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Notes From the Rabbit Hole
Notes From the Rabbit Hole, #759

Summary of NFTRH 759 and the macro situation leading up to it

  • US Stock Market: Semi, baby! Tech, baby! And a whole lot of under-performing, thinned out sectors, baby. The US dollar is being supported during the debt negotiation and that support comes from hawkish perceptions of the US Fed, despite the continued fade in inflation signals. It feels “artificial”. But in this environment, the Goldilocks stuff (incl. growth) continues to out-perform. Bear market rally view intact.
  • Global Stock Markets: Favoring Japan and India. Not favoring China and Asia (ex-Japan). Not favoring EM and resource countries or Frontiers. Europe still floating around up near the highs. Canada’s TSX-V is still floundering at long-term support.
  • Macro Indicators: It’s a blender out there with Treasury yields rising again, yet the Tech/Growth stuff that was impaired by rising yields in 2021-2022 is still out-performing. In other words, Goldilocks signaling has persisted. Affixing our tin foil hats, we think “hmm, who’s ginning up the macro signals and why?” The analysis is still on the disinflationary, potentially to deflationary playbook as of now.
  • Precious Metals: It’s a correction and it looks like it has further to go. The correction is normal and was anticipated (when GDX aborted its other option, a potential drive to fill the 40+ gap with double top). Gold vs. broad stocks is under pressure and if it breaks down the party in the thinned out risk ‘on’ trades could persist and the precious metals correction go deeper than originally anticipated. But that is getting ahead of the situation. For now, it’s a normal correction/consolidation for the complex. Let’s watch silver for leadership, both to the downside and later, upside.
  • Currencies: The world’s reserve currency (despite abundant de-dollarization theories) continues to bounce from longer-term support. This too plays well with Goldilocks in a more compact version of the 2014-2019 phase.

An “Artificial” Stock Market Rally?

Party time! Regardless that something with the word “artificial” in it ignited hype and kept the stock market rally going in some areas (e.g. broad SPX) and accelerated it in others (e.g. the leaders, Semi & Tech), the market will do what it will do. It is the sum of millions of men, women and artificially intelligent machines and the algos driving them. The S&P 500 rally lives, and its leadership (SOX & NDX) leads! But let’s take a look beneath its surface.

Market participation, in a word, sucks. Small Caps are not participating nominally or relational to SPX/SPY.

SPX Advance/Decline line shows significant deterioration beneath the surface.

The median stock is doing poorly, but has not yet broken down on the big picture.

Of course, on the nearer-term (daily chart), we know who’s doing what. We know now and have pretty much known all year (after projecting it in Q4, 2022) that Semi and Tech are leading the market rally in a version of Goldilocks, as inflationary pressure continues to wane. Leadership intact, folks.

So the theme is what it generally has been for months now; broad rally intact (SPX), but if you’re going to be long, Tech and Semiconductor are the places, to be. Places not to be? Metals & Mining, Materials and Industrial Metals. In other words, the cyclical and inflation sensitive stuff. Hence I’ve been short the first two panels of this chart against long positions in Tech and Semi (with some Biotech/Vaccine exposure in special cases CDTX and DVAX).

The defensives are not participating, and that indicates the animal spirits (aka MOMOs and FOMOs) driving this very thin market rally. Sentimentrader has words about how a lot of this stuff is oversold, and who knows, maybe there will be a rotation back to some of the items on these two charts. But that assumes an ongoing bull market; an assumption I do not make at this time.

In line with the party on the surface of things we have a caution indicator indicating no such thing at this time. LIBOR/T-Bill yield is back on the floor after we’d noted its easing from the spike several weeks ago.

Even as the bank sector continues to be in Drubsville, both nominally and in relation to SPX. Oh how those headlines have disappeared, leaving the pigs as just another non-participating sector.

However, M2 money supply rate from a year ago continues to nose dive. The literal view of M2 continues to be a roll over, but this view shows a stark image of the thing that initially stimulated the stock market in early 2020 now withdrawn (even as the stock market thins out to Tech/Semi)…

…with a bias toward growth stocks over value stocks (how things have changed since 2022’s bear phase).

