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Notes From the Rabbit Hole
Notes From the Rabbit Hole, #772


US Stock Market: Slightly favoring a view that stocks take out the 50 day averages and resume the rally after a summer correction punctuated by Powell’s rate hike jawbone, over resumed correction with an SPX target of 4150, which could be a solid buy and a healthier outcome for the market than a rally resumption now. Going against stocks are the state below the SMA 50. Going for them…

US Market Sentiment (per last week): Contrary sentiment continues to be permissive of a resumption of the bounce and even a next leg of the larger rally.

Indicators: M2 is rolling over, a liquidity negative. On the other side is the fiscally stimulating government. No wonder we have markets that seem confused. From pal Mike Churchill:

10-2 yield curve has pulled back but is still in a short-term steepening structure. This represents a change in character on the short-term and if it continues, an economic bust of some kind (stagflationary or deflationary) longer-term. Libor/T-bill yields are still very calm and benevolent as are High Yield Spreads. When combined with the contrary sentiment above this may tip the scales in favor of a short-term bullish outcome.

Global Stock Markets: Markets are bending under the pressure of the USD rally, which is at a clear decision point. On balance and with few exceptions, global is technically neutral at best. If USD cracks, that is likely to flip positive. If not, it likely won’t.

Precious Metals (per last week): Sector (gold stocks) has finally achieved the original target of filling the sub-28 (GDX) gap. Now it (current: 27.45) should hold the March low of 26.58 to avoid a breakdown that would target the H&S measurement in the 21s. Gold and silver remain in normal corrections with CoT and contrarian sentiment improving, but not necessarily at a table pounding contrarian BUY!… Longer-term, if the age of bubble making is finally over, this sector will be unique in benefiting from gold’s standing within a new macro.

New: Sector bounced with other markets from the higher low target. In the short-term precious metals are not unique. A public article on Friday discusses what would make them unique one day.

Commodities (as per last few weeks): Not impressive, considering CRB back below the breakout point, along with Oil and Gas still in its basing situation from long-term support. I am very interested in Natty, however, due to said support and the seasonal, which bottoms in September on average. The most constructive sector is Uranium as it is less cyclical, less inflation dependent (IMO) and trying to establish new uptrends.

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: USD is pushing the limits even further but it is NOT attended by the Gold/Silver ratio, which can be added to the note above in bold, tipping the odds toward a near-term market relief situation, possibly with a rotation to emphasize the anti-USD stuff like commodities, precious metals, fiscally inflated cyclicals, etc.

US Stock Market

After seeing and hitting the fastball a couple weeks ago, they started throwing curves, knucklers and even an effus pitch and gyro ball or two at me. Any long time Red Sox fan should know what those are. :-)

What I mean is that a couple weeks ago I was seeing the market literally and executing well (shorted when appropriate and more importantly, covered shorts for profit on balance before a big rally) and then last week came along, a jawbone got in the media tilting at his inflationary windmill, and not paying close attention to the media, I fouled off some curves before being sent to first on a ‘hit by pitch’. Not a hit, not an out. Meh.

jerome powell
Fed chief tilting at the windmill known as his own government’s inflationary fiscal policy

The trade log (TL) had some notes expressing what was going on. On Saturday morning I still do not have a read on the pitcher who will get Monday’s start. I don’t know if he’s going to throw straight fastballs or reach into a bag of tricks. Hence, cash is high, longs are limited and shorts are non-existent.

Backing out the media noise, SPX made a classic bounce to and failure from the 50 day average. Classic. Yet I let the tilting Fed chief dissuade me from bearish positioning because so often negative media events resolve bullish after the initial pullback. I made a note in the TL that bearish engulfing candles, which appeared on SPX and many other indexes and stocks on Thursday, are only implied bearish for a day or two. So when a TA is scaring or titillating you with wording about a daily chart candle, remember time frames. SPX has fulfilled the implication of the Engulfing by making a lower low on Friday before reversing upward.

