Blog

Summary

US Stock Market: SPX still messing with the 4300 area decision point. Leadership (Semi & Tech) is battered but intact, while internal breadth continues to flash a warning. Pending any bouncing, we’re anticipating a test of clear support in the 4100 to 4200 range. From there success or failure could determine the answer between a big market rally or the start of a bear market. SPX could also resume upward now, which would start the clock ticking on the bull’s end sooner than if major support is tested.

US Market Sentiment: Sentiment faded again to heavier over-bearish. However, it is not to extremes. Hence, a drop and test of major support could bring on an extreme in sentiment that could prove healthy as Q4, 2022 did. A resumed rally now would not have such sentiment fuel and hence, could have a shorter shelf life.

Indicators (last week): 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. NEW: Healthcare (XLV)/SPY ratio indicates risk of reversal to a defensive internal situation. Market breadth continues to be poor, even alarming comparing equal weight SPX to headline SPX.

Fiscal Inflation View: This is the big picture view (inflation) based on the Continuum’s breakout and a secular change in long-term yields. It is also the big picture view geopolitically and domestic politically, as OPEC demonstrates with the oil price, as political fiscal policy at home is promoted for favored projects and as the world likely coordinates one day to re-build Ukraine. But an interim deflation scare potential is and has been on the table in our analysis, perhaps acting as a trigger to the next inflation problem.

Global Stock Markets (per last week): All global eyes on the not yet “dedollarized” USD and its decision point on its extended rally.

Precious Metals: The funda ticked back negative last week. The best buying opportunities in gold stocks are when the fundamentals are screaming higher and the stocks are tanking lower. Do you know what usually brings on such a situation? The USD and Gold/Silver ratio rising together in a liquidity crisis. Inflation bugs do not get this, or do not want to get this. If things go the other way, the sector would likely be part of the anti-USD rallies. But the preference is a real buying opportunity in the counter-cyclical sector and now the charts are indicating that as possible (see weekly & monthly charts of HUI in the segment). Meanwhile, silver is technically vulnerable and gold less so. On the short-term plus side, sentiment is bleak and the sector is oversold. That means it could easily rally, but crashes often come from already oversold conditions and if it were to happen this time the buy would be solid, possibly epic for a long trade. But here I also advise that this is my bias speaking. I want a global liquidity event so that we may get on with a post-bubble macro and the challenges it would present.

Commodities: CRB targets 305. Crude oil targets 105. But the majority of commodity related Uranium sector is now getting volatility as the question is ‘real fundamental phase (u3o8 price rises due to supply/demand) or a rotation by the hedge hogs?’. Most others remain in bear cycles as the much anticipated (and promoted) Commodity Super Cycle remains elusive (but in wait of events per the ‘Fiscal Inflation’ view above).

Currencies (per last week): USD broke above the March high, technically resetting the daily chart uptrend, rejoining the intact longer-term charts. If it’s a bull trap and the Gold/Silver ratio remains under control, the macro can party sooner. If USD goes up from here and the GSR joins, consider getting out of the pool, collecting the income that the Fed is providing and await potentially rewarding forward opportunities.

Trade Log is More Than That

I call it the Trade Log, but what it really has been is a combo of my trading moves – both brilliant and bone headed, err, less so – and brief market related notes. You may have noticed that the log had a lot of notes and charts on Friday. Indeed, it became something of a hidden blog within the website. And that helped me realize that I don’t really like making formal NFTRH+ updates every time I have a notion about something. Voila! Slip it into the trade log’s daily notes.

In general, I have also applied this new mode to the website as well. Rather than put up a lot of brief public posts, I’ll just post a chart here and there on X (you can follow if you’d like) and when I want the notes/charts protected, I’ll pop it up on the Trade Log. I am settling into a less dense public posting regimen, often with a more involved public article every week or two, rather than robo-posting short content, publicly. I have come to value more of my time during the week as personal (me and my family) and private (you, my clients).

So this is just a heads up that while I will be far from watching the markets at all times, when I am watching and when I see things that are relevant, written content and charts will often be posted as a brief NOTE at the Trade Log, right along with any trade summary entries on any given day. It feels to me like another way to be more briefly accessible to subscribers whose time, like my own, is valuable.

