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Notes From the Rabbit Hole
Notes From the Rabbit Hole, #767


  • US Stock Market: Over-bullish, rotating toward the defensives (DJIA, Healthcare, Staples, etc.) and as such, exhibiting late stage behavior. In other words, it’s on plan.
  • US Market Sentiment: Now on the doorstep of epic over-bullish as the we hear more and more “soft landing” crap in the media. This can persist indefinitely, but it is now a firm condition of a market top and possible gateway to a real bear market (unlike the 2022 false start).
  • Indicators: Stability/Instability indicators are still calm, while risk/reward indicators are sounding alarms. When risk is realized the story will change with great force. Like flipping a switch.
  • Global Stock Markets: This week we review individual daily chart market trends vs. the broad US market (SPX). Bigger picture, the global rally is mostly intact.
  • Precious Metals: Still on the intermediate rally as long as the March lows hold. Yet still on a shorter-term rally as long as the late June/early July lows hold. Bigger picture it’s not yet the ultimate post-bubble, dis/de flationary environment for serious investment (in the miners; for me it’s always a good time to have some gold on hand as insurance and/or long-term value retention).
  • Commodities: Watch USD’s bounce to test its technical breakdown. If USD fails we’re targeting as high as CRB 305. If it’s a USD head fake and resumed bull the play ends.
  • Currencies: All about Uncle Buck, my friends. Short-term still bearish. Long-term it’s a firm bull market.

An Interim Anti-USD Trade Would Not Mean “Inflation”

Assuming the plan remains in effect that when we clear FOMC this week USD will be free to resume its bear move (within its larger bull market), we need to stay clear on some points.

  • A drop in the US dollar would not mean “inflation”, just as the rise in the US dollar amid rising prices did not mean deflation. USD is leading Fed policy, which aided the buck on the way up, but with a big lag.
  • USD began to rise and lead the lagging Fed (and its “transitory inflation” stance) in June, 2021. It took the better part of another year for the Fed to start hawking in Q1, 2022. On the back end of the cycle, USD has been declining and leading a still hawking Fed (seriously, how do these clowns stay in business?) since September, 2022. If we were to apply the same time lag on the downside as the upside then the time is about now that the Fed would abort its hawk routine. That remains to be seen. But it is interesting.
  • With stock markets in full party mode, Jerome may be tilting at that windmill, wary of an irrationally exuberant atmosphere.
  • USD is in a bull market and I expect that to remain the case, despite its currently bearish state (with a bounce currently in play to test the breakdown, as expected). See chart below.
  • Hence, any anti-USD trades noted, like commodities, would be indicated for a relief rally at best, not as the guides to a new inflationary age. I expect a ‘next inflation’ sooner or later, but first…
  • A deflationary episode is brewing. Nothing has changed in that regard. The only new wrinkle is the potential for a deeper pullback in USD and solid rally in the stuff that is ‘anti’ to it. The way I see it, the next leg of the USD bull market would be driven by fear, asset price destruction, capital flying to liquidity havens and it could quite possibly be the “post-bubble” era, finally. But that is still speculative.

But first things first. USD is on the breakdown test, as anticipated. The bounce is still within the nice, neat bounds of a normal test of resistance. But we are allowing for a tap of the SMA 50 (blue) on the upside within a still bearish daily chart picture.

us dollar index (DXY)

The weekly view shows the bounce coming before a tap of the 62% Fib, which coincides with clear support. It also shows very clear resistance (with upside wiggle room as noted above) that USD is dealing with right now. It’s a bearish chart. It sure could go bullish, but as it stands now USD is technically bearish on the daily and weekly time frames, bounce or not.

us dollar index (dxy)

The big picture bull market chart actually asks us to at least consider that the recent plunge in USD might have been a bear trap/false breakdown. What I see here is an index still grappling with a clear long-term support area. USD certainly has not broken down in its bull market and indeed would still be in that bull market if it were to drop all the way to the most extreme downside target in the 93s. Frankly, this chart view has increased my caution about getting too lathered up too soon on the anti-USD trades.

us dollar index (dxy)

USD Technical Bottom Line

Daily charts tend to lead weekly charts, which in turn lead monthly charts. So the daily remains the guide on the short-term and short-term outcomes would set trends for the bigger picture to eventually adjust to. It is vitally important to get right the question of USD support breakdown vs. USD bear trap breakdown and reversal. The breakdown test currently in progress on the daily chart will provide the answer.

