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Notes From the Rabbit Hole, #754

Summary of NFTRH 754 and the macro situation leading up to it

A Labored Rally With Degrading Indicators

We are now well into Q2, after all. The rally was originally projected for Q4, 2022 and Q1, 2023. As yet we have not seen the hoped for combined sentiment and momentum blow off to even the first upside target that would signal “everybody out of the pool… and out from in front of that bear market steamroller!”.

But that’s the markets, eh? Can’t control ’em. Can only manage ’em. They don’t ring a bell and all.

Let’s take a look as some of the underpinning macro indicators. This view of M2 money supply takes into account what I’d consider to be the history of the ‘everything bubble’ that in my opinion began with Alan Greenspan’s early experimentation with shall we say non-traditional monetary policy.

The roll over in M2 has barely begun (but YoY growth has obviously tanked) and the distortion looks to me like one the Fed is not going to be willing or able to re-inflate from until it gets back on trend, which is a long and deflationary way down from here. Bear market rally aside, this is an indicator of much more bear market to come as the adjustment could be dramatic.

m2 money supply
St. Louis Fed

The Fed’s balance sheet remains bloated and subject to reduction, although the “banking crisis” evidently prompted a tick up in the bloating through whatever internal mechanics the Fed used to manage it. It is another indicator of extreme policy conditions that are likely not sustainable. As it resumes rolling over so too could market liquidity.

Fed balance sheet
St. Louis Fed

Yet on the short-term, risk indicators like the High Yield spread are tame and permissive of further rally activity, should that be the market’s intent. The potential bull gap within the bearish indicators above and this currently calm indicator is where the ‘picking up nickels in front of the steamroller’ theme exists.

high yield spread
St. Louis Fed

Similarly, the Libor/T-bill yield spread has also calmed way down after the “banking crisis” mini hysteria, with the same implication as directly above.

libor - t-bill spread

Let’s return to an indicator we have not reviewed in a long time but one that longer-term subscribers will recall as our Equity Put/Call “pressure gauge”. The Equity Put/Call ratio (shaded light blue) is too spiky and volatile to offer much help in defining the stock market’s underpinnings. It is in essence a picture of the emotional state of market participants at any given time as players buy puts relative to calls in moments of stress and the opposite in moments of calm. A rising trend has often aligned with bear market pressure.

So smoothing it out with the 10 week EMA provides a view of the trend, and currently CPCE is on a trend of rising pressure against the stock market. In fact, this picture right here, today, makes me want to short the shit out of this mess, to get a little blunt about it. It is also a picture of an uninterrupted bear market showing no signs of morphing into a bull market (although much more short-term downside could break the trend and usher in an improbable new bull). Consider this indicator back in rotation and of importance to our market management going forward.

equity put/call ratio

The VIX (weekly chart) is depressed, implying extreme complacency currently. This is aligned with the above, as both indicate short-term pressure relief has been in play but risk appears imminent. The message I get is that the steamroller is getting closer by the week.


Yet, checking in for the bulls comes Tech leadership, which has bent but not broken of late. The daily chart of QQQ/SPY is in a thus far normal consolidation of the 2023 uptrend. It is the kind of indicator that tells me to be careful about my “short the shit out of this mess” sentiment noted above. The leader’s leader (Semiconductor sector) has also been weak lately, but also has not definitively aborted its leadership trend to either QQQ or SPY. So I am trying to have patience and balance. If we see these start to break down and the signals above remain on high risk alert we’d have a good bear market resumption signal.


As for SPX, let’s retreat to the daily “management” chart to find it lurking below lateral resistance after making an attempt to exceed it. In failing that attempt thus far it shows a potential double top at a lower high to the February 2nd high. As has been the case, I’d like to see the 4219 gap get filled but hold at or below the 4300 round number as a potential rally termination point. The outlier view is for the weekly chart pattern to instigate a rise to a major double top ‘lower high’ at 4700 (+/-).

But if it is still a bear market as I think it is, it could well fail here. The problem is that it has not yet failed. But as the segment’s title states, it could be running out of time. At least if our operating theme of a bear rally is correct. If Semi and Tech abort leadership in the near-term I’d be quite bearish on the US stock market. Meanwhile, intact is intact. That’s all I got.

