NFTRH 766 will be more conversational, focused more on certain details and focused less on the normal structure of US and global stock markets, precious metals, commodities, etc. It will unfold in line with priority details for this moment at a time when the US dollar did as expected and the inflation trades took up the signal on cue, before getting bonked on Friday. Friday aside, it was a great week for the anti-USD plan. But a week is not a trend.
[update] After getting through a majority of the report, you can consider #766 an outlier as it really had a lot to say in the manner of opinions that came from the analysis. It is a blunt force instrument asking questions and providing options, as opposed to a dialed in weekly format that we usually follow. Sometimes – like when the 30yr Treasury yield busted its trend last year and like last week when the USD did something potentially profound – I just have to dig in and start overwhelming you with words, as opposed to normal buttoned down analysis. Maybe next week we’ll get back to normalcy. :-)
Bottom Line to NFTRH 765’s Summary segment last week: “We are playing a high risk and potentially high reward game with respect to speculating upon whether USD will break down in line with its degrading daily chart technicals.”
After the USD Breakdown
Apparently a moderately decelerating employment report and the continued fade in backward looking inflation signals (CPI) were enough to drop Uncle Buck from his already suspect perch below the down-sloped 200 day moving average as it tried to hold the SMA 50. Folks, in TA we call this a… what do they call it? Oh yes, a breakdown. So now there is a clear line in the sand about the forward fate of the USD and any inflation trades (from here on, I’d like to label these the ‘anti-USD’ trades, which is more accurate wording) that would benefit.
As you can see, former support is now clear resistance at roughly 100.50 to 101.50 (with allowance to the SMA 50 at 102.50).
It’s as simple as this; per longer-term charts not included today, a breakdown in the USD first targets the 96 area, but better support is at the 93.50 target. That is what is in play, pending any bouncing to test the breakdown. Let’s not forget that part of equation. A test of resistance either sooner (possibly very soon, as USD is oversold) or a bit later will be telling about a potential new dynamic to the global macro and the anti-USD trades. A test and break back above resistance (bear trap) could, in my opinion, lead directly to a market top and the liquidity crisis that had been our favored path prior to projecting a potential USD breakdown. A continued breakdown would likely instigate a significant anti-USD asset trade.
But first, Goldilocks, our operating theme all year, is still alive and well. This headline believes that Goldilocks will continue to be the play and indeed it is and has been the play. But happy, bull-horned headlines like this are a classic contrarian gateway to transition. In the NFTRH view the transition will ultimately be from disinflation to a deflationary episode and liquidity crisis of some kind.
The questions we have on the fly are…
- Will there be an anti-USD trade first with the US dollar weakening under the market’s assumption of a softening Fed prior to a future deflationary liquidation?
- Or will the disinflationary Goldilocks environment being cheered now continue on with a progression from pleasantly disinflationary to uncomfortably (if you’re positioned in most assets) deflationary?
Before circling back to the anti-USD trades, let’s get a handle on the S&P 500 from a bigger picture perspective after a side note with respect to the headline above: Dow closes higher on solid earnings, registers best week since March. Actually, it’s not a note. It’s simply the bullish chart we noted a couple weeks ago in NFTRH 764. In a report like this one (#766), which is going to veer off into some pretty heavy and funky territory, let’s not forget that if this pattern plays out, it’s very bullish over the near-term. I added DIA in support of that prospect.
DJIA has not taken out the previous pattern highs, but if it does it is a purely bullish setup. Per #764, the measured target would be a tick to a new all-time high at 37500. The moving average trends are gently up and RSI and MACD are not at all overbought and are coiled for upside.
Yet headlines like the above keep me firm in the view that this is probably an epic FOMO event. After the “bear market” of 2022 the herds perceive the waters to be safe as the media pull the old “soft landing” shtick out of mothballs. We have, after all, had no soft landings in the age of Inflation onDemand, post-2000. It’s been boom (to 1999+) > bust (2000 to 2002) > boom (2003-2007) > bust (2008-2009) > boom (2010- on and off until 2022). The Everything Bubble lives, to this day. There is no post-bubble contraction. Yet.