That does not mean SPX (or the US market) is bullish, however. Here is what is happening:

  • The intermediate daily trend marker (SMA 50) is up, but price broke down below it and has thus far failed to rise above it on a bounce that was anticipated (ref. NFTRH 771) and occurred.
  • As noted above, the bearish engulfing candle is now meaningless, but the proximity below the SMA 50 is not.
  • Initial support is 4300 (+/-) but best support is the combo of clear lateral touch points and the rising SMA 200 (4145). That is the area we have ID’d as a buying opportunity (with risk management on a drop below it) should it come about.
  • That 4150 (ish) area would provide a nice reset to the rally and would be a healthy thing if it happens and support holds.
  • Less healthy from a longevity standpoint would be a hold and rally resumption now. So ironically, if the market resumes its rally now I’ll become less bullish the higher it goes, whereas if the summer correction really digs deep, to the 4150 area, I’d be more bullish. In essence, little has changed from last week, other than Don Quixote got in the works.
s&p 500

Personally, I’d prefer rally resumption now instead of a deeper correction to test firm support (and fill a gap in the process). That is because I want to change the macro sooner rather than later and the sooner this rally blows out, the better in that regard. As it stands now we continue to manage potentially profound prospects for the future (e.g. a post-bubble environment) while dealing with the tawdry sameness of the present.

If the market chooses ‘rally resumption’ now I’ll play that by increasing positioning in accordance with favored sectors per the market’s ongoing rotations. If it chooses to correct after holding below the SMA 50, I’ll go that way with cash as the primary play but also short positions to profit and/or hedge by. Then plan to buy at the 200 day average. Your move, you bloated pig.

[edit] Work done on sentiment, indicators and the Gold/Silver ratio tip the odds toward short-term rally resumption despite the poor short-term technicals. My opinion of course.


With the US government spending as if its books were in the realm of reality, it is not hard to figure out why the Fed is so adamant and talking tough on inflation. As deficit spending proceeds upward in support of political agenda the Fed continues to tighten. The problem is in trying to figure out whether the valve the Fed is trying to close has any relation to or efficacy against the open spigot spewing out of government. And if it does have a relation, when will it matter?

I hate to play politics (because I cannot stand the extremes on either side) but it is hard to ignore that political agenda is driving fiscal policy, which has taken up the mantle from the Fed, which did its inflationary deeds in 2020 and has since been compelled by the markets to reverse its monetary policy. It seems incredibly dangerous to the economy, while benefits for favored agendas are literally being conjured out of thin air (increasing deficit spending).

Meanwhile, manufacturing continues to decelerate on balance, with the picture likely better than it would be absent the government’s fiscal inputs directed in areas that require manufacturing (like Semiconductors, Alternative Energy and indirectly, Infrastructure, as opposed to Medicare and Social Security, for example). We have a government acting as if things are normal as it reaches into a $1.5 Trillion black hole to fiscally support some areas of the economy. Meanwhile, the accumulated Federal debt is around $32 Trillion and growing.

Manufacturing in general (ISM) is in contraction. The headline number is a generality, but the individual components that matter (new orders, employment, inventories) are bad. A positive is declining prices, but that is a result of disinflation and possibly a deflationary situation that the Fed is monetarily still working on bringing about. New York and Philly manufacturing are bouncing a bit. Maybe that will lead ISM as well. Maybe the ‘soft landing’ brigade will march on for a while. Maybe.

ism manufacturing
New York Fed
philly fed
Philly Fed

The bottom line is that it seems like a dangerous game, fiscal eggheads conducting their standard financial/economic regulation operations while at the same time the government seems to be sticking its fingers in its ears and going “la la la la la… I don’t HEAR you! La la la…”

Monetary policy is still tightening while fiscal spending is still roaring. We have been in something of Goldilocks phase, with inflation not too hot or cold. Just right! Mmmm, how nice. Meanwhile, back on planet earth we can expect Goldilocks to morph one way (deflation, if monetary policy holds sway) or the other (stagflation, if the government keeps on debt-spending, unrestrained). One thing is for (almost) sure; Goldilocks will not persist. And for the reference of newer subscribers, NFTRH called Goldilocks long before it hit the front pages. That is important context. I think the market’s recent loss of Tech leadership may indicate that Goldilocks is already losing her grip.