During 2022’s come down from the 2020-2021 phase (where we first focused on the gold miners and Cloud/Remote tools/SaaS/Cloud Security stuff and then the inflation trades, participants flocked into value stocks at the expense of growth stocks. Today, with a disinflationary Goldilocks in force we have the opposite. The question being whether the break above the 200 day moving average on the daily chart above would eventually revert the major trend back to up. There is more work to do, but if market history has taught us anything it is to expect the unexpected.

Side note: if the broad bear market were to resume, it does not mean this ratio cannot rise, especially if said bear would come with a disinflationary/deflationary backdrop.

Growth and Tech stocks were impaired by the 2022 rise in long-term Treasury bond yields, but the current rise in yields is doing no such thing. Since the first clue (ref. May 8th update) on a daily chart, the bull flag on the 30yr yield’s monthly chart has maintained a structure looking upward, as if inflation were still a problem.

What’s more, CME Group have flipped hawkish in their June FOMC projections, now even more so than we noted in last week’s update on May 25th. That is some flip!

I don’t have much doubt that these expectations management shenanigans have something to do with the Debt Ceiling standoff, painting the macro as hawkish in order to support the US dollar during this time of (supposed) crisis (following the last supposed crisis in the banking sector).

The 2yr Treasury yield has taken up the fight as well.

Of course, it is not alone. The 10yr is along for the ride as well, although the pure strength in the 2yr has driven the 10yr-2yr yield curve back into an inverted flattening and a macro painted as the Fed in full control.

Sorry, but I just have to do this…

…to make the point that of course they manipulate. “They” being some combination of monetary policymakers (Fed), fiscal policymakers (Yellen, Biden admin, congress) and of course the mainstream financial media. It is unholy, ginned up and it also is what it is. They make the rules and we navigate them.

We are getting a first hand look, I suppose, at why the Fed tends to overshoot the 2yr, eventually triggering equity bear markets. Even as the 2yr spikes it is way behind the T-bill, which has continued to pressure the Fed Funds rate upward. Until the T-bill yield tops, the Fed will likely not top.

US Stock Market (daily charts)

SPX, which includes all US sectors both bullish and bearish, continues to lamely perch atop the moving averages in the uptrend from Q4, 2022. Last week’s clue about a potential failure was the tick below the EMA 10 and EMA 20. Then, as if by magic, came Nvidia’s massive AI hype storm. This pig used its Tech/Semi elements to maintain its relatively weak grip. Not impressive and the broad US market – considering the lack of participation beneath the surface – in not of personal interest.

Still, the daily “management” chart of SPX continues eyeballing the preferred target of a 4219 gap fill to a lower high 4300.

What is of interest is Tech, with NDX looking for its gap fills on the daily chart…

…and Semi, which not only took out resistance (now support)…

…but is technically targeting a new all-time high. With Semiconductors used in AI, Robotics and every manner of medical device, vehicle, war machine, smart device, smart home and sure, even some old fashioned stuff like computers, if you don’t think they can’t pump Semi to new highs you might want to think again. I am.

Even if we remain on a bear market rally (which I believe it is, since so many stocks, indexes and sectors are in bear markets) the hype for the MOMO and FOMO needs to come from somewhere. The machines need to rotate somewhere. In my opinion, even if SOX does tick a new high it does not mean the bear market is not in force. It could mean that Tech might also test its highs and who knows, maybe even our secondary target for SPX of 4700 (+/-) could come about.

US Stock Market Sentiment

Complacency is firmly in place. No change, although VIX had spiked before getting repelled by the FOMOish sentiment event to end the week. This weekly line chart does not show that activity.

Equity Put/Call ratio sees its 10 week EMA starting to break down with the complacency in the markets. If this continues, it would rhyme with the idea of SOX to new highs, NDX testing its highs and who knows, maybe even SPX testing the 4700 area. Please take all of this with a grain of salt. Just trying to make sure we are prepared, but not making predictions.

