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Notes From the Rabbit Hole #755

Summary of NFTRH 755 and the macro situation leading up to it

US Stock Market

The Q4>Q1>Q2 rally drags on. There continue to be concerning internal indicators aplenty, but price is price until it no longer is. This is a high risk market still trying to convince casino patrons that it is a new bull market after the mild 2022 bear. Let’s not tap the brakes on that notion. Let’s slam our feet down on the brakes and bring that car skidding to a stop!

SPX (daily chart) pulled back, held the SMA 50 and poked resistance again. The rally is intact and the next – and likely best – target continues to be a 4219 gap fill and possible test of 4300 area resistance. My bearishness could be off base, of course. This is also the type of setup that could spring SPX to 4700 and a double top or even a new bull market. So, just try to honestly interpret the situation from a TA perspective. But those internal indicators (more below) – including sentiment – are not good. Not at all, on balance.

S&P 500

As noted in an update, Tech has held up and has maintained leadership. NDX finally filled the gap on Friday. The pattern measures to a test of the August high. If that is all there is it sure is not a good risk/reward proposition. However, we also have two open gaps as noted at left, in the event that they are able to pump earnings season well enough.

Nasdaq 100

Meanwhile, the leadership chain shows NDX holding serve on SPX and the SOX/NDX and SOX/SPX ratios having gotten slammed but maintaining a vestige of leadership. SOX/NDX could be considered broken with the lower low to December, but SOX/SPX is at a higher low. Not good, but not yet alarming.

As noted in the update linked above, the XLV/SPY ratio (defensive sector vs. broad) compromised its potential bottom a bit. But it clings to a higher low to August and remains a potential harbinger of bearish things. If Healthcare gets a relative rotation, it would signal building risk aversion.

Let’s also not forget the negative leadership by the bank sector that resolved into a crash in the pigs vs. the broad. It obviously is not good internal market signaling, and that was the case well before the crash. The hawkish Fed policy/waning inflation/inverted yield curve combo does not seem at all positive for the pigs.

Meanwhile, here is a nominal look at some sectors (daily charts), including Tech and Healthcare related areas. He who is holding the blue SMA 50 is generally on an intermediate uptrend. Note here the odd bedfellows of both Tech (not defensive, but benefiting from machines programmed to rotate to ‘disinflationary Goldilocks’) and Staples (defensive).

us stock market sectors

Healthcare is intact and being led by the Medical Device component along with big Pharma. Biotech ETF is weaker, but could become constructive with a hold of the SMA 50. While Medical Device is chronically over-valued (in my opinion) it is relatively immune to normal negative economic cycles. That is the experience I lived personally when I had a physical company with customers including Boston Scientific, Haemonetics, Intuitive Surgical, and others. Transports appear to be making a slightly negative cyclical signal.

us stock market sectors

Market Indicators

Last week we trotted out some very concerning indicators and some that were signaling high risk, but as yet still calm waters. Let’s get another view from indicator land.

The 10yr-2yr yield curve continues to maintain its major down (flattening/inversion) trend. The steepening spike in March came along with the bank sector hysteria. That appears to be calming down a bit now. When it steepens for real I expect that it will be due to disinflationary pressure morphing to deflationary pressure. As you can see, nominal 10yr and 2yr yields have biased downward since Q4, 2022 as the little Goldilocks relief phase took hold. Our operating theme has been that Goldilocks is a gateway to economic deceleration and a Fed that gets off its hawk routine. Problem is, that would come about too late to save asset markets from resuming the dominant bear.

yield curve

Here, check it out. The chart makes clear that the last two significant bear markets (2000 & 2008) came after the T-bill yield (orange, proxy for the Fed Funds rate) had overshot the 2 year Treasury yield. The T-bill is at 4.9% with the hawking Fed behind it and the 2yr is at 4% with more natural market forces behind it. This signal is what was missing during the 2022 bear cycle, which got ahead of itself with respect to the indicator. But our theme has been that this extended bear market rally is the corrective for that divergence. Well, consider the divergence corrected and the stock market at high risk by this indicator.

t-bill yield, 2 year yield and spx

Usually we have reviewed the M2 graph as it appears in literal terms. In that view it is rolling over and at high risk. But this week let’s look at the drastic drop in M2 on a percentage change from a year ago. Since 2000 the Fed has tended to ramp money supply during recessions and/or alarming market events. As you can see, they sprang into inflationary action to an epic degree in Q1, 2020. You may recall that was our signal at the time NOT TO BE ACTIVELY BEARISH and to prepare for a bullish outcome. Well, this signal shows the opposite condition shaping up. Back in Q1, 2020 you couldn’t convince the herds to be bullish and it took a while to resolve that way. Today, the same herds are not looking at signals like this. They are looking at their nominal TA and seeing the likes of the rallying SPX and NDX charts above.

