• Post author:
  • Post category:NFTRH
Notes From the Rabbit Hole, #758

Summary of NFTRH 758 and the macro situation leading up to it

  • US stock market held the rally and continues with a Goldilocks theme amid a disinflationary backdrop. Semi & Tech still in leadership positions. Long favored upside targets for SPX are in view at 4219 to 4300, with an outlier possibility to 4700.
  • Global stock markets did not buy the bounce in USD last week. Neither did I. If USD fails, global should out-perform. If USD gains a liquidity bid there will not be many places to hide.
  • The Debt Ceiling Kabuki dance has introduced some noise into the macro indicators. See segment directly below for inflationary bond signaling that resulted from the debt noise, but still intact disinflationary signaling from CME Group, Atlanta Fed, etc.
  • Precious Metals are on a logical pullback/correction as the Goldilocks party continues. This may be the first inkling of gold and especially its miners becoming unique, as they had previously led the broad rally from Q4, 2022. Macro fundamentals are intact and pulling back. All normal – and even desirable – so far.
  • Commodities would be a featured ‘go-to’ if USD fails support and targets point ‘C’ (see segment below). But short of that the complex remains mostly bear trending. Patience here.

Goldilocks (Including Bonds & Currencies)

She is persistent, I’ll give her that.

When originally projecting the Q4>Q1 (now Q2) bear market rally back in late 2022 the view was that it would be led by Tech, which would gain a relative bid on easing inflation signals (which had impaired Tech relative to the broad market as inflation drove interest rates higher, sending the machines into “value” stocks, per their programming). Goldilocks has persisted to this day, longer than I original thought it might. But these are the financial markets and they do tend to persist in a given trend longer than you might originally project in foresight (given that said foresight came during a completely different macro backdrop).

The matter is complicated. For example, Tech (including its Semiconductor component) is still leading, but long-term Treasury yields have been bulling again as we first noted a hint in a May 8th update.

If this is real it would theoretically drive the big picture ‘Continuum’ view up and out of the bull flag also noted in the May 8th update. That sure would not appear to be Goldilocks signaling. At face value, it would be inflation signaling.

Bonds are debt. Bond yields are a gauge for demand for that debt. As even the backward looking inflation data like CPI/PPI continue to ease, the demand for bonds (from the 30yr on down to the shortest end of the Treasury curve) increased since the yield made its high in Q4, 2022. But demand would be indicated to be resuming its decline on the big picture if this bull flag breaks upward.

So what is driving the bond market? There was talk (and a Fed jawbone or two) in the media last week about how the market might be getting ahead of itself in anticipating a rate hike halt and prompt rate cutting cycle. The US dollar held the important support level we have been focused on (101 +/-) popped above 103, back above the 50 day moving average (102).

Okay, so you want a market manipulation story? I will not argue with it in this case as it sure seemed convenient that USD got the jawbone/media blitz during the latter stages of the debt ceiling Kabuki Theater, avoiding more “default” talk and a breakdown that would have sent USD down to point ‘C’ (ref. weekly chart below), likely springing a significant asset market rally that would shed the Goldilocks veneer and drive inflation-sensitive markets higher for the rally we’ve had in play as a secondary option.

For what it’s worth and as the dust of a noisy week settles, CME Group overwhelmingly projects no rate hike in June or July, strongly favors a hold in September at 58% with ‘rate cut’ speculation outpacing ‘rate hike’ 29% to 12%. By November, a .25% ‘rate cut’ assumes the lead at 52% with deeper rate cut of .5% and a rate hold each at 22+%, and ‘rate hike’ of .25% from today’s levels checking in at 3%.

In other words, we can believe the jawbones and the knee-jerking that went on in bonds over the last couple of weeks, or we can believe those whose job is to be right about the future direction of the Fed Funds rate. As long as CME Group and the Fed Funds futures are projecting lower the short end, at least, is projected to to ease. It is not just CME Group projecting that. The Atlanta Fed currently projects a downward path into 2025 for the SOFR (secured overnight financing rate) using a combination of data from CME, Eurodollar futures and 3 mo. Libor/Fed Funds basis swap spreads:

Atlanta Fed

It is complicated, because we know that the Fed has routinely used inflationary policies to manage the system for decades. We (well, I) believe that they are deathly afraid of a default (and US dollar crash) because it would end the gambit they’ve used over those decades. We also know that they never miss an opportunity to get in the media, eat a microphone and tend the herds to their preferred outcomes. But the data are the data and the indications are still disinflationary despite the jerk upward last week.

