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Change is Coming…

…and I think it will be deflationary. The current condition is not sustainable. The public is absolutely hopped up on inflation as the cost-pushed after effects of it continue to apply pressure and hit the headlines. I got schooled by commenters to my article last week Inflation & Commodities (excerpted from NFTRH 745, as published at SeekingAlpha) that had a negative message about commodities in the face of what is being called inflation today. The message is something like ‘buy commodities, don’t listen to doofuses like this guy’ (your friendly letter writer).

You know that SA comments are ground zero for contrary indications, right? I clearly recall in early 2009 projecting the coming inflation and rising crude oil and copper prices being schooled by a deflation scholar at that very same venue. The herds are always wrong at important turns. They will be wrong again at the next one.

The 10yr-2yr yield curve is inverting to the depths last seen in the late 1970s and early 1980s. Back then was a volatile series of down and up spikes in the yield curve coming out of the 1970s inflation problems. Then after a couple of recessions things settled into a disinflationary/deflationary macro that put gold, silver and commodities on the outs for 20 years or so while stocks generally benefited from the extended Goldilocks situation that came courtesy of Paul Volcker’s extremely heavy hand in fighting the 1970s inflation through raising interest rates.

But first gold rammed upward and finished blowing off in 1980 at around the same time as the first up spike shown on the YC above. Then another hard spike down in the curve and gold was pretty much done for 20 years.

I do not discount another hard upward ram job in gold when the yield curve stops flattening and/or starts to steepen. I will not go so far as to say a grand new 1980-2000 style Goldilocks phase in stocks will come of it, but stranger things can and have happened. As for gold, it began rallying in anticipation of a new curve steepener and blew off into it in January, 1980. Here is a look back at gold during that phase.

As for the current long-term chart, consider this. Gold became overbought in 2020 as a first mover in the recovery out of the pandemic crash. Now, not too far from its all-time price highs RSI and MACD have relieved overbought situations and remained in positive territory. At the least, there is fuel there for an epic rise, which we have targeted to 3000+. But we should not view this with greed. Most gold bugs pretend they are sound and honest money stewards while actually being pom pom waving casino patrons. That is why they cheer, root root root for the home team and come up with anti-bankster, pro-gold slogans alike.

Gold is about holding monetary value over the decades of Keynesian degradation of modern markets. It will get where it is going not because it will be pumped, but because it will signal the stress on said Keynesian manipulators. Why on earth do you think the Fed is so desperate to contain the effects of the inflationary mess it created? Okay, purist gold bug moment behind me, let’s just say that this chart – regardless of whatever short-term volatility may befall the Cup’s sloppy handle – is ready for a major move up should that be the play when the yield curve finally stops inverting and starts steepening. Not a prediction, but definitely an analytical possibility, if not probability based on history and current setups.

But but but… deflation! No, not really. Deflation scare, probably. But outright deflation is a lower probability situation. Frankly, I still have little clue whether the system is going to end with a hyper-inflationary bonfire or a deflationary swirl down the drain. But I am going to stick to the near-term view that the Fed is going to keep hawking against inflationary effects until something breaks. It’s the only [blunt] tool they have in their stupid tool box. They may need to break the economy that they created through the magic of inflationary policy. Got to love the insane core of Keynesian philosophy.

US Stock Market

The rally is not broken. But if we are going to continue to call it the “Q4-Q1 rally” as we have since Q4, 2022 then we are also going to be on watch for its end. I want to short. Boy do I want to short this mess. But when I look at the still utterly bombed out areas in Tech, Cloud and Growth stocks, I think ‘has the bear market already completed?’ That would also be the more Goldilocks (aka gently disinflationary) stuff. Positions I either hold or keep an eye on in that regard are DDOG, CRWD, FTNT, ZM, ZS, ANET, etc. with the security related items like CRWD and FTNT a special focus. These are by and large great companies with solid current and future business and they are less economically sensitive (the cloud security stuff, anyway). As previously noted, I’d watch the likes of MSFT, AMZN, AAPL and other giants hated by the average bear. Again, only if the rally avoids breakdown and postures to continue.

As long as the Semiconductor sector keeps leading, it too is a special focus because Semiconductors go into everything from Medical Equipment to Aerospace to our home appliances in addition to the traditional end markets in computers, phones and other devices. Semi is everywhere.