Smart & Dumb money indicators are not forecasting an end to the party currently. Dumb money has apparently not yet gotten the bull memo on “AI”. Or maybe Dumb money is hiding out in value stocks, which are under-performing.

Sentimentrader goes on to note:

Other indications show…

  • NAAIM (investment managers): Were aping the S&P 500 on May 24, just before the AI hype bomb. In other words, they were lamely bullish.
  • Investors Intelligence (newsletters): were spiked but not extreme, much as they have been for many weeks now, as of May 23. They are over-bullish, but much like NAAIM, not excessively so.
  • AAII (Ma & Pa): Still tamped down on May 24, and thus contrary permissive of more market rally that could one day lurch them bullish.

US Stock Market Bottom Line

MOMO, baby! FOMO, baby!

The market has taken our original plan (Semi & Tech leadership amid Goldilocks) and run with it per last week’s NFTRH 758:

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).


It is a bear market in many commodity related stocks, and cyclical sectors like Industrials and Materials are cracking as well. This with Treasury yields rising again! Remember, the cyclical and ‘Value’ stuff tended to out-perform previously when rates were rising. This may be a peek behind the Wizard’s curtain as I think the macro is being ginned up in an official hype campaign to support the US dollar during the debt ceiling talks. If so, it’s not real. It’s Memorex and the signaling should soon return to disinflationary, if not deflationary. Tech, Semi and ‘Growth’ seem to agree.

That does not necessarily mean the USD will drop, however, because as we’ve noted all along if the bear market resumes (with few places to hide, if/when Semi & Tech top out) USD would do just fine with a liquidity bid. But in the here and now we are still on a thin market rally with a couple of standout segments leading it, counter-intuitively fueled by the negative sentiment first in banking, and now in the debt negotiation. Of course, negativity tends to fuel bullish moves in stock markets because for the average MOMO/FOMO, “relief” is a thing.

With a mixed market showing many bearish sectors and segments and a few bullish ones, I wonder how valuable a tool sentiment is right now. We could ride Semi & Tech in a FOMO-driven last chance power drive or perhaps the machines have another rotation left in them (back to the oversold stuff that is seeing insider buying per the above?). Defensives, maybe? Or the bear steamroller could just roll on in and flatten the whole thing as casino patrons sit on their beaches, grill their burgers and dogs or pound beers on the 19th hole while da boyz in da Hampins sips dem Mahgaritas.

In my opinion it’s all viable. What it also still is, in my opinion, is high risk with the timing on that risk yet to be determined. The lack of market breadth means something. Hence, the way I will continue to manage this thing is with a week-to-week point of view, keeping track of Goldilocks and any market rotations to come, with a bigger picture and still-bearish view in mind. This has worked well so far.

Global Stock Markets

Please take due note that local currencies play a role in market performance for global citizens. NFTRH being American, cannot get too far afield managing all those moving parts with my simple charts. So global market comments and charts are for reference.

Global (ex-US) did get with the strong dollar (weak inverse USD) last week even as US Semi and Tech busted bullish. China/Asia stocks are dropping, EM stocks are dropping and much of the world is weak relative to the few sectors that are bulling. Europe on the other hand, is still generally bulling.

Another exception is in the form of highly specialized global Semi Equipment maker ASML, which I held despite the drop on Wednesday, and which gained some of Nvidia ‘AI pump’ cheer. ‘Why not continue holding?’ thinks I.

As you know, we have been watching Japan bust bullish and NTDOY was the stock I chose for Japan exposure. From the Trade Log on May 15th:

I saw a friend (astute market watcher/trader) mention NTDOY weekly chart. I looked at the chart and married it to my Japan view (ref. recent NFTRH reports) and bought. Simple, eh? Perhaps a little too simple. BTW, monthly chart shows a massive Cup & Handle. I had forgotten about it until now.

Here is the monthly chart’s Cup & Handle, for reference. A pretty bullish looking picture for something that has been declining for 2 years. I like the Cup’s higher right side and that well formed Handle of pain.