It seems like a double edged sword that the Fed is dealing with. Here is how the action looked on the short end (2yr). Woo hoo! The gold ole’ US of A is not going to default on its debt! But in my opinion the 2yr is likely on another head fake like the one earlier this year that interrupted the disinflationary trend.

As for the 30yr yield above and it’s long-term fellow, the 10yr, let’s note that both the 2yr and the 10yr have bounced but neither is as impressive as the 30yr. If the yield curve steepens, led by the long end rising, the signaling could be inflationary. But if it steepens with the short end yields easing per the data above, the implication would be deflationary pressure gathering.

As it stands, a steepener is not yet confirmed and so Goldilocks lives on for now.

Uncle Buck cheered up in line with the bounce in bond yields, but he is not getting a liquidity bid. He is getting a jawbone bid as policymakers and media teamed up to offer their currency supportive soothsaying about the combo of debt ceiling and supposedly still-firm (hawkish) policy. If it were not so manipulative and transparent, it would be funny. In fact, to me it is funny. Morbidly so.

USD and Gold/Silver ratio (daily) shows the buck bumped up to resistance and the GSR getting repelled at its SMA 50. That hardly looks like a damaged market liquidity situation was driving USD last week. No, it was jawbones driving the dollar, but the market not really buying it from a gold vs. silver standpoint.

The weekly chart shows that the disaster scenario (a disaster for the Fed, the US government and Goldilocks and/or deflationist players, at least) was avoided as the neckline held and for now a potential down leg to point ‘C’ averted. But the GSR is still in breakout mode and if it were to hold and turn up again USD could see an actual liquidity bid. Otherwise, its fate could be point ‘C’ and the next inflation trade coming sooner rather than later.

If that were to happen, we’d then make like happy idiots and play the bullish macro while remaining aware that the big picture is still a USD bull market.

But first things first. USD has a decision to make about a liquidity bid now and the next inflation trade later or the opposite. Meanwhile, Uncle Buck’s trampy competitors are still trending up (gold ally CHF, GBP), trending down (JPY, AUD) or trending sideways (EUR, CAD). I’d keep an eye on commodity currencies CAD & AUD for hints about commodities, resources and/or inflation trades. Right now, the bias is slightly negative.

Bottom Line

Goldilocks still holds sway. The signaling is that she will either morph to our heretofore favored view of uncomfortably disinflationary signaling or abort the disinflation theme in favor of a new inflation problem, potentially driving the more inflation-sensitive global assets/markets higher. In the case of the former, USD would suck in liquidity on the run. In the case of the latter, certain asset markets would suck in the bids from those fleeing the global anti-market, USD.

US Stock Market

Let’s not waste time here. Semiconductor sector is intact to its leadership position and Tech is too. The signaling is pro-cyclical and disinflationary with a still intact economic backdrop. Goldilocks. Here is the ‘big Tech’ heavy NDX, having ticked above the pattern measurement and now eyeballing the upside gaps.

The broader SPX continues to lag but never aborted its rally as it held the intermediate trend at the SMA 50 and on Thursday popped above resistance. That will now act as support (or alternatively, a bull trap failure point). The main targets are and have been the 4219 gap and a lower high at/below 4300 resistance. Beyond that, the less favored outcome is for a stronger rally to a major lower high at 4700, which could be an epic ‘happy days are here again!’ suck in. *

* The market does after all have a luminary that even I respect, Paul Tudor Jones, on its bullish side.

As for the way I am playing it, gold miners (currently hedged by DUST), are the feature because I think the odds are good that 2023 will unfold in line with their improving fundamentals (currently in pullback mode). Under the still functioning Goldilocks umbrella there is Cloud Security (CRWD, TENB), AI/Cloud (ANET), big Tech (GOOGL), Biotech (DVAX & CDTX), Semiconductor (AEHR), along with Medical Device (IHI) and a poke at Energy (XLE). Globally, I have added Japan (NTDOY), India (RDY) and Semi (ASML) exposure. Speaking of global…

Global Stock Markets

Well, the Japan play continues upward in opposition to the weak Yen, as noted above. India is a more volatile but bull trending market. Interestingly, and pertaining to the opening segment, a disconnect between inverse USD and the global (ex-US) ETF may be another hint that the market is not buying the strong dollar pump last week. Global held up despite USD’s bounce (inverse USD’s drop).

