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Summary

US Stock Market: SPX declined to the first support target of 4300 (+/-). From here the decision is deeper correction to a potentially healthy test of support at/below the SMA 200 or a hold here and resumed rally. The first option is the more potentially bullish. The second option starts the clock ticking on the bull’s end. Currently favoring the battered leader, the Semi sector. Other sectors as well, depending on their ‘anti-USD’ utility.

US Market Sentiment: Last week’s ‘neutral not standing in the way of lower (or higher) prices’ played out lower. Now sentiment is getting damaged. Not to an extreme, but on course for what could be a contrarian buy at the equivalent of the SPX support noted above.

Indicators: Most signals still imply calm waters, currently (including the Gold/Silver ratio). But the 10-2 yield curve sure does look like it has hit the lows of its inversion and is starting a new steepening phase, and that phase would either be renewed inflationary, deflationary or a mix of both in the months/years ahead. High risk macro that is still calm.

Fiscal Inflation View: One view is of a would-be deflation scare prior to that ‘lever’ being pulled by fiscally stimulating inflators. On the other side of the coin is the view that the USD will break down again, silver would out-perform gold, and the macro parties sooner, not later, favoring precious metals, commodities, EM, etc. Either way, the indication of the broken Continuum (long-term 30yr yield trend) is and has been a new age of inflationary signaling.

Global Stock Markets: Last week’s recovery turned to this week’s reversion to a bearish bias. All global eyes on the not yet “dedollarized” USD and its decision point on its extended rally.

Precious Metals: Macro fundamentals for gold stocks finally began to tick more positive. These include gold in relation to stocks and in relation to headline cyclical metal, copper. The holdout is the Gold/Oil ratio, which is important to mining and being manipulated by a geopolitical force. All in all I will go with the free market’s signals, which show improvement. Meanwhile, GDX little inverted H&S got eliminated last week and while the very short-term trend is still up, the intermediate trend from May is down. Very important juncture. If it fails, GDX looks for the 21s and a potentially big buy opp. If it gets back on the short-term rally and takes out the SMA 200, the target is 40. Your move, GDX.

Commodities (per last 2 weeks): CRB targets 305. Crude oil targets 105. Uranium sector went nuts and is overbought, but viewed as investment worthy on big picture global supply/demand fundamentals. If USD starts to pull back and silver does well and out-performs gold the other stuff would likely bounce/rally hard. Stuff across the spectrum like Lithiums, REE, Nickel, PGMs, etc.

Currencies (per last week): USD is pushing the limits even harder. But before we get too uptight about it let’s see if the Gold/Silver ratio can undo its negative divergence and also rise. If they rise together have cash and enjoy its income. If they drop together, well Garth, party on.

US Stock Market (daily charts)

Well, here we are. SPX resides just 20 ticks above the 4300 support objective. It sits in an ugly pattern that would play out if the index is going to do the more potentially long-term bullish thing (IMO) and test the SMA 200 (4191) or lower into support. If the pattern does not play out, SPX holds this area and rallies to new cycle highs it would feel good now but (again, IMO) start the clock ticking earlier on the bull’s end.

In other words, if the bearish pattern engages and support holds it would potentially be more sustainably bullish than if the market flips bullish now from 4300. In still other words, nothing has changed in our analysis.

Final note: There is the potential for SPX to rise and fill Thursday’s down gap prior to a resumed correction, as well.

NDX looks even worse in that it, as a leader, rallied better and now has more downward real estate to cover before it can find support at and around its SMA 200. I am short both of these indexes despite the overly obvious bearish short-term technicals. But for now I hold the shorts. If they play out in a rewarding fashion (i.e. short-term bearish) I will most likely cover those positions at the SMA 200 due to the rally of some kind (big bounce prior to a bear market or sustained bull rally) that would be likely to follow.

The Semi index is another leader and on Friday I could not resist giving a poke to long-watched AMD, which has dropped to test its SMA 200 and INTC, which got hammered back to short-term support. But the index looks like it’s got lower to go. It filled a gap up from May on Thursday, but has not filled the one below it. That is the immediate objective and if it does so, and the more sustainable bull rally view manifests for the broad US market, SOX 3100 to 3200 could be a substantial BUY. That is the technical side of it, pure and simple.

