily USD above has not aborted its daily downtrend. But if Gold continues to outperform silver I would bet USD will get more rally and its global mates would break down from the intermediate uptrends.

Note here that gold’s currency companion, CHF, got whacked but maintains trend. Note also that the Canadian and Australian “commodity” currencies got cracked but hold trend as well. Note as well that the British Pound made a move below the SMA 50 as the UK stock market bulled. That’s the old ‘currency down/market up’ playbook by which most global markets are currently not operating.

Portfolios

Savings Account: All interest bearing cash & equivalents, balanced by gold.

Trading Account is sitting on its hands in cash.

Roth IRA (non-taxable, no contributions)

Cash and equivalents are at 85%. Considering a gold miner hedge is in there, I guess it’s okay. But cash is now paying another .25% on top of its ‘no lose’ proposition. I doubt I would ride a deeper pullback at 85%. I like cash. I like a ridiculously high percentage of it until the picture clears.

But as it stands now favored gold stocks (AGI, AEM, MAI.V, OGN.V along with silver stock MAG) are held with DUST guarding them. As for non precious metals, the bias is toward Biotech/Healthcare/Growth. But that’s tentative, given the market’s poor sentiment profile and vulnerability to further pullback.

All in all, I’m just ambling along letting the market tell me what to do (and trying to listen).