Of course, this could also mean that markets are off sides, but when you consider that CME traders are also not buying the pro-USD Fed hawk jawboning of last week the global asset inflation trade scenario is not at all negated from possibility. Again, it never was my favorite near-term outcome, but last week did little to dissuade me from considering its potential to assume a lead view.

If USD were to weaken again I’d keep an eye on Emerging Markets (EEM), Asia (AAXJ), large Chinese stocks (FXI) and commodity/resource countries/regions. I’d also keep an eye on Canada’s junior index, the TSX-V as a signaler of a potentially benevolent backdrop for the inflation trades.

As yet, da ‘V’ continues to wallow along at long-term support. That means two things: 1) it has not gone anywhere yet, so it has not given the green light to speculative inflation trades, but 2) it has held clear support for months now, despite the drop in macro inflation signaling and thus, expectations. Intact support means it has not broken down impulsively into a deflationary signal.

Bottom Line

As it has been for a couple years now; if USD fails, the global party could continue and see a rotation into the inflation stuff, and if USD rallies on a liquidity bid (as opposed to jawbone support), global would likely go bearish along with most US sectors as well. That could also include the Goldilocks stuff that is currently leading.

Precious Metals

The correction has come and it is normal. Let us have no excuse making, rationalizing or tin foil thinking. A promoter who really REALLY wants you bullish on gold will do those things. A macro analyst who wants you to see what is actually happening will not do those things. She will simply describe a macro market situation with a ton of manipulation woven all through it as always, but try to describe reality and balance in the age of bubble mania.

What we are trying to do is change the macro in a profound, post-bubble way. If we make good on that view, gold is going shed the losers and cry babies whining about its lack of performance and it will improbably (to most) assume a preeminent macro role as sound monetary value within a system (Keynesian policy operations being the bubble’s long-term source). As yet, media/jawbone manipulations of the last couple of weeks amid the debt ceiling Kabuki have only consolidated the macro view, but not nearly broken it.

Gold/Stocks ratios got whacked but trends are maintained. Gold/Commodities are just fine, indicating disinflation and a still-improving trend in gold mining fundamentals.

Gold/Currencies consolidated but held trends as well.

To no surprise, nominal gold dumped support #1 and the daily SMA 50. It could (could, not necessarily will) drop to the SMA 200 (1833 and rising) and remain completely normal as long as it holds above the February low of 1810.80.

As for gold’s little bro, it too flunked initial support, which we anticipated. But the old 22 area support cluster from May-June, 2022 remains a key here. At that point silver would test its up-turning daily SMA 200 (21.93) along with the associated support.

However… bearing in mind that silver tends to get unruly to the upside and the downside, let’s not rule out the potential for a drop through the SMA 200 and a test of the support congestion at the top of the yellow shaded bottom/base pattern. Allowing for silver’s volatility, the key would then be a ‘higher low’ to the March low of 19.95. These parameters may of course depend on whether or not USD is going to hold or lose support, as per many other markets.

The GDX (daily management) chart shows that a short-term double top was struck after filling the second to highest gap on the daily chart. That leaves the upper gap sitting there winking at us for a future time. I like it.

Meanwhile, I’d also like a clean out of the gap at 28.34 and a hold of a higher low to the March low of 26.58. A gap fill would also test the SMA 200 (28.48) and a quick drop further would temporarily lose the SMA 200, much like silver above. Regardless, it is the ‘higher low’ that is important, ultimately. If silver and the miners lose that it would be a technical breakdown. As you can see, they are nowhere near that decision point at this time. The rally from Q4, 2022 is intact.