As a side note to bullish projections like this, handy risk management levels will be observed as well. In the case of the SOX, a loss of the April low of 2867.51 would be a bear market warning. So there will be logical stop loss points if the view flips bullish from major support.

The leadership chart shows NDX/SPX flat since the spring but still trending up as the SMA 200 rises toward a ‘higher low’ area to the April low. Even a successful test of that level would not break the larger uptrend.

NDX’s leader, the SOX index needs to firm now on a relative basis. SOX has done a good job of market leadership both bullish (off of the Inverted H&S shown above) and bearish (trending flat and then down since the spring on a relative basis to the other two major indexes). If SOX fails, ‘the machine breaks down. And if the machine breaks down WE (who would be bullish the US markets) break down!’ (my Sgt. Barnes shtick again).

So I will be personally interested in the Semis either as a primary vehicle for a future big bull rally or as a market warning indicator if Semi loses its leadership trends and signals an oncoming bear.

More Market Indicators

• Libor/T-Bill Yield: Calm, supportive of financial markets.
• Real (inflation adjusted) Yields: Ticking a new high, Fed implied in full control of inflation and policy is tight. The question is what is driving that tight policy? They say it’s the still-strong economy. But I’ll say it has more to do with the government ready to fiscally stimulate at the first sign of weakness.
• 10yr & 5yr Breakeven Inflation Rates: Still well depressed from the 2022 panic highs, but also with the appearance of making a long base. In other words, don’t be surprised if sooner or later inflation expectations begin to rise again in the face of governmental fiscal stimulus and outside items like OPEC+ oil price rigging.
• M2 (money supply): Continues to trend down off the 2022 peak, as percent change from a year ago has tanked. This is thus far a moderate effect of tight monetary policy and has not yet seemed to matter.
• High Yield Spreads: The message from junk bond land is still “a-okay, calm waters for weary bull sailors.”
• Gold/Silver Ratio (also see Precious Metals segment): Fading short-term in a negative divergence to the US dollar. That is in alignment with calm indicators like Libor, HY Spreads, etc. The divergence needs follow through to make a clearer divergence to USD. If that happens and USD drops (bull traps), the implication is for broad global markets to resume rallying. This is the type of stuff that could provide the impetus for the ‘extended and very tradable market rally’ option, after the current correction plays out. On the flip side, as with other calm indicators, the GSR could flip to liquidity removal mode at any point. There is just no such warning ramp being flashed by these indicators at the moment.
• 10-2yr Yield Curve: Maintains the potential for a new steepener off of the previous flattener, which I believe double bottomed at extreme inversion in July. The important question will be weather the new steepening would be under deflationary pressure, inflationary pressure or likely at varying times, both. Either way, a new steepener would likely bring pain of some kind to the economy, deflationary or some form of stagflationary (or both).

On that last note, we have added “the Napier view” (heretofore known as the fiscal inflation view) to our analytical framework. We had been on that theory in lighter terms. But it has taken a big step forward. The caution I would advise, however, is that in the interim there is potential for a deflation scare. That would theoretically act as a lever to new inflationary operations coming from the fiscal folks while the Fed hawks against that or becomes less relevant on the monetary side.

Seriously, pending said deflation scare scenario, it is very possible that we could actually be entering a new era of asset market positivity, assuming positioning in the right areas, which would include commodities, materials, semiconductors, etc. The things of economic build-out, both domestic by an ever expansionary government, and global as conveniently war torn places like Ukraine are rebuilt by governmental edict.

Finally, a note that the CESI no longer shows a frothy stock market in comparison to surprised (i.e. most) economists. It is a picture showing that the correction – if it is only a correction – is doing its job of resetting market participants’ expectations to a healthier level.

US Market Sentiment

Dumb Money: Ruh roh! Smart Money: I think I’ll nibble lightly. The renewed downturn in sentiment implies that a deeper decline in stocks (e.g. SPX 200 day moving average) could come with a good contrary buying opportunity.

NAAIM (Investment Managers): A still depressed 54% bullish as of 9/20 (likely more depressed after Thursday and Friday’s activity), down from 102% leveraged bullish on July 26.

