• Post author:
  • Post category:NFTRH
Notes From the Rabbit Hole
Notes From the Rabbit Hole, #770


US Stock Market: Semi & Tech finally give signals about abdicating leadership. The market is rotating into other areas (e.g. Healthcare, Energy) and it remains to be seen whether the as yet very small correction will morph into a more pervasive one that grabs more sectors. As yet, we are managing correction potential (mini or maxi) but not a bear market. Too soon for such speculation.

US Market Sentiment: Grossly over-bullish sentiment finally cracking. But there is much further for it to decline if a significant correction (within the still bull trending markets) is to manifest.

Indicators (as per last several weeks): 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.

New: Risk/reward indicators have started to crack, while the systemic indicators remain calm. Bears watching. Still on a theme of a yield curve having put in its flattening/inversion bottom and turning to a new steepener, which would certainly bring on changes to the macro depending upon whether the pressure is inflationary, deflationary or in my opinion, both as the signaling could start out inflationary but flip deflationary, depending on the direction of nominal yields.

Global Stock Markets: We view daily charts this week to see some suspects possibly rolling into a correction, at least. German DAX remains a potential guide for other markets and Canada’s TSX-V a guide for the speculative end of the anti-USD trades. Both are suspect.

Precious Metals (as per last 2 weeks): Nothing special, no matter how many times the gold bugs click the heels of their ruby slippers. Sector and macro fundamentals for gold stocks have been compromised and are looking for a bottom and reversal to positive, which I do expect. But not until the cyclical, risk-on, inflated macro rolls over. Meanwhile, if USD rolls over in the interim we’d be looking for a potential of a GDX gap fill at 40 (HUI around 335). But let’s also respect the downside potential (GDX sub-28 gap and in an extreme a gap fill and H&S target of 21). Gold is technically bullish and silver is technically intact. Watch the latter for leadership if an anti-USD play is in order.

New: Favorable are the potential for a yield curve steepener and Gold/Copper ratio improving. But on balance there is little reason for excitement yet. It does appear the proper environment to favor royalties over miners in the short-term as mining costs are not helped by the rise in oil prices.

Commodities (as per last few weeks): 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.

New: CRB (279.74) is holding its break above the April high (278.93) by a hair. That keeps the 305 objective in play.

Currencies (as per last few weeks): All about Uncle Buck, my friends. Short-term still bearish. Long-term it’s a firm bull market.

New: See technical status of USD in Friday’s post.

US Stock Market (daily charts): Rotation

From the August 9 entry in the trade log, which displayed the QQQ/SPY ratio:

I’ll leave you with an internal picture of the US market, as Tech is in danger of topping out its leadership (while the likes of Energy benefits from rotation).

Here is one of the SOX>NDX>SPX leadership (daily) charts we have used as a guide. While this could simply be indicative of a normal correction within a still bull trending market, the breakdowns in these ratios are notable and at some point a failure of this leadership should lead a correction.

sox ndx spx

QQQ’s daddy, NDX, eased below the next level of support (now resistance), filled the gap as expected, and nudged below the daily SMA 50. A solid correction, if it should manifest from the extreme over-bullish sentiment readings through July, could see NDX target the lower gap, toward which the SMA 200 is rising. Not a prediction, but in holding this index short, I would like to see it. At such time I’d consider buying some darlings falling from the sky if indications at such time are ‘correction only’, not ‘new bear market beginning’.

Of course, NDX could simply be bear trapping in preparation for yet another disappointment for our furry friends. Week to week we’ll let the situation develop.

nasdaq 100

SOX, the ultimate leader, is even worse (just as we’d like it from the bear side) as it definitively breaks down from the SMA 50. Assuming a still intact larger bull phase, how nice might it be to see the likes of NVDA, AMD, AMAT, ASML, LRCX, AEHR, TER, TSM, etc. at buy points equivalent to SOX at its gap-fill support, toward which the SMA 200 is rising? Frankly, I look at this and get excited about the prospect of buying from a puking herd, because Semi has not aborted its role as enabler of basically everything in the modern world. But for now I am short and may get shorter.

Meanwhile, as also noted leading up to the breakdowns shown above, items like the more defensive Healthcare…

healthcare xlv

…and Energy are gaining relative rotation on the short-term.

Energy sector, xle

As for Healthcare, I hold Bio/Pharma related stocks (DVAX, PFE and for now in an exercise in stubbornness, the painful CRSP) and last week added the Medical Device ETF, a sub-sector which is definitely not participating in the broad sector’s performance. I have to assume that is because unlike Pharma and certain sector services, Medical Device (MD) has a bit of a valuation issue. We’ve noted over the years that MD is both recession resistant and richly valued. As to the chart, I added the dive bomb to a higher low to the June low. Take that out and I’d very likely get rid of the position. But I am testing it to see if I can front run the machines roving the landscape looking for rotational plays.

medical device etf

If the bull will continue after this correction (mini or maxi) plays out, our SPX target is 4800 with an allowance for an overthrow to a new all-time high (as with the DJIA and its 37770 target).