US Stock Market (daily charts)

SPX mustered a bounce from above the SMA 200. But in the trade log on Friday we noted that ES (futures) had registered equivalent support. ES/SPX made an attempt to bounce from that point but was halted at the first resistance level, which meets the EMA 10 at 4335. I covered all shorts due to the oversold nature of the technicals and the over-bearish nature of sentiment. But this is an intact picture of a correction still in progress within an uptrend.

I am primarily still looking for one of two things; 1) a hold here at 4300 (+/-) and a rise to 4800 (or a tick of a new all-time high) and the end of the bull sooner rather than much later or 2) a drop further into the SPX (as opposed to ES) support cluster for a test which, if successful, could spring a more sustainable bull move. Of course such a test, if it fails, would start opening doors to a bear market (confirmation of which would be taking out the December and March lows, in my opinion).

As for the leading indexes, again, please refer to Friday’s trade log notes (linked above) for a view of the Semi (SOX) > Tech (NDX) > Broad (SPX) leadership chain that has been under pressure but is not broken.

NDX does look quite vulnerable, nominally. It may only be bouncing from an oversold condition to fill a gap and/or test the SMA 50 prior to a new downturn for a proper test of support (and a gap fill), with the SMA 200 down there at 13557. Sounds like a plan, at least.

SOX at least temporarily took back broken support as it eyeballs the SMA 50 above. I sold AMD because it bounced hard toward the SMA 50, and I think the SOX is vulnerable at the SMA 50 as well.

US Stock Market Bottom Line

The markets are in a correction, but trying to bounce. After the short-term is decided (bounce failure or rally resumption) US stocks are likely either preparing to launch upward into a conclusion of the bull in the coming few months or preparing to fail a sentiment bounce, resume the correction and test major support. The first option would feel better for casino patrons in the nearer-term, but second option would be more sustainable if a downside support test succeeds, and open the door to a bear market if it fails.

US Market Sentiment

As you can see, dumb money sentiment is still depressed, which was a primary reason to expect a bounce of some kind. But much like the technicals above are in question, sentiment has not registered the type of extreme that would back a strong contrary bullish conviction as was the case in Q4, 2022.

• Investors Intelligence (Newsletters): Bull/Bear ratio declined again from the summer high above 3 to 1.83 (as of 9/26). Not extreme, and thus permissive of both a resumed and more short-lived rally, or a failure for an important downside support test.
• AAII (Ma & Pa): Bull/Bear ratio declined again, from last week’s .9 to .7 (on 9/27). Similar message as the above.
• NAAIM (Investment Managers): Continued its sentiment decline from 102% bullish in July to 54% on 9/20 to 43% on 9/27. Also in line with the above readings for Smart/Dumb, II and AAII.

Market Sentiment Bottom Line

With its lack of over-bearish extremes sentiment is contrary bullish flavored but not at all standing in the way of of a bounce failure prior to a resumed correction. Nor is it standing in the way of a resumed bull now that has a lesser shelf life than if indexes would test major support.

More Indicators

We covered leadership (SOX>NDX>SPX) and Seasonals in Friday’s Trade Log. We covered the 10yr-2yr yield curve, USD and the Gold/Silver ratio in a public article on Friday. And we have been covering yields, money supply, High Yield spreads, Libor/T-bill, T-bill/2yr yields, inflation measures and more, all along the way. Most of this stuff is either still asleep, in transit or indicating high – but as yet not realized – risk.

Today let’s just look at a couple of internal indicators to go along with the index leadership chain. Market breadth continues to be a warning as this mess has continued to thin out toward the biggest names. That is late stage signaling if historical averages play out.

At the last yellow shaded low in XLV/SPY ratio we gauged the coming of the would-be 2022 bear market (that wasn’t) as the ratio bottomed and turned up. That was a sentiment turn away from risk toward a more defensive sector. It is another indicator telling us that the waters are still calm, but that risk of reversal from that calm is quite high.

On the positive side, the current market correction has fully eliminated the divergence (froth) of stock prices to the CESI. That does not mean the CESI and stock market will not slide negative, but it does mean that stock markets are no longer frothy per the current CESI reading. This is just one reading on valuation/sentiment. Other valuation readings are and have for some time been historically extended.

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.