Investors Intelligence (Newsletters): Still in retreat from a bull/bear ratio over 3 in July to 2.13 on 9/19 (likely more bearish now).

AAII (Ma & Pa): Down to a .9 bull/bear on 9/20 from nearly 2.5 in July.

Market sentiment appears to have chosen the down direction, and not being extreme, there is room for a deeper correction. So far this rhymes with a projected scenario where a decline to or moderately through the SMA 200 on various indexes could be a buying opportunity both on technicals (support) and sentiment (over-bearish). You may notice that I am starting to get bulled up the further the market drops and worse sentiment degrades (improves on a contrary basis).

What’s more, the September seasonal average is in line with the view of a continued correction and seasonal low within the next couple of months. After September markets tend to stabilize, perhaps with some volatility.

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.

If you feel like your head is spinning by watching this market, I am right there with you. FOMC and the machines in its wake did a number not only on US markets, but most global markets as well. Bucking the trend back to a bearish flavor is the UK, which had already corrected longer than others. Is it a forward guide? That remains to be seen.

Meanwhile, DAX in particular (weekly chart double top, 2nd chart below) and Europe in General have been guiding bearish. What a cruel move in the TSX, which we’d noted for its resumed bullish look. Now? Not so much. Australia is and pretty much has been in that same neutral boat. The question for these indexes is whether the consolidation is a prelude to new highs or a topping situation. Not time to be guessing.

Here is weekly DAX, still guiding the world downward with its bull traps and double top. As with the US S&P 500, however, DAX has clear and firm downside support, in this case around 14500. But also as with the US, that support would probably instigate a bounce at least or a resumed bull at most. But this could also be a major top already in place prior to a bear market, as with the US.

Japanese Nikkei cracked the SMA 50 again. I just don’t care, and will not care unless it gets to the SMA 200 for a test. Otherwise I’ll hold off on Japan, as with most markets.

Hong Kong is robo trending down. China large caps, Asia (neither shown here) and EM are threatening to resume their downtrends and are in dire need to a USD failure. Speaking of which, the Canadian TSX-V is getting brutalized. Yes, it is at long-term support. No it is not bullish.

Finally, India got cracked after making another blue sky attempt. Still bullish, but a potential double top if BSE loses the 50 day average.

Brazil got bonked to vulnerable again on post-FOMC Thursday. Argy is testing whether or not the little September rise is a bear flag. Mexico has gone from bearish to bearisher. Africa robo trending down, FM breaking down.

Precious Metals (daily charts)

Well folks, here is what the beginning of recovering macro fundamentals would look like for gold and especially gold miners. That is productive work done in the gold/stock market ratios and the Gold/Copper ratio.

But inflation expectations are in part being driven the oil price, which is driving the CRB index and is itself driven by OPEC+ market price rigging. It’s an annoying factor at the moment. The same dynamic sees gold trending down in relation to inflation expectations (Gold/RINF, not included here). But at some point even rigged markets would give way if the initial negative economic impulse is deflationary (and hence pro-gold ratios to cyclical markets).

I view this chart as currently ‘on the way’ to a positive macro/sector funda situation for gold miners.

A few other considerations:

• Gold & Silver Commitments of Traders were in similar constructive alignment to the last reading as of 9/19.
• Bullish % (BPGDM) continues to be much closer to low risk ‘buy’ than a high risk ‘sell’. That does not mean the gold stock sector cannot break down. It sure can. But the buy – when it comes – should be worthwhile, whether for a trade or best case, a new bull in a new macro.
• HUI/Gold Ratio had been trying to make a bounce and is still lamely postured that way after getting croaked, post-FOMC. Much like GDX is still lamely postured that way.

On that note, here is our trusty ‘daily management’ chart of GDX.

On the plus side: GDX…

• Is still in a series of higher lows/highs from mid-August.
• Has thus far held its higher low to the March low, which keeps a volatile post-Q4, 2022 rally (and uptrend) intact.
• RSI and MACD are reasonably healthy and trending up, short-term.
• There is an upside gap objective just above 40.