US Stock Market Sentiment

The VIX chart above speaks for itself. Complacency is high and so is risk, by definition. What about other sentiment indicators? Well, if you are a ‘new bull market’ proponent you might want to avert your gaze. Dumb money indicators are solidly bullish, a moderate contrary negative. But Smart money indicators have tanked. Gotten the hell out of Dodge! With the potential for SPX to make a double top or even a short-term top at our at the 4219 gap, risk is very high from this sentiment view.

The signaling is that it is a dangerous market. And according to Sentimentrader’s data at least, it’s not just a short-term thing. Stocks are at higher risk medium-term than short-term.

market sentiment

Another unpleasant contrarian view of the US stock market comes in the form of investment managers (NAAIM) eating the market again.

naaim market sentiment

Meanwhile, newsletters (Investors Intelligence) and Ma & Pa (AAII) continued in spike mode, while not registering extremes. But these two merely need to be in spike mode to signal the end of a bear market rally, if this is still a bear market.

Sentiment Bottom Line

Risk is high from a contrarian perspective.

Global Stock Markets

If you want to know what the balance of the world is likely to do, you also want to know what the US dollar is going to do. While a strict inverse correlation has not always been the case, it has been completely the case for a solid 2 years and counting.

US dollar and global stocks

So if USD were to hold what looks like flimsy support on the daily chart and follow its MACD up-trigger upward, expect the balance of global markets (with exceptions to varying degrees, of course) to take a hit. There is the potential that this could be a double bottom.

us dollar index

If USD were to fail its neckline on the weekly chart pattern we’d have a global ‘party on, Garth’ signal. The weekly, however, does not show that neckline support as quite so flimsy. In 2020 there was an upside shot and then a downside reversal as the inflating Fed sprang into action. That seems like a significant energy area and valid longer-term support.

USD does look bearish, but in the lower panel we find the Gold/Silver ratio (GSR) making the faintest attempt to crawl out of the most recent downtrend. Our analysis of silver vs. gold has shown a better sentiment underpinning to silver than gold by recent CoT data (updated below). But that may not matter in the short-term. A hold of support by USD and a break upward by the Gold/Silver ratio would likely impair global stocks (and US stocks and commodities as well, not to mention continue the correction in the precious metals).

USD and gold/silver ratio

So keep an eye on USD and GSR for not only the global stock market situation, but also the whole macro shootin’ match. GSR could have also been included in the opening segment as a still calm but high risk indicator along with the likes of HY credit spreads, Libor/T-bill and Equity Put/Call.

Precious Metals

I like these CoT views once in a while because they dial in the short-term view and also show open interest. As you can see, risk in gold continues to be elevated although not necessarily a show stopper.

gold cot
Software North

Risk in silver has increased, and of note is the hard rise in open interest (green line). Silver does move quickly sometimes, in its price and in its emotional pull on silver bugs. The picture is degrading from a sentiment perspective but importantly, the implications for both gold and silver are for a correction, not for a major bear signal. Silver especially, continues not to be in a bull ending configuration.

silver cot
Software North


So with gold correcting logically from the round number 2000 area and currently at 1990 after twice testing the top of the 1950-1980 short-term support area last week let’s note that the rising SMA 50 is at 1928 and the gap is at 1874. These could both be tested on a normal correction. Generally, 1860 – if it were to come about – would be completely normal and provide a ‘higher low’ that could clean out unhealthy bugs and momos.


Silver took back the important 22 (+/-) area cluster and that is now important support after it did all we’d asked it to do in making a higher high above what is now immediate support at the 24.25 area. Just as we once stated that 22 area support can give way without compromising the positive technicals (it did temporarily fail and silver then launched a strong rally) so too can the new 24.25 area support give way without hurting the technicals. The important thing was the higher high, and gold’s little bro did that.

So it’s initial support around 24.25 but important support at the 22 area cluster. It’s a picture of a metal working its way along an uptrend from last September taking rallies and pullbacks. Don’t over complicate it. As long as the 24.25 area (and GDX 33 area) holds, we can still be open to one new thrust higher (Silver 27.50, GDX gap fill at 40.14) before a real correction ensues. But the week ended with a short-term correction in play.