On that same day I added India in the form of RDY:

While on the global theme, I took some India exposure with RDY, which beat on earnings, got some analyst static (Nomura) and then pulled a tank job to the daily SMA 200.

What I had not noticed at the time was that it too is in a big picture Cup & Handle. RDY had begun to break upward from the Handle when the earnings smack down came. Worth a shot, says I.

Of course, when the US bear market resumes (assuming we are still in one) global will get beat up as well. But for now and with Semi/Tech guiding the way I like a bit of global diversity.

US Stock Talk

But the main holdings are still US based. The main sectors are Tech related. In particular, a couple Cloud security stocks (CRWD and TENB), an AI/Cloud networking stock (ANET) and a vaccine maker here (DVAX) and a Biotech speculation (CDTX) there. For good measure, a couple of dinosaurs were added on Friday as well:

Aside from those, there is Semi exposure in the above mentioned ASML and AEHR. Had I known of the hype to follow I’d have probably held off on selling GOOGL and might also have added AMZN.

But… patience. I believe that the situation is the same as we’ve been managing to date; picking up profitable nickels in front of the oncoming bear market steamroller. But last week said steam roller ran out of steam and may not run participants over as soon as previously expected. Well, it already has been delayed as our original bull view was through Q1, and we are now 2/3 of the way through Q2. It’s a thin market, but discrete sectors and hence, stock picking within them, are still working.

Precious Metals

The correction is coming along nicely. This public post reaffirmed the GDX parameters we’ve been working to in NFTRH. When the correction nears its buy points – assuming the macro fundamentals are still somewhat intact – we’ll manage individual miner charts for buy areas, whether in weekly reports or updates during the week. For now, assume that if the GDX target of a gap fill below 29 is a good one, your favored gold stocks would likely also be a buy at that point.

If I am being too short-term bearish then the market will probably compel me to release my DUST hedge position, and ride the miners I hold. But I think we go sub-29 (GDX) because miner corrections usually end with a heavy thud of some kind, not a gentle, low volume up day like they had on Friday.

As to the macro funda, the views of gold vs. stock markets should actually hold the (blue) 200 day moving averages either by ending the precious metals correction or by broad stock indexes failing. Otherwise, one of the fundamental pillars will be broken, at least temporarily.

As you can see, the uptrend in gold vs. commodities is intact and again, this begs a non-hysterical view of gold that tunes out manipulation theories and realizes that in a disinflationary environment (Goldilocks, though it is) it is normal for less inflation sensitive gold to be out-performing this inflation sensitive cyclical stuff.

As you can see, gold has out-performed star cyclical metal Copper since February, and with the China growth story now coming under pressure that could continue. With China large cap stocks breaking to a new low last week it is one market that remains on our macro economic deceleration theme. FXI tried to and failed to exit its downtrend early in the year.

Gold/Copper ratio is guiding that way.

Gold and its trends vs. global currencies are technically intact, absent a lower low to February-March.

Gold’s Commitments of Traders nudged a bit last week but silver’s CoT did even more so, with large Specs less net long and Commercials less net short. But remember that even if this is a new trend, as per the previous one (green arrows) there is more work to do to complete a trend to a contrary positive structure. The turning points in the CoT come at the end of the trends (either bearish or bullish), not during them. Open interest is dropping, which given the potential new trend, is positive.

  • Silver’s key support is at 22(ish) with the daily SMA 200 currently at 22.01, the 2022 support cluster at the low/mid 22s and the current price at 23.36. So there is more room for silver to ease lower along with the CoT trend above.
  • Gold’s price (current: 1944) can ease all the way to the daily SMA 200 at 1836 and remain technically normal. I don’t expect gold to break down, but I do expect a good bit of belly aching at best, angry conspiracy calling at worst, coming from the Bug-o-Sphere if the low 1800s are tested.