On the negative side: GDX…

• Bounced to and at least temporarily dropped back below the SMA 50, which coincided with the trend channel, the top line of which we’d want to see broken with a take out of the SMA 200 in order to start getting bullish for a correction end and a strong rally.
• While the bull view still holds the longer post-Q4 trend, the trend interim to that is still down from the May double top.
• As a bookend to the upside gap, there is a downside one in the 22s, which would fill if the large H&S plays out (and as long as GDX is below the SMA 200 that potential is in play) to its measurement in the 21s.

The technical situation is quite clear. It’s a decision point. The gold oriented TAs whom I’d noted were presenting the small Inverted H&S, had jumped the gun. When the pattern actually did form it took a hit during FOMC week. It’s usually best to wait such things out with patience rather than be stimulated by them until they form fully, and then they execute (in this case taking out the neckline, the channel and the SMA 200).

‘But hey, some people make predictions and issue definitive instructions’ * think those who believe in and value guru-speak. Screed of the day follows…

Well, I repeat this on occasion. NFTRH does not and will not make predictions! In my opinion that is for emotional instigation, charlatans and wannabe gurus. It is also an immature way to manage markets, again in my (not so humble) opinion. By dissecting, diagnosing and tracking markets, adjusting along the way we have a much higher than 50% chance than guessing (as all gurus do) provides. We will be intact and ready for major moves, even if we miss the first few ticks by not guessing right and instead, holding cash (pleasantly paying income these days).

* Every few years I seem to dig up a grudge toward the legendary Richard Russell, as he did me dirty, posting an article of mine for his subscribers, identifying me as a subscriber of his, which I wasn’t, and never replied when I politely requested the info be corrected and my website be included (as a younger Gary could have used the nod from a legend). Anyway, he did provide the world with the clearest lesson yet, never to fall in line with guru predictions with his “instructions: sell all stocks except mining stocks” just before the worst of the gold stock bear and a new bull phase in broader stocks. What a major learning experience that was for me.

Gold Stock Bottom Line

As currently positioned I would prefer a failure and clear buying opportunity at or below the lower GDX gap. In other words, a broken trend and washout. Assuming that broad markets also tank and the Gold/Stock ratios in the first chart above turn up hard.

But with the higher low to March still intact (and the Gold/Silver ratio negatively diverging an extended USD) I’d be ready as well for the upside gap objective sooner rather than later if it flips that way. In other words, as with many other markets, it’s decision time. I’ll not be caught guessing.

Gold & Silver

Gold is as we left it last week. Holding the SMA 200 and technically intact. If it were to drop in an interim broad market liquidity event it would drop less than cyclical markets. Anything above the ‘must hold’ zone would keep gold comfortably intact. Below that there could be some deeper support testing into the 1700s (ref. monthly charts, which show long-term support down there).

Silver holds not only the near-term hopes of the precious metals sector, but in its ratio to gold, the hopes of the wider macro as well. This update highlighted the US dollar and Silver/Gold ratio on Friday. As for nominal silver, it was firm amid the market turbulence last week. That could resolve as an immediately bullish signal, an ongoing bullish divergence to bearish activity in the inflation/broad markets… or it could simply fail with USD breaking out of the last vestiges of its correction that came within its ongoing larger bear market.

With USD so extended, make no mistake that silver could flip bullish at any time and lead the sector. Last week it grappled with the moving averages and held that stance. If it were to do so let’s recall the weekly chart pattern target of 35.

Silver’s leadership, and in particular the Silver/Gold ratio, remain a key factor not only for the short-term fate of the precious metals, but the broader macro as well. Let’s flip the SGR back over to its Gold/Silver self. You can see the ongoing negative divergence to USD’s new cycle highs as of last week. But nor is GSR broken down.

The macro is going to break overtly deflationary (scare) or inflationary (resumption) soon enough and it remains a time for management, not guessing. A break up in the GSR would signal market liquidity problems, and a break down, party time (for certain sectors and assets, at least). Patience, rather than fear or greed. I am leaning toward the bull view if/as the broad market correction holds at or above the major supports noted (roughly at the 200 day averages, +/-).