However, the metals are entering an often difficult seasonal period for the leader (silver)…

silver seasonal pattern

…and a flat to down pattern for gold. If we were to take the seasonals literally (they are not obligated to play out true to form in any given year, but they are historical averages over 30 years) and if the sector continues to correct in the near-term, the next buy would theoretically come at a July low in the PM complex with a better one in October-December. In other words, manage risk, enjoy your spring and early summer and prepare to position to capitalize in the dog days of summer and Q4. That’s what the averages say.

gold seasonal pattern

The seasonal patterns, like the CoT structures, only indicate pullback/correction likelihood, not the end of a bigger bull move.

On to the GDX daily “management” chart. The pullback started on the cue of the middle upper gap fill and the overbought RSI, per an update the day before. GDX has barely even tested support #1. But like silver’s 24.25 area, if the correction is to go deeper, we’d look next to the uptrending SMA 50 but preferably, a gap fill at 27.95. I say preferably because while it would be painful for many in the short-term, it would be best to get that damn gap out of there so I can stop talking about it. :-)

As for the 22.72 gap, I am not talking about it, but I sure am keeping it highlighted on the chart. If the macro gets wrecked prior to the real bull phase in the gold miners that could get filled. I don’t expect it, but this is the gold stock sector, doer of the unexpected more often that one might think possible. One day I expect that to work to the upside as well.

GDX gold stocks ETF

I took a partial hedge on my light positioning on Friday because the pattern above painted this little pattern on inverse fund DUST and the man who stares at charts stared at it long enough to take a position. If the script plays out a certain way, it goes like this: man stares at chart, buys it and then curses the market when it doesn’t do as he thinks it should (he merely stared at a chart after all). Then he sells the thing, and then it ramps after he pukes. Man, charts, ha ha ha. But I do like the tick above the EMA 10 and the MACD trigger.

gold stock inverse fund DUST

Bottom Line

Folks, I am just playing around here while staying in risk management mode. The bottom line is that the sector is vulnerable to a correction due to its technicals, its seasonal and even a lurch in the macro indicators lately as gold pulls back amid the intact bear rally in the cyclical markets.

It is not yet clear, however, if a substantial correction has begun or just a pullback. Watch silver (24.25 +/-) and GDX (33 +/-) for signs of a short-term support hold or failure.

In my perfect world, the play would generally evolve like this…

  • Precious metals continue a healthy correction to clean the sector of its unhealthy elements (filling the GDX 27.95 gap and making a higher low).
  • This leads stocks and commodities in the next leg of their bear markets.
  • Precious metals bottom amid the ignominy in the dead of summer and/or Q4.
  • As the bear persists in cyclical markets (amid shorting opportunities) gold stocks – improbably to the herds – resume a bull market that would have real (as opposed to promoters’ imagined) fundamentals behind it.

Simple, eh? But first the precious metals would need to confirm a correction as opposed to the current pullback. The GDX gap at 40.14 still exists, after all. If it starts to look like a support hold to a pullback I’d get rid of DUST and probably add back a couple items in search of greedily anticipating that upside gap fill before getting out of the pool. Much like 27.95 on a downside gap fill could provide a clear buy signal, so too could a rise to 40.14 provide a clearer sell signal (for traders) than what we have now.