Back on the Segment’s Original Message

This post reviews the pre-deflationary, pre-recessionary, pre-market bear signal (T-bill yield/2 year yield) that should precede a counter-cyclical macro environment and if things go to extremes, a post-bubble environment (the preferred environment for the gold mining sector’s longer-term health). As per the post:

If the history of this chart holds true that means that despite whatever bullish fun we are having now, there is a signal in play (3 month T-bill yield grossly exceeds the 2 year Treasury yield) that would trigger a new bear market in stocks within about 1.5 years of the signal’s origin.

We are now about a year in to the current signal as SPX rises to correct its bear market false start last year.

Other factors we have noted along the way in 2023:

Manufacturing deceleration, even as manufacturing input costs have improved due to commodity price deflation. The combo of a slowing manufacturing (ref. PMI graph below in the Sentiment segment) sector despite improved input costs is a counter-cyclical and deflationary forward signal.

M2 Money Supply YoY change has plummeted. The money supply ramp job in 2020 in large part created the inflationary price problems of 2021-2023. Despite some beneath the market manipulations by the Fed and government to bail out the banks, this shows a dangerous future signal for those who would like rising prices, and a pleasant one (with patience) for those who would like to see a decline in prices.

m2 money supply

Yet, other indicators show a still-calm environment beneath the surface. In conjunction with the still-bullish SPX chart in the post linked above, other indicators of market stability/instability have been fine, at peace and supportive of the bullish stock market environment. Those include the Libor/T-bill indicator, the VIX, Equity Put/Call Ratio (10 week EMA), still deeply inverted yield curves and this view of High Yield spreads showing a nice and relaxed environment for risk ‘on’ asset markets (for now).

high yield spread

I strongly believe that one day the US dollar will eventually rise and when it does it will be at the instigation of panicked money, flying into the liquidity of the reserve currency. Interim to that and insofar as the USD remains bearish, we can be open to anti-USD trades. But it’s like a game of Musical Chairs. When the T-bill/2yr divergence finally plays out, and when the stability/instability indicators like those noted above finally rebel it’s all bets off and in my opinion, it’s going to be deflationary. Potentially violently so.

The above is a friendly reminder that our major view has not changed.

  • First we finish up whatever anti-USD phase (mini or max) may play out.
  • We stay prepared for the deceleration in leading economic areas (like manufacturing) and inflation signals (like commodities) to eventually mean something dis/de flationary and counter-cyclical as the Fed continues to tilt at its inflation windmill to this day.
  • When the macro eventually falls apart under deflationary pressure we should be cashed up and prepared to buy the desolate landscape (with much patience and perspective) as the last of the herd finally gives up on the notion of inflation.
  • Then of course, we’ll await the herd’s buying power on the next inflation cycle.
  • If only it were as easy as this simple plan makes it sound! But we should not over-complicate things. For this reason I am reading less and less of outside opinions. We have a plan. What’s more, if I see indications that the plan needs to be altered (e.g. renewal of inflation sooner, rather than later) adjustments will be made with no ego or dogmatic adherence to bias (in my case, deflationary).