Recently we’ve asked “bull trap?” of SPX and due to rotations like the above it is only now filling the upper gap and testing the SMA 50. One possible scenario is that the two sectors noted above will follow the leaders and also weaken to break SPX down toward its lower gap (4232). I covered my short on SPX due to its multi-sector makeup, but if more legs get kicked out from under the market’s table SPX could also fold, fill its lower gap and test clear support, toward which the SMA 200 is rising.

s&p 500, spx

US Stock Market Bottom Line

Favored scenario: Leadership is rolling over into a hard enough correction to shake out the FOMOs, MOMOs and hangers on. Then a significant buying opportunity generally where pattern support meets the respective rising 200 day moving averages.

Less favored, but viable: This is the start of the new and legit bear market (2022 was not legit as it was not attended by the proper signals from the bond market).

Less favored, but viable: This is just a little mid-summer hiccup prior to prompt recovery.

We don’t need the whole sentiment segment this week. As we’ve chronicled along the way, sentiment had become ‘rally killer’ over-bullish. NAAIM, AAII, Investors Intelligence and a VIX showing absolute complacency.

This graphic shows how deeply Dumb Money sentiment could get driven down (ref. previous 2023 pullback) with the stock market maintaining its bullish trends. For now, let’s work to the “correction” blueprint rather than getting excited about a bear market just yet.

smart money and dumb money

Global Stock Markets (daily charts, except as noted)

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.

With the idea that the US is entering a correction but wary of the weekly DAX chart’s potential to have already topped (after bull trapping), we can keep an eye on this key market in the event it is leading other major markets.

german dax

Let’s dial in daily charts this week for a closer view. The World is just now slipping below the SMA 50 and you can see the other indexes and their status at this important intermediate trend marker. The multi panel charts do not allow me to use two moving averages, so the major trends (SMA 200, black) are not shown on the lower panels. For short-term management, the SMA 50 will suffice.

As with Energy in the US, the commodity/resources influenced markets of Canada and Australia are relatively firm of late. But also as in the US and its sectors, a broader market correction would likely pull them down eventually as well.

global stock markets

Japan’s Nikkei continues its consolidation and has consolidated itself below the SMA 50. There is some support at 31250, but as with US Semi and Tech, wouldn’t a drop to the SMA 200 be something? Asia and EM have the appearance of bottoming potential, anti-USD. But the Canadian TSX-V looks quite suspect after a rough week and drop below the SMA 50. So let’s tap the breaks on that stuff for now. India is correcting its bull market to an as yet minor degree.

global stock markets

Brazil is poking through the SMA 50 and if it loses this area the 112k area could be upcoming. Argentina be Argentina. Mexico is painting a bit of correction potential in not making a higher high and turning below the SMA 50. Africa ETF continues to trend down and Vietnam continues to keep the Frontier ETF aloft, though in a potential short-term top.

global markets

Precious Metals

Here is how the ratio chart (daily) ended the week. Not great, but there is a potential low vs. stocks and check out Gold/Copper. That appears meaningful and not positive for the cyclical/inflated macro if it is maintaining trend and turning up again. Gold/CRB is following Gold/Oil, which is a degrading fundamental for gold mining but which I also expect to turn back up before long.

gold ratios

Other fundamental considerations:

  • Real 10 and 5 year yields are very elevated and gold-negative.
  • High Yield spreads very sedate and macro-positive/gold-negative.
  • Libor/T-bill yield is very sedate and macro/banking-positive/gold-negative.
  • 10yr/2yr yield curve continues to give the appearance of a new steepener after a re-test of the extreme inversion. It is a hint toward a forward gold-positive indication.

As for the Gold and Silver Commitments of Traders, we have some solid improvement this week, logically after price weakness hit both metals, especially silver.

Gold’s CoT shows a retreat in large speculative net longs and a reduction in Commercial net shorts. These readings had been indicating correction risk but were not extreme. The current setup implies a coming low in the gold price, rather than a large bear phase.

gold cot

Silver’s CoT has completely erased the enthusiasm of the July price spike upward. This too implies that silver is corrective rather than terminal.

The gold price faded the daily SMA 50 and may want to test the uptrending SMA 200. That would be completely normal, as would everything above the low end of the ‘Must hold’ zone.

gold price

Silver is trying to hold a higher low to the June low. If it holds, fine. If not, our target is a higher low to March, sub-21. Considering the CoT above, I cannot see how that would not be a nice buying opportunity if it comes about.