Please let me know if you have market preferences you’d like considered for inclusion below. I have little personal attachment to several of the markets below and am open to upgrading the view, based on subscriber input.

Here again is the proof positive that global stocks on balance have been as anti-USD as any other entity.

The World (ex-US) is breaking bearish, unsurprisingly as the USD broke upward into its decision point between impulse up or bear trap and down. Europe looks like a top, but let’s take a reminder that the UK also looked like a top back in August; and now? Not quite so much. Is it some kind of a leader due to some hidden market dynamic that eludes my analytical abilities?

Commodity/resources economies of Canada and Australia continue on their neutral (at best) way and would logically be interested in the outcome of the broader anti-USD trades.

Japanese Nikkei is again below the SMA 50 and due to a long-term chart, clear support on which coincides with the daily chart’s SMA 200, I’ll just wait with much patience and little priority.

Hong Kong (and China, Asia and EM to varying degrees) are firmly in their unspectacular downtrends. Again, watch USD.

India is making another dunk below the SMA 50 after a big and bearish reversal candle on Thursday. The SMA 200 (not shown), at 62441 and rising, could be a buy objective on BSE.

Canadian Juniors are dramatically testing the 2022 low, which itself was a test of long-term support. Quite bearish and personally, I’d rather speculate elsewhere given the relatively high Scam/Quality ratio in this market.

Brazil neutral until it picks a direction and either takes out the SMA 50 above or SMA 200 below. If Argy is still a bubble, it is a bubble doing a thus far healthy thing and holding its SMA 50 after a hard (and well deserved) downside test.

Mexico is getting worse and worse, technically. Africa’s robo downtrend is fully intact and the Frontier fund may be bear flagging, but may continue upward in the short-term to fill the gap.

Global Markets Bottom Line

Friday’s public article included the US dollar index and the Gold/Silver ratio, bringing the status of each up to date. As with most US and global markets, the fate appears to be in the hands of these two. If the overbought USD impulses upward and the Gold/Silver ratio catches on to confirm, global is indicated to get dope slapped, much like most US markets and sectors. If these two fail, well Garth, you know what to do.

Precious Metals (daily charts except as noted)

Well of course they smacked gold harder than stocks on inflation relief news on Friday. But as also noted with a chart in Friday’s trade log (see a theme developing here?), the smack served to bring gold into the normal and anticipated pullback zone. Check out the chart if you’ve not done so already.

As for its ratios to risk ‘on’ cyclical markets, well, “it don’t come easy” as the man once sang. It’s a process thus far, not an event. One day an impulsive event will be likely and if all goes according to plan that event will turn the macro to favor gold and its counter-cyclical, not to mention sound money qualities.

The Gold/Commodity ratios are particularly unhelpful to the gold mining industry. That is and has been the case since the spring. It don’t come easy. The trade log also included a fairly ugly daily chart of silver, which made a big in-day reversal from up to down after the happy inflation news. This also drove the Gold/Silver ratio from down to up and created an alert of the possibility (not yet necessarily probability) that it could catch up to USD and inflict liquidity pain across the broad markets. I shorted silver as a spec on that. I’ll be nimble because the precious metals sector’s sentiment is quite downtrodden. Perhaps silver can end the process with a final swoosh down? Or perhaps I got played? Perhaps I will simply stay even keeled and open minded.

GDX (a 15 min. chart of which was also included in the Trade Log showing in-day events and parameters) held the paper thin low above the March low. Despite a red candle on Friday along with other markets, it is still a candidate to bounce. If it bounces from the wedge bottom it will have temporarily violated the March low, which could be a negative marker for the future. If it were to bounce from the higher low, I’d feel better but not yet positive about its prospects. That comes with a break above the SMA 200. These options assume a bounce, but of course a final cascade is possible at any time. In my opinion, such a clean-out would be preferable. But as another man sang “you can’t always get what you want.”

As for other aspects of the chart, call it a bearish Head & Shoulders or not, but it’s got a neckline and GDX failed to take back the neckline. As such the measurement is in the 21s. GDX is oversold to the degree of the last two downtrend bounces, but not to the degree of the final low in March, which launched the big leg up that preceded this more extended correction. An unbiased technical view of GDX is still trending down from May, oversold and a candidate to bounce. But also with the capability to turn an oversold situation into a washout to clean the sector for a more sustainable bottom/rally.