  • CRB index bounced to and through the now downtrending 200 day moving average. Thank you OPEC+ for the macro manipulation whipsaw. Creeps. The macro is going to take everything where it takes it and if it means to take things down, price manipulators will not stand in the way.
  • Do you hear me Doctor Copper and your China reopening pump? Nothing is going to stop the macro if the US dollar and its fellow rider the Gold/Silver ratio get on their horses. The 2 Horsemen of the liquidity Apocalypse would address everything as a ‘market event’, regardless of longer-term supply/demand fundamentals.
  • I added Crude Oil fund USO after the OPEC+ manip, which made me uncomfortable then and clowned me after (loss taken for my lapse of judgement). WTI oil rose to the downtrending SMA 200, dropped and nearly filled the OPEC+ gap. The oil price currently holds the SMA 50 as support. But manip or no manip, the major daily trend is down as long as it holds below the SMA 200.
  • NatGas also provided a clowning opportunity as I added Gas sensitive AR, which went down while Gas bounced hard. Moderate loss taken on AR, Natty may or may not continue to bounce in line with a constructive seasonal into June (after which it declines hard into September on average) but I’ll take little interest from here on if the macro view remains on track.
  • Something ramped both Palladium and Platinum. Pd is in a major downtrend, but was sure going to bounce at some point and that point came over the last 2 weeks. Pt, which we have noted to have technical similarities to silver, ticked a higher high as did silver. It appears to be changing trend to up but is getting overbought on the short-term. Pd/Pt/Li/Au play SBSW rammed upward to test the downtrending SMA 200 and pulled back. Interesting stuff going on here but in the commodity complex things tend bounce out of nowhere within downtrends and it’s often not healthy to chase downtrending bounces.
  • Copper and Industrial Metals (GYX) show Doc making a head fake pop out of its flag and then rolling over, at least temporarily bull-trapping China/Copper funda momos (China large cap fund FXI did much the same). GYX is and has been something worse than Cu as it tries to bounce within its major downtrend.
  • However, I am most interested in copper for its signaling vs. gold and that signaling is turning counter-cyclical and anti-inflationary after a little false dawn amid the China hype. The signaling is that the false dawn aborted in March and we have a genuine negative global macro market signal in play if the breakdown holds.
Copper/Gold ratio
  • The Uranium sector (URNM) continues to trend down. REE sector (REMX/MP) continues to trend down. Lithium sector continues to trend down (ALB got hammered). No current interest, especially in light of the signal presented in the chart directly above. That is one super important macro chart and could have been included in the opening segment with other macro warning charts.
  • The Ags (GKX) continue to trend down while whatever was driving DBA out of its base (well, it was Sugar) has kept it above breakout levels from that base on a current pullback. No interest in light of the degrading inflated macro.

Commodities Bottom Line

No interest if/as the macro shifts back to counter-cyclical and anti-inflationary. Contrary to this is the recent bounce in long-term yields and inflation expectations. It seems like a dangerous combination, a market that is tightening credit conditions while at the same time macro signals are fading into a counter-cyclical backdrop.

Remember this: Commodities are cyclical and positively correlated to the global economy. Gold is not that. Please think about avoiding analysis that lumps gold and commodities together as inflation trades. Commodities are inflation trades. Gold is a monetary anchor. It may not rise and probably will correct amid acute deflationary pressure, but it will hold longer-term value and rise hard in relation to commodities as it did in a flash event in Q4, 2008 and a few other minor events during the last couple decades of the inflated macro (and right there we have the case for gold mining leverage to gold on the wider macro economic picture if that era has ended or at least relented to deflationary contraction for a longer phase this time than previous).


Savings balanced by gold.

Trading Account: Short Industrials (XLI)

Roth IRA (non-taxable, no contributions)

Considering that gold miner positions are partially hedged, 87% net cash (and equivalent) seems reasonable here.

I am open to the miners holding short-term support (ref. GDX 33) and a new thrust upward to fill the upside gap. I am also open to the 33 area support failing and getting that downside gap taken care of, preferably with a higher low to the March low, sooner rather than later. Gold miners are a focus for 2023, but there could be a lot of volatility before a big move ensues (if the analysis that Hoye’s post-bubble contraction may actually happen THIS time is correct).

As for the other stuff, I’ll keep an eye on the likes of the QQQ/SPY ratio and focus on the disinflation stuff insofar as I’d be bullish (e.g. previous successful trade ANET added back on the drop to the SMA 50)… which isn’t very far at all. Indicators show a steamroller oncoming. Cash is paying out. We are looking week to week now, IMO.

Cash & income-paying Equivalents are at levels that are right for me and my real-world situation. Your situation is different. Cash will be adjusted as needed.

Refer to the Trade Log under the NFTRH Premium menu at for trade info, if interested (not that you necessarily should be). Also, you can follow at Twitter @NFTRHgt for notice of updates.

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Notes From the Rabbit Hole (NFTRH) is a weekly market report in which we provide analysis on financial markets.  We make every effort to provide accurate and high quality content, but this analysis ultimately represents our opinions and these opinions are provided without warranty or guarantee of any kind.  See full terms & conditions of service under the ‘About’ heading in the main menu.