With the DUST hedge in place, I’ve held (in order of size) ORLA, AEM, BTG, MAIFF (MAI.V) and SILV to this point after releasing several positions previously. I’d like to continue to do that as long as the fundamentals are trending positive and the indexes/ETFs are still in series of higher highs/lows (in other words, uptrends). Rather than selling any more, I (a faulty bear player) may speculate on adding more DUST since the technical view is leaning to further short-term downside within the rally structure. This with the memories of many a gold stock correction ending with soul crushing washouts that put a scare into the perma-bulls.

As for future adds, I want to mainly stay within the currently held group, plus a Newmont or Kinross here, an Orogen or Wesdome there. A few others on watch as well. But for now the situation is corrective pullback within an intact rally structure.

As for the gold and silver Commitments of Traders, let’s recall that the CoT structures had devolved to a degree that could see a correction in the precious metals, but not to a degree that would necessarily end the larger bull phase. As of May 16th gold’s CoT had not moved much and silver’s did take a good jerk toward improvement. The more downside from here the better the CoT should shape up. I don’t see why we may not have a nice situation out ahead where the metals and miners are at or approaching key support while the CoT signals a renewed positive sentiment ‘buy’ backdrop. Patience, folks.


Speaking of patience, it continues to be a good idea to let the macro declare itself before getting too enthused. I was away on Thursday and Friday, so I was mostly unplugged (I did add Energy via XLE after I let NatGas play AR pop while my eye was not on it).

I watched the Lithium stocks (ALB and especially LTHM) pop. I see uranium stocks possibly bull flagging to test the short-term base breakout and am interested (would probably have bought CCJ if not away on Friday and watching URNM, NXE, UUUU as usual). Watching Rare Earth minerals play MP as it scours the lows and analysts revise projections lower on currently depressed Rare Earth Materials prices.

Keeping an eye on copper stocks (well, FCX and COPX, anyway) as they are well lower than the 2023 highs. Nickel (TLOFF/TLO.TO), Platinum Group Metals (SBSW), etc. All still on watch. But copper is suspect, technically. The Industrial Metals index (GYX) is even worse. I remain short XME and its ugly daily chart.

NatGas appears to be completing a base and so I am still keeping an eye on AR, to see if there may be a pullback after the big pop. May buy it anyway. Crude oil (WTI & BRENT) are clowning OPEC+, locked in a downtrend. But here will come a time for this commodity as well.

The Ags (GKX) continue bearish while the ETF (DBA) flags after breaking out of a base. That stuff would be on future watch if the inflation trades get going again and if the seasonals appear in line.

Commodities Bottom Line

Still not bullish. Could surprise to the upside if the US dollar takes a real dump through support and targets point ‘C’ per the weekly chart in the opening segment. But if USD goes the other way, the macro liquidity killer way, get the hell out of the pool (or better yet, don’t have jumped into the commodity pool with both feet until confirmation).

There is noise in the markets now, with (in my opinion) the US debt ceiling Kabuki Dance interfering with bonds, which by extension are interfering with inflation signals. The plan is and has been disinflationary, with those inflation signals fading. We are still on that plan for now. Hence, commodities are not yet favored.


Savings balanced by gold.

Trading Account: Short covered on XLI, still short Metals & Miners (XME)

Roth IRA (non-taxable, no contributions)

Cash is at 80%, which reflects the resurgence of Goldilocks as Tech never did waver and SPX held the SMA 50 and pinged above resistance. In other words, it’s still “rally on”, assuming we can pick the right stuff to rally with. For me, that remains Tech and Semi, generally. Also, a discrete global view sees Japan bullish, India mostly bullish and so I have a little exposure.

As for the gold stocks, they are unique! Finally. They led the market rally out of Q4, 2022 and were not unique and today they are correcting while the happy stuff do happy things. One wonders if this disconnect may work the other way later in the spring or summer. Where the miners hold their bull parameters and the other stuff finally tops out. Well, it’s one option among others. But until I see a fundamental change I am not buying the “oh whoa as me!” crap coming out of the gold bull community. I want to buy from them.

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.

NFTRH is not to be distributed to third parties without prior written consent

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.


This Post Has 2 Comments

  1. Bart

    Great report but I hope that the sentiment indicators will be included next week. With the conflicting signals from the fixed income and stock markets, sentiment can tip the balance.

    1. Gary

      Yup. End of week was a whirlwind for me. Was lucky to include what was included. But as you know, sentiment/psych is a major thing for me.

Comments are closed.