Other Notes

• Gold and Silver Commitments of Traders (CoT) continue to be constructive, but not yet at a clear end of the trend toward contrary bullish. This meshes well with the view that the precious metals complex is risk/reward positive but with timing and depth of correction still in question.
• Bullish Percent Index (BPGDM) is even more risk/reward positive this week. The gold stock sector as a whole is deeply oversold by this measure.
• HUI/Gold Ratio is testing the lows of Q4, 2022. That is probably meaningful. Meaning #1: the sector is bearish. Meaning #2: the sector is quite positive on a risk/reward basis with its animal spirits completely evaporated. If the fundamentals start to turn for Au mining, this will be imporant.
• Real (5 & 10yr) Yields – traditionally adversarial to gold – are still unruly to the upside under the tyranny of a still hawking Fed. The gold price has held up much better than expected under this condition. That may be a reflection of a different macro with different rules than the one we had from the early 1980s to 2022, when the Continuum (long-term 30yr yield chart) blew upward to kill the decades old downtrend..

Let’s wrap up with a weekly view of HUI, which we have not reviewed in some time. Unlike GDX, Huey has already lost the March, 2023 low. If it is leading GDX/GDM, that low would give way before a bottom is in.

Meanwhile, we now have two neckline projections of the same pattern. The more forgiving neckline failure technically targets the 2022 low, which would see GDX fill its gap in the 22s and target the 21s. That is the way we’ve been operating. But HUI has put in a second hump. Here we call it a freak H&S and in TA land they call it a “complex” H&S, which sounds more professional and frankly, analytical. I prefer “freak”. That second neckline would imply a complete tank job to test the 2020 lows.

Understand that I am just reading charts over different time frames. All too often extreme downside projections, as glorious as they may turn out to be, fail to prove out. Sentiment is bleak, the sector is oversold to the by BPGDM and it is possible a low will be struck or has been struck, without much drama. But calling upon personal experience, a long correction usually ends with some kind of drama.

Meanwhile, the monthly chart continues to show an incredibly volatile series of higher highs/lows since Q1, 2016. What I believe is a disgusting, stomach churning bull market thus far (if you’re committed to it).

Now let’s take a hard look here. Specifically, note the green shaded prices. Those are the higher highs/lows. The blue shaded lows are candidates to contain this correction but I want to make clear that Huey can drop all the way to the 130s and test the 2018 low and put in its next higher low there. The 2022 low is not confirmed to be THE low. Again, no predictions here but we do have the knowledge that gold stocks can and in the past have tanked in jaw dropping final capitulations and buying opportunities. Until a low is reasonably well confirmed I want to greedily keep an eye on this washout possibility, as it could be a career maker (not to lather you up with hype, but… it’s a potential I see).

Gold Stocks Bottom Line

The Correction from May of 2023 is ongoing, subject to sentiment fueled bounces and a paper thin higher low to the March low on GDX (HUI has lost its equivalent low). However, the bull move that began in Q4, 2022 is merely just another leg up in the correction still in force from the 2020 high! Anything can happen, but the chart above is:

1. In a 3 year correction to the big post-2018 leg that registered the 375 target in 2020. As long as a higher low to 2018 is held and if the fundamentals start to flip back to positive, any coming washout will be viewed as a real buy opportunity for this sector that has not participated in the ‘everything bubble’. It’s time would theoretically come after the bubble pops. This has been our consistent analysis all along.
2. In a terribly volatile series of higher highs/lows from 2016. There is the potential to halt the most recent down leg above 173 or above 131, if the correction has not already ended (little sign of that yet). Recalling oversold crashes of the past is not TA. It is experience. The ugly bull market is intact, but the trend from 2020 remains down.

If, pending a short-term bounce, a final washout scenario appears to be engaging I’d probably like to try to ‘play’ it to the downside. That may or may not involve releasing any of my few positions. But I will not willingly suffer the slightest bit of pain in this sector. That is for its herds following generic analysis.

If the sector bounces and takes out the SMA 200, we’d be back on the upside gap fill plan (GDX to 40). But that view took a hit with the Post-FOMC drop from the 200 day moving averages (HUI & GDX).