SPX (monthly chart) is motoring toward the next objective, which is 4800 after not even tapping a moderate 38% bull market Fib retrace last year, from the bull’s beginning in March, 2009. You may recall there was logical support we were targeting at 3200 (+/-). Just as I was a little too technically miserly in 2020 when the crash did not quite hit the projected 2100 area, it happened again last year as we knew a rally was coming (based on sentiment, election cycle, fading inflation signals and Fed sentiment, etc.) on a risk/reward basis. But the aborted 2022 decline could signify unfinished business. Bear business, after the rally plays out.
Options for SPX (and by extension, the broad US stock market) in order of current personal preference, with all viable in my opinion, and options 1 and 2 pretty much even odds:
- SPX is making leg ‘B’ up of an A-B-C correction that will ultimately take it to the 38% Fib or lower, possibly much lower. This would require the rally to halt at a lower high to 2021, and likely well lower (below the 4800 target, which is just a pattern measurement, after all). Later, the grandest manifestation of the Everything Bubble (stocks) can resume, with a real post-bubble environment delayed yet again. Rough target: 2800 and/or the 50% Fib level.
- SPX ticks a new all-time high [edit: or tops at the 4800 area measurement] and double tops into what could be an epic end to the Everything Bubble as policymakers, both monetary (Fed) and fiscal (government) are hamstrung by the new regime in interest rates (ref. our Continuum chart below) and the automatic, manipulative ways of the last few decades are no more. It is the end of such a phase that would see a real long-term bull market in the counter-cyclical gold sector engage. To this point, a fantasy as monetary and/or fiscal policy has always been dialed up in opposition to a post-bubble environment. But that goes to show just how epic such a phase change could be and how many herds would be left scratching their heads. This may only be my second option, but it sure is one I keep on radar in order that we can be ready. This is the environment that would make gold mining unique. And no, broad commodities are not like gold in this non-inflationary macro backdrop.
- It’s a new bull market, the Everything Bubble simply uses internal rotation (e.g. anti-USD, globally coordinated infrastructure spending as the US is already doing and as reparations to Ukraine could certainly prompt, etc.). This option asks us to tune out the pro-commodity proponents who at the same time perpetually predict stock market crashes. Broad stocks would under-perform, but not crash or necessarily go bearish. Gold stocks would bull and bear, as they have over the last few decades.
The Continuum Broke
Which leads us again to one of the main reasons we’d even consider a genuine “post-bubble” now as opposed to previous decades. Once again, I, a man who stares at charts, am just awe struck by the profound look of the Continuum chart of the 30 year Treasury yield. How orderly the Continuum was when we used to have those downtrending moving averages and rally ending arrows painted red. How orderly, how systematic. But last year? Rebellion! Something broke and since that moment it has been our job to consider what broke and how it may affect the forward macro.
As noted above, the 2 Horsemen of the Sound Money Apocalypse (that has run for decades) have been monetary (central bank) and fiscal (government) policy, always at the ready to be deployed as needed against the markets’ natural cycles in the age of corporate, market and insofar as the rich have gotten exponentially richer due to this macro rigging, selective social… socialism.
If you disagree with me that our markets are the product of socialism (or worse, communist style central planning), please clue me in as to how I am wrong. When government or government associated and all powerful entities are able to regulate, control how the money is created and where it goes, how is that not socialism as opposed to productive endeavor, which feeds a sounder, less dysfunctional, more equitable economy and financial system? Yes, you are reading an idealist right now. But as you know I am also very cold and ruthless in not falling for my own ideals until/unless the time comes for a phase change.
So again, what does that 2022 spike to alter or even ruin the gambit of the previous decades mean? What does the epic distortion in money supplies into 2022 mean? Do these (and other) things mean the end of the way things were for decades or does it simply mean a higher cost of doing business? Have the markets finally rebelled? Will the 2 Horsemen of the Macro Apocalypse finally ride to destroy the bubble once and for all?