The HUI/Gold ratio (daily) should hold this higher low to March to avoid a complete breakdown.

hui/gold ratio

Weekly HUI shows the index having done what we set out months ago planning for it to do. It is testing the ‘higher low’ support level to the March, 2023 low. The 2023 price action has also taken on the look of a Head & Shoulders top akin to the one speculated upon using the GDX daily chart in this update. For now, support should be respected and fears of an H&S held in perspective.

hui weekly chart

The abbreviated July rise in the miners has created the need to at least consider an H&S as a potential bearish outcome. GDX (daily) is below the theoretical neckline of the pattern, which on this chart roughly coincides with the SMA 200, which is rising to meet the SMA 50. Frankly, this is not a good picture as long as it remains below the converged moving averages. But our original objective was to fill the sub-28 gap and that has not even been accomplished. It’s just that a lot of noise got in the market with that July spike upward to create the theoretical shoulder.

gdx gold stock etf

However, seeing the likes of WPM bang up its earnings and reclaim the moving averages after existing below them, we can be aware that a chart situation is what it is… until it changes! At the very least, given the still bearish Gold/Oil ratio, we are back to an environment where favoring royalties over miners appears the way to go insofar as one wants to be bullish.

I hold FNV and planned to add WPM if earnings were okay. They were. It’s on watch along with RGLD and OGN.V (OGNRF) as usual.


As a side note, I have had good fundamental input from people I respect on SILV, WDO.TO (WDOFF) and EQX. Out of the three, the man who stares are charts really liked this one. EQX is in a bottoming/potential trend change situation, slithering along the uptrending SMA 50 and testing it with a flag. Interesting.


Precious Metals Bottom Line

They continue to act like an anti-USD player, strengthening when USD weakens and weakening when USD strengthens. Hence, nothing special. “Special” would come on a downside buying opportunity with a profound turn of the macro to a real post-bubble environment.

But if USD turns back down and the ‘anti’ stuff rallies our upside targets are GDX 40 and HUI 330.

Despite a bear market in 2000, a terrible crash in 2008 and a mini crash in 2020, the policy-induced macro bubble did not end. The likes of our 30yr Yield “Continuum” chart indicate something may be different this time. We’ll let it evolve with much patience.

For reference and of importance to a pro or anti USD stance, Uncle Buck was analyzed from daily, weekly and monthly time frames in this post on Friday.


While a weakening of the US dollar back into its daily chart downtrend would help the broad commodity complex, there are certain current performers (e.g. Energy, Uranium) and certain suspects (e.g. Industrial Metals, including Copper).

CRB index (weekly chart) crossed its EMA 10 above the EMA 30 on the recent rise above the April high (278.93) which we’ve used to load an upside target of 305 as long as it holds as support, which it is thus far.

crb commodity index

Crude Oil is currently driving the CRB bus and benefiting the Energy sector of the US stock market. All well and good, but a related Energy sector, Uranium, is of more interest to me. Indeed, I added NXE to existing holdings URNM, FUU.V and SRUUF.

Each of these items is either technically constructive to flat out bullish on the intermediate-term (SMA 50 generally rising). What I like about the U sector is its discrete fundamental situation, which is very supply/demand oriented and structural in nature. In other words, if (and I am not an authority) the global supply/demand situation has finally taken up the over-supply slack in a growing industry, then U is less anti-USD and more discrete, in my opinion. If/as these trends continue to develop I’d like to add more and possibly even become a real U-head if the market instructs.

uranium stocks

Other items:

  • The Lithium patch continues to underwhelm, but is on watch (ALB & LTHM) on sharp downside moves, for support/gap fills.
  • The Ags are not inspiring, unless you want to call the ETF, DBA, the Ags. Then it is a stair step higher out of a base. The index (GKX) is not looking good. I hold Wheat (WEAT) on the prospect of a technical bottom (which is not easily coming) amid a positive seasonal. We shall see. I will not hold it interminably.
  • Palladium & Platinum see Pd making a sharp move off the lows with big volume. Something war related? I did not look into it. Still, little interest as major support is lower as we’ve been noting. Pt is trying to hold and rally from the 890-900 area as support for the third time this year. Still little interest and a chart that is not nice looking.
  • Rare Earth ETF REMX is firmly trending down and US based producer MP had a good pop on earnings but did not follow through. It is the main watch item for REE. The complication is China, it’s ability to dictate market prices and its status as the processor of MP’s materials. For now, on watch.


Savings balanced by gold.

Trading Account: No positions

Roth IRA (non-taxable, no contributions)

Cash is 80% with two short positions. So it’s quite defensive.

As for offense, it is being played in non-Tech, non-Semi areas in alignment with how I feel the market’s rotations are going.


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.