Bottom Line

The “soft landing” view that has attended Goldilocks will likely evaporate in favor of an eventual deflation scare or an economically corrosive stagflationary situation.

US Market Sentiment

Smart and Dumb money indicators taken as of Thursday (24th) remained depressed. This was ripe for Friday’s reversal. It is also a reason I’d rather be heavy cash until the market either holds and turns up (where I’d play what’s left of the bull phase) or fails here (where I’d consider shorting to SPX 4150 and then going long if/as support holds). But in the short-term I am uneasy about being short with dumb money so depressed.

On a positive note, the correction has brought the S&P 500 back toward the reality of current economic activity from the perspective of surprised economists, which may be a way of saying 98% of mainstream economists. In other words, by this measure some of the enthusiastic vigor has been removed from the picture. A mild contrary positive.

Likewise, our usual suspects of contrary indication backed off markedly. These are nowhere near epic contrary bullish readings (ref. Q4, 2022) but they are consistent with a renewed market rally. In other words, sentiment continues not to be standing in the way of a resumed rally if it occurs. This after being being briskly over-bullish prior to the correction.

Investors Intelligence: As of August 22 the Newsletter bull/bear ratio has dropped from 2.69% to 2.38% over the last 2 weeks.

AAII: Ma & Pa took a sharp hit in their previously extreme over-bullishness, having dropped the bull/bear ratio to 47% on August 23, from a previous reading over 70%.

NAAIM: Professional investors of other peoples’ money check in this week deserving a visual. Regarding my note about an overreaction, I am fully aware that on Thursday and Friday I overreacted as well. Got to keep things honest. Regardless, NAAIM checks in with a contrary positive reading taken even before the engulfing candle jawbone day on Thursday.

Global Stock Markets (daily charts)

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.

The World (ex-US) and each of the global components shown here remain under the stress of the irritable Uncle Buck to one degree or another. The global picture is technically neutral, at best.

global stock markets

Japan continues to be of interest from the long side if Nikkei can get down toward the SMA 200. That could coincide with a scenario where the US SPX drops to support at 4150. The theoretical trade here would then be to Nikkei 35000, which has been our measurement for the index since it first broke out of its long-term base in 2017.

Hong Kong and Asia/EM continue to trend down and go sideways respectively.

Canadian TSX-V has not lost long-term support (not shown on the daily chart) but is surely not yet indicating pleasant things for speculative inflation trades in general. See Commodities segment for more on da V.

global markets

Brazil continues to eyeball the 200 day average. Argentina continues to bubble (invitation to provide suggestions on an alternate market to insert here, I’d like to add market that exists on planet earth). Mexico continues to roll, Africa continues to trend down, and FM ETF looks like it’s in a bear flag with more downside to follow.

global markets

Precious Metals (daily charts except as noted)

Big picture fundamental views were aired publicly on Friday. I am swimming against an inflation-centric tide with my views of what is best for the gold mining sector. Basically a more macro version of the microcosm that came about in 2001-2003 before gold stocks entered a bubble. Despite the constant professorial monetary lecturing, gold bulls are as prone to bubble making as the next casino patron. That is because the majority are inflation-centric.

Luckily, today is anything but a bubble. But it is also not yet an activated positive macro. Gold needs the bubble in policy and policy stoked markets to end in order to out-perform and the miners need that in order to leverage gold’s standing for strong gains.

