NFTRH+; review of the longer-term market situation & detailed short-term parameters reviewed (important stuff, according to this nerded out geek)

I hate to be swayed by a man’s jawbone, but you will recall that last spring said jawbone did a lot of damage and launched a bear market. So I will respect the jawboning man who’s been forced into his hawk suit by the effects of the inflation he created. But I will also respect the short-term parameters (to the Q4-Q1 bear market rally) below. But it is important for us to remember those words… “bear market rally”. When it turns back to the bear I still expect deflationary pressure, not inflation.

Fears of inflation’s effects are forcing the Fed’s hand and that hand is heavy. As noted in this morning’s post, the Fed Funds rate tends to overshoot, break things, and create bear markets. Add that to a future yield curve steepener and other indicators we’ve talked about lately like a future upturn in Junk bond spreads, the drop in True Money Supply (YoY), the gross over-do in M2 (now rolling over) and the Fed’s own bloated balance sheet that are being addressed, and the next bear leg – if I am right about an ongoing bear market – could be more savage than many anticipate (our own ‘normal’ SPX target is 3200, but that could be a mere stop on the way to much lower levels).

Okay, now we’re talking about the Bob Hoye “post-bubble contraction” scenario that would one day be very positive for the gold mining industry. But it’s not here yet and gold stocks have been merrily rallying with all the other cyclical stuff. As I’ve belabored til I’m blue in the face, they are currently nothing special. To boot, the fundamentals have degraded.

On to the short-term summary:

US Stock Market

SPX (current price: 3986) is intact at its SMA 50. Indeed, all it did today was drop to fill an upside gap from last week. But if I am going to stay with this rally (cash is currently 89% as a ‘no lose’ position with Powell forced make it even better) I want to see the parameters we’ve been managing hold up. SMA 200 is at 3940 and short-term support is 3900.

The bull killer parameter is the December low (3764). A loss of that gets me thinking about shorting sooner rather than later. Why short when cash is paying out? Well, we are allowed to speculate both ways and technical damage plus the significant downside the macro indicators may imply would be signals for speculators to speculate bearish. Also, when a deflationary liquidation comes the Fed could panic and cheapen money once again with a lot of room now from here to ZIRP-ternity.

But for now, it’s still the Q4-Q1 rally theme and I am looking upward at the 4219 gap we’ve been tracking on the daily chart. There is a smaller chance that the ridiculous projection to test the highs (target: 4700) could still be in play. But this bear rally is not the main play for 2023 in my opinion.

Insofar as I’ll remain long or add more longs, I want the Goldilocks stuff (mainly Tech) and the Semi stuff as long as their leadership holds up. Today it held up. So on to the bond market…

Treasury Bonds

The signaling today was a microcosm of Goldilocks. T-bill yields and the 2yr yield rammed upward today because of course they did! The man spoke and he’s on the short end. Short-term bonds got dropped hard. But interestingly, 20+ year (TLT) and 7-10 year (IEF) recovered and were positive. That means the yield curve inverted even further today. Remember, it’s the coming steepener that will likely bring the pain. So Goldilocks lives, for the moment at least.

USD & Global Stocks

Guess who rammed up closer to our target today? Uncle Buck was supported by the jawbone and is currently at 105.63 with our target at around the SMA 200 (currently 106.57).

Hence, generally anti-USD global stocks are anything but Goldilocks and are generally not favored as compared to the US Goldilocks stuff, assuming an ongoing broad rally and a firm USD.

Gold/Silver Ratio, Commodities & Gold Stocks

The GSR blasted upward today. Inflation? Maybe hysteria about it now, but we’ll see how long that lasts if GSR gets impulsive and pulls USD along with it. But commodities got croaked today. They ain’t Goldilocks. They be touted far and wide by lazy thinking and/or promotional inflationists. Commodities were not favored at all (beyond potential for a ‘me too!’ bounce) before the jawbone and are even less so now.

Gold stocks? Well of course they are being trafficked with the inflation stuff. The fundamentals are not good and that is just the way it is. Today the prospect of the “lower probability” gap fill on GDX became less of a low probability. It reminds me once again that gold stocks always go lower than you think they will originally. But then again, look who sponsors them. A sordid, promotional and/or idealist* bunch, IMO.

Since gold stocks have been and still are my special interest for a post-bubble contraction, let’s take a visual of the GDX chart by which we’ve been managing the correction. It is back to the 62% Fib and the associated visual support level at around 26.80. I hate to see markets moved by a jawbone, but I hated it a year ago too when the tardy Fed began trotting out the hawks to eat their respective microphones. Could this be a one day jawbone instigated pullback soon to recover? Sure. But it could also be the hit that opens up the gap in the 22s. A GDX gap fill could bring HUI (still well above our next downside target zone of 200-206, currently at 213) down to the 180s.

gdx gold stock ETF

The bottom line on gold stocks for me is as it so often is. I don’t want to run with this bunch. I don’t want to hear their belly aching or feel their pain. I want to capitalize on their naivete. Do I sound mean? Probably. A lot of heartfelt bugs either do not like me or ignore the hell out of my analysis because it’s no fun to read (and pretty boring when juxtaposed against the ghost stories that often pass as analysis out there). But just as I perceive there could be serious gains by shorting the markets in ’23, so too has the bull story on gold stocks not changed even one iota. It’s peoples’ perceptions and time frames that are the issue.

* I admit to being an idealist. But I work hard against that impulse.