Speaking of Medical, broad Healthcare ETF, the defensive XLV is taking a bit of a breakdown from what had looked like a normal consolidation within a technically intact situation; and yet the XLV/SPY ratio is posturing to bottom here. This is bad market signaling if these short-term trends follow through because as you may recall, a rising XLV/SPY ratio is a bear market and negative economic signal. Indeed, it was one of our earlier signals for the 2022 bear (and has been for previous major bear markets). So, Semiconductor leadership is saying something positive and Healthcare leadership is saying something quite different.

Typical of this market and all of its signals at odds with each other. It’ll shake out folks, of that there is little doubt. But until then we need to keep gauging and weighing probabilities. Maybe it is saying something like ‘long Semi, short broad’ for all we know. Maybe it is saying ‘if Semi cracks, short the hell out of the whole thing!’

As for the broad SPX, the daily chart shows the index having dropped from resistance as it should have, given the over-bullish sentiment we had been noting into and through that minor top. The 4219 gap remains unfilled and the index price is testing the daily SMA 200, which is just above the lateral support we’ve been noting at 3900.

I covered my short (SPXS) and simply will not short a chart like this, bear market or no bear market. A breakdown below 3900 would gain attention and a lower low to the December low (3764.49) would very likely signal ‘bear rally over’. Until then, day traders can trade it daily and I will sit back and enjoy the show, boring though it is. As it is I am holding a few bull items and would add more if this thing looks like it’s got another leg in it to at least fill the 4219 gap and test the August high.

Then of course, there remains the outlier potential of a bear market test of the all-time highs. Silly? Yes, unless it happens, then it would not be so silly to active bears demanding that stocks should have gone down, not up. On the negative side, the pullback in SPX has brought it to a test of its severely down-trending neckline. So it would behoove the daily SMA 200 and/or 3900 support shown above to hold if the bull case is going to endure. In other words, we’re at an important decision point on SPX.

Meanwhile, insofar as I’ll remain constructive on stocks (lose the parameters noted above and I won’t) I am going to stick to the potential resumption of Tech leadership theme. Here is a picture of long-term Tech (QQQ) vs. Broad (SPY). If Tech is going to re-take leadership as a long-term trend, the ratio is probing the zone from which to do it. This does allow for one more drop, however, within that intact big pic.

Global Stock Markets

Not much interest here as long as USD is on its counter-trend rally. Isn’t it funny how inflation, the very thing that is supposed to bring on the “death of the dollar!” is the thing that is driving USD? That’s because the market knows that the Fed is being compelled to hawk against the inflationary effects currently coursing through the economy.

Some global markets have shown the slightest signs of recovering trend vs. the US market, but most anti-USD sensitive items like Emerging and Asia are still pulling back in line with USD’s rally. That is normal and logically as it should be. The World (ex-US) ETF is just now dropping into the lateral support zone at the top of its bottoming pattern. It is starting to get oversold and we can allow for further decline to the SMA 200 to keep the rally intact, but as with SPX above, a drop below that marker and the December low would flip things back to bearish.

Precious Metals

Let’s look at some macro considerations.

  • Gold vs. Stocks (neutral): Gold/SPX has reclaimed its uptrending daily SMA 200 and is somewhat constructive. Gold/ACWX (global) is neutral at best trending down since October. This implies that if global is anti-USD gold is slightly more so.
  • Gold vs. Commodities (neutral): Gold is in an uptrend vs. CRB that began in November, but has been weak for most of 2023. The same can be said of Gold/Oil. Gold/Copper bounced hard last week as copper finally got cracked after a head fake technical move up and out of its flag. Au/Cu does, however, remain in a downtrend from July, 2022. Gold is on a hysterical rise vs. Palladium (owing completely to Pd’s hard bear market) and is also well elevated vs. Platinum. Aside from copper, gold’s ratios to other metals do not seem positive at all for the global economy.
  • Gold vs. Silver (bullish): Not bullish for gold or gold stocks, but bullish for the Gold/Silver ratio and its fellow market liquidity killer, the US dollar. There will likely be pressure on broad markets as long as both are rising. An important factor here is that the GSR flies in the face of what most gold bugs think. They think inflation. But the GSR and USD rise most impulsively when risk ‘on’/cyclical markets crack and crash. This is why we watch for the Hoye squirrel to maybe find his “post-bubble contraction” nut this time after several failed nut finding exercises (e.g. 2008 crash met by inflation, 2020 crash met by inflation and even the 2000 bear market eventually met by inflation). What we will look for is a steepening of yield curves to indicate that just maybe this time might be the real deal. But with the Q4-Q1 broad rally intact, we’ll tap the breaks on that just yet.
  • Though we don’t often highlight it (I don’t feel it’s as important as other macro indicators) gold vs. global currencies is a consideration and the metal is stable though not yet moving upward vs. global. Ref. this update for the most recent comments on the support parameters (next support 1800-1820) for nominal gold (and silver), which closed Friday at 1817. Here is gold in global currencies (daily chart).