m2 money supply

As for some of the indicators shown last week in NFTRH 754, here are their statuses:

  • VIX: ticked a new low as it got hammered on Friday. Complacency (and thus, risk) is extremely high as VIX ticked the upper bound of the long-term support area shown last week.
  • Equity Put/Call Ratio: weekly EMA 10 continues in pullback mode within a rising trend. The implication is that barring a breakdown in the indicator, risk is at nosebleed levels as the bearish pressure gauge holds its uptrend from January, 2022.
  • High Yield Spread: was shown to be in pullback mode, implying calm for the moment. Last week the spread ticked up a bit. May be nothing, but in a very high risk environment may well be something. We’ll keep it on watch.
  • Libor-3 mo. T-bill Yield: Much like the HY spread above. Still in calmer waters but ticked upward last week.
  • Copper/Gold Ratio: firmly in breakdown mode and a bearish cyclical indicator for the economy, for inflation and for markets on balance.

US Market Sentiment

  • Smart/Dumb Money indicators continue to show moderately over-bullish dumb money and smart money fading the market sharply. Short-term risk is shown to be extreme and intermediate-term risk elevated by Sentimentrader’s measures.
  • Investors Intelligence shows newsletters spiking but not overdone as of data collection on April 25. But Friday was the bull day that probably flipped several sentiment indicators into FOMO mode.
  • AAII shows Ma & Pa are similar to II, well off the bear lows in sentiment but not going wild to the upside.
  • NAAIM shows investment managers taking a pullback on Tuesday and Wednesday. The market then ramped on Thursday and Friday and likely took NAAIM FOMO’ing with it. The data cuts off on April 26, however.

US Stock Market Bottom Line

Intact technicals as the bear market rally grinds on.

Very poor, even alarming internal indicators showing risk at ‘clear and present danger’ levels.

Market sentiment is generally aligned for the bear market to resume, should that be the case as expected. There has not been a grand FOMO-fueled reentry into stocks by sentiment measures, but a hyper extreme is not necessary for a bear rally, eh?

Global Stock Markets

The balance of the world (ex-US) is completely and inversely tied to the fate of the US dollar, as shown last week. As USD still sits on a little perch deciding whether or not to double bottom and turn up, global vs. US (ACWX/SPY) is not looking so good. In other words, the world appears neutral in comparison to a rallying US market that is at high risk.

global stocks vs. us stocks

Within this here is a breakdown of some individual markets…

  • Japan: Relatively bullish as Nikkei is in a pattern that would have me all over it were I not in general market risk mode. Seriously, it is a chart that is hard not to stare at and think bullish thoughts. Had NIKK dropped to the originally projected 23000-24000 area I’d probably have some Japanese stocks. As it stands, NIKK (28856) is on the cusp of taking out the 2022 high of 29.2k, which would signal a big bull move from a technical perspective. We might not think Japan should be bullish, but the machines probably would if they see that happen.
  • China/Asia/EM: Trends are down. Would be aided by a resumed drop in USD and likely the opposite if the buck bounces/rallies. Copper’s recent flop nominally and in relation to gold does not seem to be an endorsement for either a bullish view on the China reopening hype or a bearish USD. We shall see soon enough, however.
  • Europe: Very elevated and still bullish. Interestingly, there seems to be a version of what happened in the US from 2014 onward going on here. That is a strong currency pulling in and repatriating Goldilocks bids. What happens if USD rallies and Euro drops? Unclear, but I don’t want to speculate on finding out.
  • India: Whoa… resuming its bullish look after a hard correction into March. BSE/Sensex has broken back above a convergence of the 50 and 200 day moving averages and is in a nice pattern.
  • Canada: TSX is back near the highs of the bear rally while TSX-V goes sideways and is miles below the 2021 high. But it is basing and this base is coming at a clear support area. Here is a weekly chart, and the reason I highlight ‘da V’ is because it could be instructive about the next inflation trades. Remember, the view is for an interruption of inflation, but not necessarily perma-deflation. Far from it. Personally, I want to stay open minded as macro inflation signals continue to cool, and this is one view of said open mind.
TSX-V index

Australia: AORD is also elevated and still technically in rally mode. Men who stare at charts may see a potential Head & Shoulders top forming. But we will see the need for AORD (7501) to make a higher high above 7779 to negate the H&S.

Russia: MOEX has been trending up since Q4, 2022 if anyone is interested.