For a look at the two metals combined, here is the still normal view of the monthly chart of Au/Ag bullion fund CEF, trading at its usual discount to net asset value, its positive RSI and MACD and a normal handle that in normal fashion did not happen to break to the upside yet. It’s not a sprint, this changing the macro stuff. It’s a trudge, a dirge.

Much like with Gold/SPX above, GDX/SPY is running out of downside real estate in order to hold its uptrend. A lower low to March would put us on high alert for a broken sector view. Can’t happen? Well, maybe we should recall all the times after 2011 we have had to call bear on the gold miners (e.g. Q1, 2013 as Semi led the cyclical world & Q2, 2016 as the cyclical stuff caught up to and passed gold).

Intact is intact, which this is. But I am not in the habit of deluding myself and sure as hell not you. Everyone is free to make their own decisions, but I will never tow the gold bug company line and spew robo-dogma.

GDX/SPY is testing its very young uptrend. It needs to hold or there could well be more pain ahead than currently anticipated before the next bull move.

GDX is better as measured by the average commodity. But the average commodity is in a bear market. GDX/DBC is also correcting but the uptrend is a bit more mature and stout. Again, this is disinflationary macro signaling and what the gold miners need for the investment case to return is for the disinflation to become shall we say, uncomfortable. That means most stock market sectors and commodities should continue or resume dropping.

Let’s wrap up with the weekly view of HUI, which is technically 100% on plan. While the previous rally was ongoing, we had a question of whether the sector would correct sooner (it did), leaving the GDX gap above 40 unfilled (it did) and the upper channel line on weekly HUI unregistered (it did).

The other plan was for a GDX gap fill below 29 (looks likely) and a decline in weekly HUI to the 220-230 region (looks likely). Technically, HUI would be busted if it were to drop below 210. At its current 240, Huey is a long way from such a problem. Gold bugs want to see 225(ish) hold.

Commodities (incl. USD & TSX-V)

It is not bullish. Friday’s update on CRB tracker DBC showed what could be a long way down before the complex finds real support. We will continue not to waste too much ink on a bearish situation.

The Fed is hawking (or more to the point, some wacky macro signals are indicating for more Fed hawking), the US dollar is still bouncing (from longer-term support) and commodities, the inflation sensitive building blocks of physical economies, are trending down as a whole.

Here is daily USD, having taken out the SMA 50, short-term resistance (now support) and eyeballing more visual resistance at the down-turning SMA 200. USD is not out of the technical woods by any means, but as it rallies the anti-USD stuff, in this case including precious metals, is under pressure.

What is interesting is that commodities were weak when USD was weak and are still weak as it bounces from its double bottom. On the whole it’s not a good look for the “Commodity Super-Cycle” brigade. I realize they have intellectual grounds for their views, sleuthing the geopolitical macro world to the conclusion that scarce commodities * must rise amid politically driven asset grab, but dumb old NFTRH will just call what it sees. It sees a firm downtrends in CRB index and in its headline commodity, Crude Oil.

OPEC+? I could swear that there is a contingent of analysts actually rooting for OPEC+ and against the US and the west. It makes a good story, this resource grabbed inflationary future, but as yet the story has not played out. So why don’t we try to channel our inner dummy as long as the indicators and charts advise so? I’d rather be safe with the dummies than losing my shirt with the intellectuals and geopolitical conspiracy sleuths.

Let’s not run down the laundry list of commodities this week. If something material happens before next week’s NFTRH 760 well, that is what we have updates for. Meanwhile, the Canadian TSX-V, which would indicate a wider participation in the speculative inflation trades, continues to flounder at long-term support. We’ll keep an eye on it, as usual. But for now it is not indication bullish. If it were crack support and make a lower low, it would make a very bearish indication.


Savings balanced by gold.

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

Roth IRA (non-taxable, no contributions)

IRA is 79% cash as I continue to navigate preferred sectors like Tech and Semi, while being short non-preferred sectors like Materials and Energy while short to hedge gold miners. So, considering the short positioning I think the cash level is quite conservative at the moment. But if the bear steamroller starts to trample even the leadership sectors cash and/or shorting will be increased.

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.