Meanwhile, I could not resist. I just love this image…

US Stock Market

Well, the venerable Dow Jones cracked resistance, and as such has loaded its 37770 target (ref. video post). To boot, volume is coming in as the machines rotate within the market’s internals. Do you know what? I’ll take a rationale human brain over AI any day. The robots will follow as programmed. Hard working humans will anticipate that.

djia us stock market

Also gaining rotation is the defensive Healthcare sector. It’s a neutral daily chart with a notable bullish bias.

healthcare sector, xlv

Within Healthcare, services (e.g. CVS), Insurance (e.g. UNH), Medical Devices (e.g. MDT) have been rallying, and big Pharma is flat out bullish. I am interested in device maker MDT’s chart and keeping an eye out for more Pharma situations (PFE currently held).

pharma etf (pph)

Semi and Tech are wobbling but not yet broken in their leadership. The same holds true of Growth/Value. But it appears likely that the ending phases of the stock rally (SPX target 4800 is in range of the current price of 4536) will feature rotation into the likes of the venerable Dow Jones and the more defensive sectors (e.g. Healthcare, Consumer Staples, Utilities, etc.).

If the rotations hold true, it would be consistent with ending stages. Before the money gets scared enough to sell everything, it rotates, as if there will be safety from a deflationary event. If history is a good guide, none of it will be safe. That includes the gold stock sector as well. It is after the fall that we’d theoretically want to buy the heck out of that sector.

US Stock Market Sentiment (graphics: Sentimentrader,, NAAIM & ISM)

Folks, things are really cooking now! Along the way of this rally, which has exceeded my initial targets for both time and price, we have asked for an excessively over-bullish environment in order to start preparing for a real market top and a real bear market (unlike the little 2022 specimen). Welcome to excessive over-bullish speculation.

Dumb money is in da house and running the show.

market sentiment, smart and dumb money

Risk levels per Sentimentrader.

market risk

Investors Intelligence (newsletters) is getting extreme to the upside.

investors intelligence

Ma & Pa (AAII)? In da house!


NAAIM (investment managers) are aping the stock market’s every move, as usual.


Now check out some Sentimentrader analysis about the recent string of better than expected economic reports, after recalling the sobering news of a leading sector, manufacturing, in decline.


So yay! Happy days and a “soft landing” are here again!! I am hearing that term more often of late. It fits with a genuine sentiment event like we have now. Personally, with all the lags and distortions of the post-2019 period, I would not take the better than expected current economic signals very seriously. But that lumpen group known as “investors” are. From Sentimentrader (click graphics for a clearer view).

From this ST notes the sentiment extremes in play for stocks (pro-cyclical) and against bonds (counter-cyclical).

Taking it a step further, let’s simply note that the CESI is elevated and the stock market is extreme in its discounting of that. So with respect to the historical data presented above in the months after such a signal, I’d counter with the fact that the post-2019 period has been filled with analog breakers. The salient point here is that stock market enthusiasm about the “soft landing” is back to the level of divergence it was prior to the 2022 bear phase.

citi economic surprise index

US Stock Market Sentiment Bottom Line

Massively over-bullish and a condition that is in place for a stock market top. Sentiment is a poor timer but it is a foolproof condition.

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 markets are largely as we left them on July 2 (NFTRH 764), still intact to support and/or bullish. This week let’s take a look at the relative views (daily charts) to the US S&P 500, which we have not reviewed in a while. These are helpful in gauging the relative trends in global markets vs. the Good Ship Lollipop… I mean the US stock market.

Europe/US is neutral on the daily view with the most recent intermediate trend turning down.

Germany/US is not surprisingly at similar status.

UK/US is further along in trying to negate an intermediate downtrend and reestablish a longer uptrend than Europe/DAX.

Canada (TSX)/US is breaking hard bearish from its previous uptrend.

Canada Jr. (TSX-V)/US is robo-downtrending and showing no inkling of a speculative trade brewing in the resources/commodities sectors.

Aussie/US is not surprisingly much like Canada. These 3 charts (associated with commodity/resource rich economies) do not signal well for commodity-centric anti-USD trades as they stand now.