The daily ratio chart does show the downturn vs. stock markets potentially over. It’s a bottom-making attempt, at least and needs follow through. Now we need to see the other components – especially Gold/Oil – start to rise in order to get fundamentally bullish. Gold/Copper is still indicating an uptrend in counter-cyclical pressure.

gold ratios

Gold has maintained its daily uptrend, but is stalled at a similar point to SPX, namely the SMA 50. The test of the uptrending SMA 200 keeps me from feeling bearish about gold but it has not reasserted the bull trend either. As long as it holds the SMA 200 (1915 and rising) it’s in the short-term bullish game. Tick below that and we could yet see a test of the ‘must hold’ zone.

gold price

Silver is a bit more bullish than gold, technically. It is above both of its trend markers and has ticked RSI green. Not bad, but below clear short-term resistance at 24.50.

silver price

Let’s dial the PM leader out to a weekly view as a companion to the above. This shows how important the 21 area support (top of the basing pattern above) is. The silver price is currently bouncing after an aborted leg up that made a lower high in July. The 24.50 area resistance (above) needs to be taken out with authority or silver will be vulnerable to downside exploration (much like the GDX ‘sub-28 gap fill’ target that has been registered, a higher low must be held). The problem being it’s hard to see GDX holding the March low if silver drops far enough to test its March low and the 24.50 support area.

Weekly RSI and MACD look wobbly but the other side of that coin is they are not overbought. In other words, an upward break could have fuel behind it before it gets overbought. If the worst comes about in the nearer-term, buys at the equivalent of GDX 21s and silver 18s, each above the Q4, 2022 lows, the buy would likely be a table pounder. The weekly chart shows clear long-term support in the 18-19 area.

silver price

GDX bounced and bumped up against clear resistance before recoiling on the same media jawbone that quaked other markets. So now it’s a happy rise perhaps to even fill the 40 gap vs. a terrible decline to fill the 22.72 gap. Trick wording. Actually, either will be happy because if GDX rises to 40 but does so with other market also rallying I’ll plan to sell, possibly all miners. If it tanks sooner rather than later I’ll plan to hedge and await a significant buy opportunity. A reminder that the Golden and Death crosses are noted as contrary indications. In other words, the current Death Cross would imply a strong bounce should it play out as usual.

gdx, gold miners etf

Gold’s Commitments of Traders was pretty good at its last reading. Not a no brainer as per Q4, 2022, but pretty darn good with spec sentiment well muted and Commercials routinely covering shorts.

gold cot

Silver’s CoT is even better. Again, not to an extreme, but pretty darn good. Our thesis has been that whether or not the correction is over the CoT setups imply routine correction rather than something drastic.

silver cot

As for sector tactics, I have decided to hold and add a bit to existing positions. I will not increase MAIFF (MAI.V) because it is for whatever reason under the heavy hand of systematic selling in tow with the TSX-V. It seems to be reputable company president Doug (insider buying) vs. some kind of ongoing liquidation. No matter how good the story, I am not the type to get caught heavily sponsoring a story that is under relentless pressure, price wise.

I did bump up ORLA and AGI positions as these are quality situations under normal corrective pressure (AGI) and actually bullish and trending up (ORLA), respectively. We originally noted that ORLA is in solid hands, and that appears to still be the case. Thank you Fred Lacy for putting this on radar.

I thought about taking a quick and solid bottom feed profit (funda hat tip Joe, Fred) in WDOFF (WDO.TO) but instead decided to hold because if they really are turning that ship around it could set its own technical course as it did not go bullish when others in the sector did. In other words, if they are sincerely straightening out the operation, some catch-up could be in order.

I am of course lightly positioned overall because I am not yet viewing the sector as anything special as it goes in tow with the broad markets and a generally anti-USD bias. I did take a look at both SILV and MAG and wonder why, in light of recent quarterly results neither is tracking silver.