Brazil/Argentina: BVSP continues to bias its trend downward while MERV took another shot higher. Argentina, king of the world! Check out a weekly chart if you want to see a hysterical bubble that is going to get deflated like nobody’s business one day. It is vertical.


A monthly chart shows the USD at/above a clear support zone and the Gold/Silver ratio (GSR) depressed. The daily chart situation, which we’ll continue to watch closely along with other market risk indicators, is unchanged. USD could make a double bottom right here and GSR could bounce at any time. However, as yet they are still both in correction mode.

The most important aspect of this monthly chart is USD’s clear bull market from 2011, when the previous inflation hysteria blew out. The most recent inflation hysteria resulted in a strong USD because markets were obsessed with the hawkish Fed. Conversely, as Fed hawk fears have eased so too has USD. What could drive USD upward again? Why, a market liquidity event that is accompanied by gold rising hard in terms of silver. That’s what.

us dollar and gold/silver ratio

Here is the daily global currency chart showing gold ally CHF/USD trending up, the Yen breaking down (ha ha ha, bullish Nikkei anyone?), the previously noted firm Euro, weak commodity currencies (CAD and especially AUD) and the bullish GBP.

global currencies

Checking in on Bitcoin, we find the weekly chart pressing into the 30000 resistance zone as anticipated. As we look around the Twitter machine and anti-USD websites we also find the touts regenerating about the decentralized digital currency in light of the banking crisis. I could just be an old curmudgeon, but I am sticking to the view that BTC is a speculation and it is rallying with other speculative crap. But I am biased because I do not like the stink of the promoters of BTC, especially the gold bugs who jumped on into the highs because gold was not working and they needed an alternate pitch for their herds to lap up.

This link (don’t bother clicking it unless you subscribe to Zero Hedge premium, as it’s behind a pay wall) blared “We’re Near The Very End”: Lawrence Lepard On Bitcoin, Gold & The Coming Crash for the ZH herds to consider, react to and get put off sides by in November, 2021. Good call, man! The stock market did not crash but it did take a moderate bear cycle in 2022. Problem is, Bitcoin actually did crash.

Bitcoin (btcusd)

Now, I am not overly educated about crypto-currencies other than knowing that there are miners mining them out there in the wilds of server farm prairies, they are perfect for anti-government sloganeering with a built-in “decentralized” currency hook as the banking crisis provides a handy rally rationale (banks hold your dollars, banks are failing pigs hopped up on bad investments… buy Bitcoin, be safe!). Oh, and there is the little nagging detail that Bitcoin’s biggest associated growth industry appears to be dark web con artists extorting ‘wallet’ payments from naive and often older and vulnerable people.

All that said, the 30000-33000 resistance area was a target. That does not mean the speculation needs to stop here. However, if USD double bottoms and if the high risk indicators shown in the report above play out as they should, we’ll see how valuable Bitcoin is in a rush to liquidity. Personally, I don’t see them rushing to Bitcoin over the valueless USD. USD has one value still: a liquidity bid if it and the GSR get in gear together.

I’ll stick with gold as a monetary value instrument, thank you.

Currencies Bottom Line

USD rally, especially if the Gold/Silver ratio does too, and we’d have a possible market rally ending liquidity event. USD fail, and silver continue to out-perform gold and we’d have a beneficial backdrop continuing. Risk of the first thing is high, in my opinion, when accounting for all the other very bearish indicators beneath the surface. But current trends are the opposite. These trends are the things that most players watch and are the things that could be sucking them back in, which was the job of this broad rally. Watch USD and its fellow rider, the GSR.

Precious Metals

Relating to the segment above, here is gold still trending well in relation to global currencies (daily chart). The ratios have eased of late but they all thus far maintain their intermediate uptrends. A real gold bull market tends to perform in all major currencies. Thus far that is the case. The moment it stops being the case we’ll note it. But for now, bullish is bullish and why not, it’s a real monetary anchor to value vs. a world of debt paper.

gold vs. global currencies

Once again, a view of gold vs. some asset markets. Here too gold is flag consolidating vs. US and global stocks and the CRB index. The flags continue to appear to be bullish consolidations. In other words, healthy. Gold maintains an intermediate uptrend vs. the OPEC+ manipulated oil price and one of these quarterly periods it is going to start to matter operationally and will be touted in gold miners’ quarterly results. I noticed that current holding AEM did okay last week, but I did not have time to look into the report.

gold vs. asset markets

Another consideration for gold is the ‘real’ inflation adjusted yield on Treasury bonds. While the ‘real’ 10yr is still elevated and gold-bearish, the topping cluster implies a decline coming sooner or later in the ‘real’ yield. As we did with M2 in the opening segment, let’s convert the real 10yr to a ‘percent change from last year’ view. This shows the ongoing deceleration of the indicator toward a gold-bullish view. Why? Because it is a forward indicator to a future not-hawkish or even more dovish Fed.

real 10 year yield
St. Louis Fed

As of last Tuesday’s cut off date, gold’s Commitments of Traders was mostly unchanged from the view we had last week. Extended toward a negative point but not necessarily a show stopper. I’d continue to consider a pullback to be healthy, both in the gold price and in the CoT structure.