Japan/US has a chart I would buy if it were a stock I liked. A classic test of the uptrending SMA 200.

India/US has consolidated its uptrend since Q4, 2022 despite anecdotally seeing more India hype in the financial media this year. Hype discussing a developing super economy.

China (large caps)/US (large caps) pits the market of a centrally managed communist economy vs. the market of a centrally managed supposedly capitalist economy (ref. last week’s view that while not overtly socialist, monetary and fiscal policy combine to routinely provide economic and stock market welfare). On the major trend, the supposedly capitalist market continues to drub the overtly communist one.

Brazil/US is neutral trending with a negative bias. Again, not a rousing picture for the anti-USD and/or inflation trades.

Broader EM/US is much like China (and the balance of Asia). Trending down relational to the US market. No anti-USD signaling here as yet.

Precious Metals

First of all, I’d like to reiterate that even if/as gold, silver and the miners may remain bullish and if/as that continues to be ‘anti-USD’, along with commodities and many stock sectors and markets, gold stocks – even the quality items I try to hold on to – are nothing special at this time. That assertion surely does not pull me any subscribers but it is the truth and the truth must always be set forth, especially in a sector rife with bullshit, like the precious metals.

The fundamentals, which we need not detail here, continue to be negative on balance. Gold is a haven, an insurance policy and as such over many decades of cycles, a holder of value when speculation fails and/or bubbles burst. I am going to be very strict about the idea of no post-bubble contraction, no long-term positive view of gold stocks. Trades will come and go. 2001-2008 was a great one, ultimately foiled by inflation. 2008-2011 was too, ultimately foiled by inflation. What did these inflationary phases do? They eroded gold mining fundamentals and they bolstered cyclical, risk ‘on’ markets (i.e. sustained the bubble).

Off the soap box and onto the daily charts, GDX turned RSI and MACD green before pulling back from a normal resistance point, as if on cue. If it stays on cue it will hold a higher low to June and the SMA 200. As if on cue it held the SMA 50 on Friday. But we are allowing for a fill of the latest gap, which since it broke away on volume (as did the unfilled March gap) and reasserted the trend, does not have to fill any time soon. But which I’d prefer to see filled nonetheless for a longer-term nicer picture.

GDX remains technically bullish on the intermediate-term rally and though it would be painful on the short-term, that would remain the case even if something were to drive it down to fill the March gap and hold a higher low, as per our original correction target.

Gold turned back from a similar logical resistance point after turning the area around the SMA 50 (1963) to tentative support. It would be best to see it hold that support but if the greater rally has already resumed the 1920 area would be the one that needs to hold. If the greater rally has not yet resumed the original best target was the support area coinciding with the uptrending SMA 200.

Checking in on the leader (due to its higher ‘anti-USD, inflation trade’ utility than gold, silver is bullish above support at 24.50 and is technically fine at/above the SMA 50 even if it fails this support. For the prospect that the correction has ended silver should hold the 23.50 area. Ultimately for the bigger rally from Q4, 2022, it needs to hold a higher low to the March low (19.94) and the shaded pattern’s upper support in the 20.80 area.

Side note: Since silver rallied in early July in line with its seasonal let’s also keep in mind that seasonally on average, it makes another top in early/mid August before scraping a lower low to the June/July lows in October. All due caveats about seasonal averages playing out in any given year, but also all due respect for the seasonals as well.

Commitments of Traders

Gold’s CoT lurched in a contrary bearish direction as Large Speculators (politely referred to as “managed money”) chased the price rally. Producer and ‘Swap’ Commerical interests faded. CoT is not currently a sentiment ally of the gold price. It is also not necessarily a stop sign, because sentiment and risk/reward are very poor timers. But it’s better to have the data than not, no?

gold cot

Silver’s CoT is unsurprisingly even worse from a contrarian perspective. While not an epic lurch to over-bullish by large Specs on a long-term historical basis, it does lend credence to a potential seasonal caution point in August.