For those newer to my work, these 2 horsemen are the US dollar and the Gold/Silver ratio which, if they impulsively ride upward together, would signal a liquidity crisis in the markets. Last week’s breakdown in USD sure did not indicate that and our recent work analyzing the prospect of a coming rally in the anti-USD stuff would be interim to such a profound liquidity event, assuming USD is not putting on a bear trap (false breakdown) here and now.
Also, here is what silver did vs. gold. Just as USD is getting oversold on the daily view, the Silver/Gold ratio is getting overbought on its hysterical spike. But generally, if USD declines and this ratio rises we’re on a solid anti-USD flavored broad global market rally. I don’t know about you, but I am not so comfortable on the big picture with silver bugs out front leading the way. But that’s an editorial comment, not analysis. At any such time that USD may negate its breakdown and gold rise vs. silver, it’s time to get out of the pool. There’d be a you-know-what in there.
Bottom Line
It is generally as it has been since the Continuum’s downtrend was broken.
- We’ve either entered a new age of inflationary macro signaling that we’ll just have to deal with (through higher borrowing rates, but also higher potential returns on investment in the things that benefit from monetary and/or fiscal inflation, like commodities, materials, resources-based economies, and yes, precious metals as well, but not necessarily the miners, depending on how gold stacks up against energy commodities and materials.
- Or the breakout in the Continuum could be viewed as a handle of sorts. A handle to a lever that when pulled by the hand of fate just crushes the whole man made construct and liquidates it with extreme prejudice. A real post-bubble environment would not be as gentle as it sounds. It would be utter destruction attended by social confusion, fear and panic. It would be the stuff of the 2 Horsemen of the Macro Liquidity Apocalypse, gold and its ancient monetary (and insurance) utility would be the preeminent physical asset on earth and its miners ‘the only play in town’ so to speak, as they leverage gold’s standing within a destroyed macro.
Other than that gentle view, I’m tapped.
Bottom Line to NFTRH 766
I realize #766 got pretty weird, and it got inflammatory and maybe prompted more emotion than usual. I have over the years been that guy who’s always trying to provide antidotes to the usual bear/gold bug Armageddon stuff that seems to eternally foil its followers and enrich the keepers of a remotely managed system. In other words, foil the red pill takers and benefit the blue pill takers.
At its essence, this week’s report sees a lever pulled last week (USD breakdown) that could be the next inflationary shoe to drop after the bigger lever was pulled last year (30yr yield Continuum trend breakout). But it is vitally important that we not get whipsawed by last week’s event. Any bouncing and testing of the breakdown by USD could very possibly be THE decision point between ‘anti-USD trades ON’ or ‘macro head fake and liquidation ON’.
It will be best – in my opinion – not to jump the gun, although taking things at face value as a TA, the more near-term rewarding anti-USD prospect has the ball as long as USD remains in breakdown mode.
The preferred view beyond the ‘anti-USD’ question continues to be deflationary, ultimately. The anti-USD view continues to be interim, if it continues. While governments and their agents will prefer to try to inflate away their debts, if the market decides to take away that option all bets are off. Man and his constructs may be no match for fate, long since due.
Portfolio
Savings balanced by gold.
Trading Account: No positions
Roth IRA (non-taxable, no contributions)
Net cash is around 74% as I await confirmation of the USD breakdown, which would involve a test of said breakdown. If this is a false breakdown in USD, cash is way too low (high by most peoples’ standards, but not mine when managing high risk bubbles). If this is the real deal (targeting as low as 93.50, potentially) then cash will be reduced.
I anticipate that the gold miner hedge is very temporary and again I’ll make the point that somewhat ironically, the only item I am short against is the item I like best for a new post-bubble macro. If things fall apart for a new phase on the macro I’d sell the other stuff and not look back. But not the gold miners. Not without more consideration, at least. Hence, a hedge at certain points.
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 nftrh.com 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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