As for silver, it is the leader and its CoT ticked further negative nearly to the degree from which the last normal silver correction began as we noted a topping cluster in the silver price in December-January. It took quite a while for silver to finally roll over. In the current situation our target is 27.50 (current price: 25.23) but risk of a correction is obviously rising. Just as the daily chart technicals advised the last correction was going to be routine, so would this one also be routine if/when it comes about (either from around current levels or possibly after a lurch to target). Two important considerations for silver are the intact series of higher highs and higher lows on the daily chart and CoT not nearly at a bull ending level.

silver cot
Software North

Silver: Initial support at 24.25 (+/-). If that holds we are still open to a short-term rise to the 27s (and a GDX gap fill at 40.14). But if a correction comes about sooner, in line with the CoT structure, a correction to the 22 (+/-) support cluster (May-June, 2022 highs) now becomes important support. Let’s also keep in mind the negative seasonal average that is already theoretically here, as noted last week. This is all unchanged from last week.

Gold: Likewise, as noted for gold last week (unchanged, other than gold is now at 1999 and the SMA 50 has risen to 1941)…

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.

The GDX daily chart we’ve used to do close up management of the gap up from the Q4 lows and the subsequent rallies and corrections now shows what could be a bull flag forming right where it should have formed, at the gap fill resistance zone in the 36s, and now flagging down to initial support defined by the January highs. The rally has now filled two of its three 2022 upside gap objectives and the question I have now (especially as a holder of a partial hedge, DUST) is whether GDX will break the flag and make a stunning rise and gap fill at 40.14 or drop to make a test of the SMA 200 and downside gap fill at 27.95.

I expect the upside gap fill to happen, and have a bit less conviction about the downside gap because it came on big volume and affirmed a new uptrend (so it could be a “breakaway” gap not needing to fill any time soon; similar MO as the 22.72 gap way down there where the rally launched). But if the upside 40.14 and downside 27.95 gaps are both destined to fill, the order of which comes first is in question, in my view.

Obviously, a break of the flag upward brings the short-term bullish view to the fore and loss of 33 brings the short-term bearish view to the fore. It’s not a time to be caught guessing. But on the big picture, with gold mining fundamentals continuing to show positive, someone with an investor’s mindset might just wish to tune out this technical noise. Traders already sold at the April high (ref. update), but also have to decide whether the next move is up for a gap fill or down for a gap fill.

GDX gold stock ETF

I currently hold AEM, MAIFF (MAI.V), BTG, ORLA, OGNRF (OGN.V), SILV, MAG & OSIIF (OSI.V) with watch items including KGC, NEM, RGLD, WPM, WDOFF (WDO.TO), AGI, SSRM and GOLD for the next significant correction. Partially hedged with DUST, which would be very temporary (and positioning could be increased) if GDX breaks bullish from the flag and DUST would likely be held possibly for a test of the SMA 200 if it goes the other way.

Precious Metals Bottom Line

The fundamentals continue to grind positively. The technicals are bullish. The corrections and pullbacks have come and will come again. But since the Q4, 2022 lows we have projected that this could be the next leg of a bull market. This weekly chart shows that leg likely began in Q4 at 172.86 and a test of support. Since then it’s a series of higher highs and higher lows. Referring back to the daily GDX chart, it’s 40.14 gap fill could come about with HUI ramming to the upper line of the downtrend channel. Again, watch that daily chart flag. Otherwise, the objective – and likely buying opportunity – would be in the 225 (+/-) area at a higher low.

HUI weekly chart

Regardless, bullish is bullish and that is what the macro fundamentals are grinding toward. I never hesitated to call it the other way over the years and I am not going to hesitate to state what I see now from the bullish side. If you can take and manage the volatility and the noise out there in the media, the calming view of a bull market in progress can be seen. This terribly volatile bull actually began in January, 2016. Here again, the monthly (log scale) chart…

hui gold bugs index

This is a discrete sector from commodities. Many like to lump it all together as “real things”, “resources”, “tangible assets”, etc. But that is just another way of saying ‘anti-paper’, whether it be anti stock certificates or paper currencies.