On a wider angle view, I keep firmly in mind the potential glory of buying a complete disaster that stands to pivot fundamentally positive, as I believe the macro fundamentals hold the potential for, into or during 2024.

Commodities (daily charts unless otherwise noted)

Meanwhile, the cyclical world appears okay if you look at headline CRB and its driver, crude oil. Behind the curtain are many a bombed out commodity/resource producer. I added SBSW on spec of a USD bear trap and associated commodity sector trade. I will un-add it if/as needed if USD and Gold/Silver get frisky.

Meanwhile, Copper (weekly) is still within the nose of its Symmetrical Triangle and its implied decision point. It’s typical of this market that is one for the ages where withholding actionable signals is concerned.

Regarding copper above, check out how the industrial popped on Thursday and Friday. Copper did as well. It smacks of roving commodity trader rotation like, say, out of Uranium and into base metals? Picture those hedge hogs roving the landscape hoggishly devouring whatever oversold POS they see before moving on. The net result is an ongoing downtrend in the metals. The Ags are in rotten shape, which may mean they are next on the hedge hogs’ radar.

Uranium: real, as in new fundamentally back move upward or Memorex, as in played to the hilt by roving hedge hogs. Stay tuned because the recent volatility could resolve upward if the former and downward if the latter. Not sure what I’d do with my SRUUF and small NXE positions in the short-term, if it’s the latter. But if a hard pullback does come about it will be viewed as a buying opportunity, roughly at URNM’s 50 day average (39 and rising).

Finally, the chart of various items related to the more specialized commodity areas. As noted above, I picked up Pt/Pd/Au producer SBSW, but the trend is down. The same goes for nickel prospect, TLOFF (TLO.TO). If we get a real globally coordinated fiscal growth initiative (i.e. debt spending by the West to rebuild Ukraine and for sovereign infrastructures as well as wasteful ‘make work’ programs) items like these and many more would be solid investments. Hence, I keep an eye on this chart along with copper miners and the like.

Currencies (daily charts)

Uncle Buck got clubbed on Friday’s gentle inflation data, implying a weakening Fed. So did the Gold/Silver ratio. Then each recovered and reversed. Surely USD has discounted hawkish Fed policy by now. So what else could drive it upward? I’ll go with a market liquidity event. That is the would-be propellant that is left now. Hence we watch the GSR closely as a potential aid to that view.

As a side note, it is important to keep in mind that such a situation, USD rising and gold impulsing upward vs. silver, would likely be negative for gold stocks even as it indicates improving fundamentals and an oncoming buying opportunity. That’s the best playbook, folks. Because it leaves so many inflation bugs bewildered.

Here are the sad sacks that don’t enjoy USD’s reserve currency status. That status is USD’s ongoing embedded fundamental in that so much of the global trade, not to mention global markets trades, are settled in USD. So when liquidity becomes an issue and haven seekers sell assets, they buy dollar by default. But that’s Modern Global Fiat Currency 101, I suppose.

CHF and GBP are abandoning their uptrends while the rest of them have been trending down for varying periods of time.

Let’s pop Bitcoin in here to see how ole’ Larry “fix the money, fix the world” is doing in his sound digital money side hack.* I realize some may not get the reference, but it’s another itch I scratch every once in a while, due to history. BTC hit the previous target area of 30000+ and has gone sideways since. If you’re a bug of currency bits and bytes you want to see BTC take out the resistance congestion at the Death Crossed moving averages. **

* I think it is little coincidence that so many gold bugs in thought-leadership positions (AKA, Twitter influencership) just happened to take up Bitcoin buggery after gold had gone nowhere for so long just as BTC went to dynamic highs and topped. That is so gold bug.

** As often noted, a Golden or Death Cross is often met with a reaction opposite its implication. Hence, it would not be abnormal for BTC to spike upward in the face of this supposedly bearish signal.

Portfolio

Savings balanced by gold.

Trading Account: No positions

Cash is at 88% and I would like to once again thank the US Federal Reserve for another month’s solid income on cash reserves. They are paying us to manage risk and be patient. There will come a time to deploy hard, somehow, somewhere. In the meantime, I write about the markets, trade them a bit and wait for what is NFTRH’s primary objective, a serious change in the macro (already in place) and the new opportunities that come with it (still being defined, from both bear and bull perspectives).

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.

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.