The same can be said about the entire silver stock spectrum. SIL is trending down intermediate-term and in an ugly pattern. Its Q4, 2022 low is much nearer than that of GDX.

silver miners etf, sil

Are silver stocks technically bearish? Yes. Can silver stocks be watched for signs of a sector bottom. Oh yeah. Check out what happened in January, 2016 and again coming out of the 2020 mini crash. Vertical.

sil/silver ratio

That bit of hype aside, if the silver miners are going to lead another such ramp job there is no sign of it yet as the SIL/Silver ratio declines to the depths of the 2016 low and also, if the macro resolves deflationary I would not expect silver/silver miners to be leading the precious metals. It’s important to remember that those previous lows immediately preceded inflationary phases. The same held true in 2009 and 2003. If we are changing the macro to post (inflationary) bubble, I’d much rather be a gold bug than a silver bug.

While there is a small upturn currently in play in the SIL/GDX ratio, the trend in silver stocks vs. gold stocks is down. Big time. No reason to favor silver stocks until a more blatantly inflationary macro emerges.

sil/gdx ratio

Commodities (daily charts unless otherwise noted)

You often see me mention the TSX-V index (affectionately known as ‘da V’ to those intimate with its perils and pleasures, mostly perils). It and its ratio to its daddy, the Canadian TSX, have been noted as a negative divergence to the inflation trades and commodities.

For newer subscribers, here is a visual. We first noted the negative divergence by TSX-V/TSX (monthly chart) in 2021 and CRB merrily rose despite that. Then came the 2022 correction. Meanwhile the ratio continues to want to pull commodities to the disinflationary floor that it slithers along. CRB continues to resist.

tsx-v/tsx ratio

Hence, it makes CRB’s attempt to regain its rally all the more interesting. If TSX-V finally participates it would signal the latter phases of the broader anti-USD rallies. Then again, it could just be signaling the macro downward. As I said, interesting. With USD at a major decision point, no less.

Oil is testing the convergence of support and the SMA 50. Gas is still in that bottoming attempt/base*, industrial metals are trending down and counter-cyclical, which makes sense given the manufacturing sector’s decline and China’s economic weakness. The Ag index continues downward. I came thiiiiiis far from adding MOS and/or NTR on Friday as they do some downside support testing, but held off.

crb index and commodities

* With respect to Gas, let’s recall that the average seasonal bottoms in September and then turns up mightily. I continue to keep a firm eye on that and would like to continue to use AR as the vehicle rather than Natty itself. Let’s also recall that if there is to be a seasonal play this year it will be coming from an epic long-term support test.

natural gas price

Moving on, the Uranium sector continues apace. As part of my jawbone induced squirrellyness last week I took a solid profit on the ETF, URNM, but held individual stocks NXE, UUUU and FUU.V (FUUFF), all of which remain technically intact. With Uranium, I think less about inflation and more about embedded demand that is not necessarily cyclical.

Uranium sector

Here are the tramps that are struggling along with their trampy commodities. The Rare Earth segment, for better or worse, is subject to China and the way it sets pricing. Even though watch item MP produces in the US it still processes in China. Until that changes, and until China decides it wants to let REE price run free, it’s a tough situation for MP. I do like it strategically, however, and will keep it on long-term watch, especially in the event that US/China relations continue to degrade. Then pricing may not be the issue it is today. But right now a full on economic war is more hype than reality, in my opinion.

The Lithium stocks (ALB & LTHM) are not technically actionable. Go figure, the fiscally inflating government is not able to lift EV demand enough to lift the Li price and in turn lift the producers. That goes for future producer of battery metal Ni, TLO.TO as well.

rare earth materials, lithium and pgm

Commodities Bottom Line

I receive an email newsletter from a very intelligent, well schooled and persuasive source, Goehring & Rozencwajg, which is linked at’s extensive links page, in the Commodities segment. Just this morning I read their persuasive, well thought out prognostication on gold and commodities, notably crude oil. They are obviously long-term ‘super-cyclers’.