Gold is different from commodities and gold miners are very different from commodity miners and producers. Hence, the counter-cyclical post-bubble backdrop that could be engaging would benefit gold mining while not necessarily benefiting commodities. At least until the next round of inflation (from hell?) is stirred up.


CRB index and Crude Oil each maintain downtrends. But the downtrends are orderly. Oil actually tapped the top of the 60-65 long-term support target (not shown on this daily chart). CRB already had its moving average death cross followed by the obligatory post-cross bounces back in Q4, 2022. The trends are down and until these items can change that by getting and staying above the 200 day moving averages (WTI’s SMA 200 not shown, but it’s at 82.28 and it contained the OPEC+ pump in early April), the trends are in control.

crb index and crude oil

Natural Gas/Energy: Gas continues to try to build a base down there above long-term support. Energy sector (XLE) is trying to cling to its daily uptrend while Oil & Gas exploration (XOP) has shifted to an intermediate downtrend (and is on my shorting watch list).

Copper & Industrial Metals (GYX): Copper’s ‘handle’ has the potential to morph into an intermediate downtrend as it has started to turn the daily SMA 50 down. Either way, it’s not at all a strong showing for Doctor Copper (or the China reopening tout behind it). GYX is already trending intermediate down. I’ll continue to have little to no interest. Long-term I’ll have interest, but I don’t suffer intermediate phases as an ‘investor’ in this stuff. That is for the commodity super-cycle brigade.

Palladium & Platinum: Pd made a big pop and drop. Typical commodity action as the hedgies, machines and various other wise guys rove the landscape looking for plays. Platinum ticked a higher high (much like silver had done previously) and reversed and pulled back from it. But like silver, that higher high keeps the prospect of a rally and trend change in play. It has plenty of room to pullback and the SMA 50 at 1003 can be watched for that.

Uranium: I added CCJ because it reported good results and its chart looks relatively good to me. But the sector (URNM) is still technically suspect. As with REE producer MP, this is an area that I want to continue to poke at for fundamental reasons. Doesn’t mean I’ll hold it if the technicals flip bad again, but you never know when a bottom is going to come or may have already been put in and so I poke on occasion.

REE, Lithium & Nickel: REMX is trending down and MP got drubbed again. You will recall that MP is a special situation as an American Rare Earths producer. But it also has a valuation to match, well beyond average commodity producers last time I looked, anyway. It’s on watch as always. As the Li price continues to tank from the highs let’s note that the USD price shows no support but this chart of Li in CNY, which shows longer history, is at what could be considered a support level at the 2017 high. I’ll continue to keep the bombed out ALB and LTHM on watch as the main vehicles.

lithium price in CNY

Meanwhile, Ni appears to be trying to bottom out and base. TLO.TO (TLOFF) is the main watch list item there.

Agricultural (GKX): The index tanked to a fresh low to test the July, 2022 low. A weekly chart shows an index vulnerable to much lower levels if that low (424) is taken out. Current price is 436. Major support is at 310 (+/-). Meanwhile the ETF (DBA) is still in base breakout mode, no doubt at the behest of sugar, which remains massively strong and indeed, potentially in blow off mode. No current interest.


Savings balanced by gold.

Trading Account: Short Industrials (XLI)

Roth IRA (non-taxable, no contributions)

IRA is at around 80% cash and equivalents. I’d say that is low, considering the high risk backdrop we noted in the opening segment and reports leading up to this one. But considering that it includes two short funds and a very temporary QQQ speculation, it is okay for the moment.

My personal mindset is that I am a) looking for excuses to sell and retain high percentages of cash and equivalents and b) trying to be patient (and cautious) about shorting this mess. This second thing is due to a mental issue I have about being short the markets when they rally out of nowhere. I got a little hint of that feeling on Thursday, took modest profits on a couple shorts and then re-shorted XLI on Friday. But this mental thing is very real and it is a vulnerability of mine that I am well aware of. That said, shorting is still legal and it is a goal of mine to somehow be positioned that way with funds I’d speculate with when this pig finally rolls over.

Gold stocks and the Au/Ag bullion fund are fine because I see the fundamentals coming in line. I am waiting for the next significant correction to do any substantial buying and remaining partially hedged unless the next move is up to fill the upside gaps (ref. GDX daily chart in PM segment above). If the next move is up (GDX 40+) I could see myself selling there. If the move is down, then the buying opportunity could come sooner rather than later. A further question is to what degree would the miners be pressured if the broad market coughs up a lung? For now it’s a week at a time, weighing the evidence each week and trying to avoid the steamroller.

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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