Other Technical Notes

• Big picture, gold is knock knock knockin’ on blue sky’s door, with risk/reward much better than for cyclical markets.
• Big picture for silver is still quite technically constructive. Volatility or not. That remains the case as long as it holds 20 (+/-).
• Big picture, HUI (GDX) are still in a ridiculously volatile series of higher highs/lows from Q1, 2016. As long as HUI holds 173 and GDX holds 21.16, that remains the case. Interestingly, the measured pattern target of the GDX Head & Shoulders is in the 21s. Hmmm. But first things first; the March lows have held to this point.

Commodities (daily charts except as noted)

As often noted, Commodities will be primary bullish participants (GSR/USD break down) or primary bearish ones (if those 2 Horsemen impulsively break upward). The OPEC+ manip and certain seasonal (e.g. Gas) or structural fundamental considerations (e.g. u3o8) aside, the sector as a whole has been impaired as inflation signals have faded and the USD has rallied (right out of the hype of that “dedollarization” crap).

As food for thought, could the Baltic Dry index of shipping costs make a catch up move to the oil-driven CRB index? Monthly log scale chart…

However, one usual attendant of CRB is still AWOL as the TSX-V/TSX ratio (monthly log) continues to indicate the opposite of speculative inflation trades.

Most commodity/resource related companies are in downtrends. Energy (OPEC aided) and Uranium (knock-on to Energy sector and discrete long-term fundamentals) are exceptions. So we have a CRB base breakout targeting 305, as painted by crude oil, as painted by OPEC.

Gas continues its forever base and I am letting my paper loss run on AR. No problem in a portfolio playing heavy DEfense! Industrial Metals are suspect and trending down and that includes Doctor Copper, which went from suspect to a nasty short-term daily chart pattern last week. *

The Ags show us how supermarkets and their supply chains are still gaming food prices if they are still elevated at the shelf. Non-energy commodities have generally been deflating all year.

* Weekly Doctor Copper deserves a brief review. We reaffirm that another major macro decision point is coming soon. If Cu breaks upward, it’s cyclical inflation ‘on’. If it goes the other way, watch for the 2 Riders of the Liquidity Apocalypse (USD & GSR), but prepare to possibly abort or take caution on the ‘deflation scare’ stance if copper tests major support at 3.10 to 3.30.

The Uranium sector is stellar. But some items are overbought by proximity to the 50 day averages (and even further from the 200 day averages). You can see the Uranium price tracker at bottom having broken to a clear new cycle. Despite the overbought conditions and any associated volatility (which has already started) the view is that this launch implies a new high for the sector above the 2021 highs. I took my profits on all but FUU.V, as it rides its SMA 50. I considered re-buying both NXE and UUUU on the pullbacks, but greedily held out for lower. We shall see whether or not that was smart. u3o8 is usually a wild card commodity.

Here are the various vagabonds of the commodity world, which is most of the commodity world and especially most commodity producers and prospectors. REE (REMX & MP)? Downtrend. Lithium (LTHM & ALB)? Downtrend. PGM+ (SBSW)? Downtrend. Nickel prospect with US government (fiscal) benefits coming in (TLO.TO)? Downtrend, and of much forward interest.

Rather than include a Currencies segment, let’s simply review Friday’s update that included the current status of the USD, with the understanding that the world of assets (including global currencies) are going counter to the global reserve, not yet “dedollarized”, currency. Oh, and Bitcoin is trapped below both its 50 and 200 day moving averages and thus, not actionable from the bull side.

Portfolios

Savings balanced by gold.

Trading Account: No positions

Roth IRA (non-taxable, no contributions)

Cash about 85%. But since that includes four bear positions, the IRA is fully guarded (risk managed) at least, and even leaning bear while collecting that all important cash income while waiting out the market’s upcoming decision points.

If the market does the most bullish thing (SPX drops to the SMA 200 or lower and finds support, SOX to clear support per the chart in the opening segment, and GDX to the lower gap fill, for examples) the current plan is to favor gold mining if/as the funda come back in order, along the Semi sector (strange bedfellows) which, you could argue has an even better big picture macro view than Uranium (also a favored sector). Here we consider how many industries the modern Semi sector intersects with.

For now, risk management, a little bear speculation, and income bearing cash, baby.

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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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.