Looking internally at the gold stock sector the BPGDM shows that the downturn started before an extreme upside was registered after the ‘buy’ at the last extreme downside. Positive interpretation: there is higher to go and this is just the interim pullback originally envisioned back in January. Negative interpretation: a bear market trend is resuming in the BPGDM.

What we have used in the past to smooth out the noise is the monthly EMA 20 (green line), which came within a hair of breaking to a new low at the last sector ‘buy’. But this indicator needs to get a new rally that will keep the EMA 20 from dropping to a new low (below the 2022 low) and eventually turn it up or the sector is cooked. I am not worrying about it at this time, but I do not control the markets. I just try to interpret what the markets are saying to the best of my ability.

Referring to the GDX daily chart guide last updated on Friday, here we see a gap down and a little Hammer type candle. Okay relax, SPX and other markets also hammered to end the day. But it is a support area, minor though it appears. While remaining heavily cashed, I did add individual miner ORLA, which has thus far remained intact to an intermediate uptrend while most others tanked. Lose that trend and I’ll lose ORLA, but I just think the future stakes in the gold mining sector (ref. opening segment yield curve and gold discussion) are too high to be completely out, even with the sector charts still tenuous at best.

GDX is going to put on an oversold rally and that means it could either be a spike prior to a coming low (and potential lower gap fill in the months ahead) or a recovery into the bull market after a vicious post-Golden Cross (ha ha ha) shakeout. But what is happening right now is a hard short-term downtrend fully in effect. Could change tomorrow, could get really ugly and by extension, could also provide a forward table pounding buy opportunity (depending on what’s going on in the macro around the sector). Simple, eh?

Assuming an intact macro view for gold stocks, my personal favored items are what I hold (AGI, BTG, OGN.V, MAI.V, ORLA) and I am going to plan to keep the list compact, adding to these items on opportunity and considering an AEM here or a MAG/SILV there.


  • CRB Index: Maintaining an orderly and unspectacular downtrend below the 50 day moving average. Turning the major daily trend (SMA 200) down as well. Not actionable without a rise and hold above the SMA 50.
  • Crude Oil: In a similar downtrend to the CRB index on which it exerts significant influence. Not actionable without a rise and hold above the SMA 50, and is also rolling its SMA 200 over.
  • NatGas: I bought it, waited through one day of trap door bottom fallout, sold it and then of course came the bounce. A pure hard downtrend that of course was going to bounce and of course was going to clown me. Moving on…
  • Energy Sector: The states of oil and gas make me want to short energy. But I am telling myself I am better at collecting cash interest income than I am at shorting (for now) as a reason to hold off for now. I did look at the OXY chart for a subscriber last week and saw what looks like a vulnerable topping pattern, however. I am tempted about that and other aspects of energy, AKA the last inflated man standing.
  • Uranium: Last week we noted that u3o8 fund SRUUF looked constructive while the U sector did not. Well, the U sector continued to break bad (not broken down but not attractive) and SRUUF finally got pulled back too. Nothing looking actionable here at this time.
  • Copper/Industrial Metals (GYX): Dr. Copper finally cracks! This is mean spirited market popping charts one day and then 2 days later cratering them. Copper went from holding the SMA 50 and apparently embarking on a next leg up to getting hammered and losing the SMA 50. GYX (index) got creamed and broke below its SMA 200. Could this be it for Doc and the base metals, which have led the Q4-Q1 rally? Could be. Follow through needed (and desired since this is a segment that has stood in denial of our counter-cyclical, disinflationary/deflationary plan).
  • Pd, Pt, Li and REE: Pd & Pt got cracked hard, and are technically broken and breaking back into a downtrend, respectively. Producer SBSW got creamed back to its lows. Li stocks like ALB and LTHM have been hammered. REMX is riding its downtrend below the SMA 200, although preferred watch list item MP got a boost above its SMA 200 and looks constructive as it beat on earnings. The reason it is preferred, you may recall, is that it is a strategic US based producer of critical materials and that ain’t nuthin’! On watch.
  • Ags (GKX): GKX made an ugly drop on Friday, taking out the SMA 50 after failing to test the SMA 200 on the upside. The SMA 200 is trending down and this is not a good sign for these commodities even as associated services push prices up for the consumers consuming them.