There are lots of well studied smart people persuading lots of investors to the case of commodities and inflation. But dumb little NFTRH is going to continue to call what it sees on shorter time frames (dealing in months, quarters, even years as opposed to decades). Examples were Q1 2020 (risk managed into the crash and expecting an inflation trade coming out of it) and Q4, 2022 (though it took a while to grind into being, we were bullish for various reasons including sentiment, projected diminishing inflation AKA a Goldilocks phase, and the election cycle).

This is not the Wharton School or whatever its equivalent would be for inflation, commodity and precious metals high minded thought (von Mises Institute maybe? Also linked at the page above). I have my share of beliefs and bias but will always subordinate that to what is happening during any given phase along the way to long-term outcomes that may or may not play out. Intellectuals are smart. Really smart. The markets, often illogical, always manipulated to one degree or another, eat smart people for breakfast on any given phase.

Right now there is valid question about what happens to commodities if disinflation morphs deflationary instead of stagflationary. Hence, week to week we will watch the charts and note their trends. Right now the Uranium stocks appear to be entering uptrends. The US Energy sector is trying to reclaim its uptrend, Gas is a wild card and could be bottoming. CRB and Oil want to attempt a secondary breakout (CRB target: 305) and the specialty items like REE, Li, Ni and PGMS Pd and Pt are technically not good at all.

A final note on commodities from the positive side is that the Gold/Silver ratio is still in the dumps while USD tests its extreme decision point. The indication is that a market liquidity event is not immediately in play.

Currencies (daily charts except as noted)

I don’t know how many times I need to see a market push the limits before I realize that they almost always seem to push limits. Even when projecting the bounce (July 19 video update) and possibility of negating the breakdown and bouncing to test the SMA 50 and/or SMA 200, I did not fully believe it at the time. Well dude, believe it.

So here USD resides right at the last level to keep it within its bearish trend. I suppose it could take out 104.61 and go for the March high of 105.87. Indeed there is a rare gap up there. But if USD goes for the March high might not most other markets test their March lows? Interestingly, gold stocks have already done that but stocks and commodities are nowhere near it.

us dollar index

“Hmmm”, you can hear him think. A little of the ole’ gold miner leadership perhaps? I am not saying the miners will hold the March lows (ref. the open GDX 22.72 gap) if cyclical markets crack, but I am saying that they may have led cyclical markets into a deeper correction out ahead and would lead any future bottoms/recoveries in the future. That’s actually textbook for the miners (ref. 2001, 2008, 2016 and 2020 over varying time spans). But the weak Gold/Silver ratio (and firm nominal silver) mitigates this downside potential in the near-term.

Moving on, here is the global currency contingent bending under the force of USD’s rally. Gold’s closest currency, the Swiss France (CHF) is not surprisingly in the best shape.


Finally, just as I had started to think that Bitcoin (weekly chart) was bull flagging to potentially take out the long watched resistance target, it flopped. Did Twitter influencer Larry “fix the money fix the world” start sermonizing? Fix the money with bits and bytes? I don’t understand why so many gold bugs ran to Bitcoin when gold was sucking wind. Or maybe I do. Anyway, resistance has held and weekly MACD is triggering down.



Savings balanced by gold.

Trading Account: No positions.

Roth IRA (non-taxable, no contributions)

Cash is about 86% and will be decreased if the markets generally take back the 50 day averages and resume the rally or increased (or assigned to short positions) if the markets set sights on the equivalent of SPX 200 day average (4145). That latter situation could precede a longer-term bullish phase if support holds and a buy at that point works out. So yes, as a changer of the macro I prefer the shorter-term bullish case, but as an impartial viewer I think the odds of either event are about even.

As always, I’ll be cognizant of the markets’ rotations because since Q4, 2022 the market has been a rotating fool, internally. In other words and for example, the Goldilocks of Q1-Q2 may not be the play for the ending stages.

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.