Precious Metals Bottom Line

The intermediate rally is still on, and though being tested, so is the short-term rally that began in early July.

That’s the positive. The negative for a longer-term view is that the PMs are part of the anti-USD pack and in the absence of deflationary/liquidity pressure upon the markets are not yet to the would-be blessed phase of counter-cyclical and deflationary, which would see gold outperform the inflation stuff.

I have an upside target of 40 on GDX. That may or may not be achievable by mid-August. But the biggest picture currently sees potential for a serious downturn if/as the cyclical macro deflates, prior to the real long-term bull phase where the improbable word “investment” could apply to quality gold mines. Why a serious downturn potential? Simply because precious metals sponsorship is still largely in the hands of inflationists and the sector is still largely in alignment with cyclical markets.


If a future deflationary event would impair gold stocks and most broad stocks, what would it do to commodities? It would likely slam them back into their bear market. Again, the anti-USD stuff is a trade and as yet that trade has not yet proven to be a major one. Which brings us back to the beginning of the report where it will be important to get the near-term direction of the US dollar right. However…

CRB Index: Took out the SMA 200 with some authority. This despite the hard bounce in USD. Interesting and not a bad indication for the anti-USD trades. CRB is already on a decent little rally after taking out the June high. But if it takes out the April high of 279, we will measure a target of 305, which would be a nice bear market rally.

crb index

CRB was obviously driven by the Agricultural segment, which spiked hard. I sat and watched ‘watch’ items MOS and NTR, coming close to buying even before the BC port strike was resolved. Still on watch.

Secondarily, Crude Oil was firm as was Gas. For general Energy I hold XLE and for Gas-specific, AR, while profit was taken on NOG. I’d be open adding more positions in the Energy patch. Oil is dealing with the resistance of its daily SMA 200 and Gas is making nice progress on its base/bottom pattern.

Industrial Metals are dwelling in a pattern that could resolve either way as is the industrial star, copper. GYX is biased negative while copper is biased positive. If there is to be an anti-USD trade this area could work for a trade.

Uranium sector sees the price of u3o8 possibly ending its corrective consolidation. I hold CCJ and the more speculative FUUFF (FUU.V). Watch items continue to be URNM, SRUUF, NXE and UUUU. I am interested in adding to existing holdings.

uranium (u3o8)
Source: Cameco

Lithium, REE, Platinum and Palladium see the Li stocks ALB & LTHM having pulled back hard into Friday. I held off from buying LTHM but came ‘this’ close to adding it. All things equal (i.e. an intact anti-USD atmosphere), it’s a buying opportunity within an intermediate uptrend.

As for REE, I actually forgot to put MP back on watch after I sold the up spike on China hype. Glad I remembered to look this weekend as MP is looking to close the hype’s gap up and I’d like to take another shot at it in the low 23s.

Platinum is pulling back from its spike after it head faked a marginal lower low to the February low. Palladium is pulling back after spiking in its eternal downtrend. Recall there is little sound support until the 1050 area (current price: 1286). No current personal interest in either at this time, but the main watch item, outside of the metals, is SBSW.

Commodities Bottom Line

Watch USD’s breakdown re-test! If the buck fails this stuff could put in a nice and profitable rally. If the buck is head faking, the opposite. Right now dollar bears still hold the ball.


Savings balanced by gold.

Trading Account: No positions

Roth IRA (non-taxable, no contributions)

Net cash is approximately 76%. Portfolio remains ready to deploy more cash if the anti-USD situation plays out with USD failing its upside test. If it goes the other way, it goes the other way. If Uncle Buck gets angry and goes on a rampage I’ll have no problem raising more cash and looking forward to that because the bigger view remains disinflationary/deflationary/counter-cyclical. As I see things now, it’s on the next downturn that gold stocks could be bought for a long hold, even – perish the thought – investment.

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.