The 2 riders of liquidity destruction are breaking the inflation trades, one by one. At 105+ currently, USD is eyeballing our target at 106+. The Gold/Silver ratio broke to a new high. These moves are 100% consistent with the stress going on across the Q4-Q1 rally items. They are not broken to the downside and these may have limits to the upside. But there is no rule that this may not be the start of something really bad. It’s just that as yet USD is still well below 106 and the Q4-Q1 broad rally is clinging intact. If these statuses change, so will the analysis.

us dollar, (USD and Gold/Silver ratio)

The global cavalcade of paper is uniformly dropping below the SMA 50 in anti alignment with USD’s break above its SMA 50. Dear DoD cultists, who again is still the global reserve currency?

global currencies

BTC/USD (weekly) is still postured to test resistance around 30000 and I am still not interested unless a) it takes out 35000 on the upside or drops to target below 12500 on the downside. I consider Bitcoin a pure speculation made all the more suspect by the damn gold bug promoters (hello Twitter influencers like Larry and Max, not to mention former Kitco video maker Daniella) who latched onto the pitch into the bubble highs. #gross

Market Sentiment

  • Heretofore briskly bullish NAAIM finally took a hard sentiment pullback last week with the market’s drop out of consolidation.
  • AAII also took a harsh pullback to its enthusiastic spike leading into last week. Makes sense.
  • Investors Intelligence eased as well, but less dramatically. Newsletters need to keep a more consistent dialogue going whereas these other indicators are what individuals are actually doing.
  • Dumb money indicators have made a sharp pullback as well. We will soon find out whether the current market pullback from over-bullish sentiment is a blip within the Q4-Q1 rally or the end of it. As yet, it’s intact.
smart money and dumb money sentiment

Sentiment Bottom Line

It’s lining up nicely with the technical parameters in US Stock Market segment. We are either going to marry technical support holds and a sentiment hold as represented by the graphic above, or we are going to negate them. It’s coming time for a market decision point, folks.


Savings Account: All cash, balanced by gold.

Trading Account: All cash.

Roth IRA (non-taxable, no contributions)

IRA is 90% cash, along with a short-term T-bond, all paying their interest and providing a way station or a waiting place… for people just waiting (to deploy and capitalize). Within this very light exposure the focus is on gold stocks, but also BioPharma, Biotech. DVAX was knocked down on earnings but I see no reason not to hold it (and potentially add) so I’ll take the paper loss as long as the bear market and its penchant for throwing everything out does not resume. It’s growing and it is also shedding the COVID-19 vaccine momos.

There is exposure to Semi Equipment and also Cloud/Security. CDTX is still held, minus the original capital used to buy the stock.

The Waiting Place
Roth IRA

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This Post Has 4 Comments

  1. Steve Hahn

    For your future consideration could you elaborate a little on the psychological explanations for gap-filling pressures. Why would such a target be more compelling than plain vanilla support and resistance, which are easier to understand? Is it a strong memory of “the price got away from me” mentality that the market is waiting to jump on? Is there strong statistical evidence?
    thanks, Steve

    1. Gary

      Steve, I don’t have a scientific explanation for it. But I have noticed over the years the tendency for most gaps to fill, sooner or later. What I *think* happens is that gaps represent emotional momentum, either up or down. And I do believe that emotion is almost always punished or closed out in markets, one way or another or at one time or another.

  2. Armen

    In the spirit of open mind: sitting in cash wasn’t a good choice in late 70s. Gold, BGMI, SPX rose together with FFR

    1. Gary

      Absolutely agree. But at this time it is a perfect way station when evaluating near and longer-term backdrops.

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