Summary
US Stock Market: Seasonal remains positive. Trends are up. Gaps are below. Given the sentiment note below, risk to this rally – or at least the risk of an interim pullback – has increased markedly. In other words, even if the seasonal rally is to continue (favored), a better opportunity (than at current levels) to buy it could be ahead.
US Market Sentiment: Last week we noted that sentiment was shifting toward over-bullish. This week we note that it IS over-bullish. We could well be looking at a broad US market pullback (USD going to bounce from the SMA 200?) prior to a would-be Santa rally and continuation of the seasonal. The argument against a continued rally is that the “bull killer” reading already came last summer. So over-bullish sentiment does not need to reach that level of extreme in order to end the bull.
Indicators: VIX has been decimated to below last summer’s lows. Low VIX means high complacency. It also means the risk ‘on’ contingent held sway as of Friday. Speaking of risk, it is high from that perspective. Real Yields are still weakening, which implies softening monetary policy. 10-2 Yield Curve is easing and still inverted within its new steepener. This has logically come with market relief. When the curve un-inverts and steepens it will imply an oncoming economic bust. It’s in progress, in my opinion. Inflation signals, like the 10yr Breakeven are still weakening while M2 is rolling over, continuing to pull at market liquidity. Gold/Silver ratio has been weak, which has supported the seasonal and anti-USD trades of late.
Then there is this, the continued pullback in “sticky” CPI. If we are correct to assume the first disinflationary > deflationary impulse of a new overtly inflationary macro has begun the 1960s to 1980s model works as a guide. Bear in mind this is one discrete measure of inflation’s effects, but it spoke to me when I saw the historical aspect of it. Interestingly, history shows that recessions came with tops in SCPI. Thus far? The headlines are for a soft landing and we remain in disinflationary Goldilocks territory with the economy obviously weakening. As a side note, the “Inflation onDemand” note encompasses a long phase in which bond yields (hello Continuum) and official inflation gauges signaled disinflationary, allowing for inflation on demand by our policy heroes. The lid blew off of that racket in 2022.
Fiscal Inflation View (as per recent weeks): In my view, this comes later. Perhaps at the trigger of a deflation scare.
Global Stock Markets (per last week): The mixed bag is less mixed now because a common feature of many global markets is a sensitivity to the US dollar. USD dropped, the world on balance, popped.
Precious Metals: Last week: “Gold, silver and the miners appear poised to rally.” NEW: They continued to rally, but it is holiday season and a would-be GDX breakout above the daily SMA 200 is still the key. If that is taken out and held there will the potential for an excellent trade to 40 (GDX), but a real and extended bull market could still be out in 2024 after a potential interim deflation scare. Gold is bullish. Silver is poised that way. Ah, but the holiday seasonal. It is not trustworthy and insofar as the PM complex has been anti-USD it too could be subject to some interim volatility if USD takes a bounce from its SMA 200. Big macro picture, however… bullish. See segment and also Portfolio notes for more.
Commodities: Commodities are still a mixed bag with oil now dragging CRB instead of bolstering it. Industrial metals and especially copper are at a bounce decision point. Ags are lame thus far. Uraniums are still bulling. All in all, the sector is rightly restrained as inflation signals and some aspects of the economy fade.
Currencies: USD has dive bombed the initial target at the 200 day moving average. It is now contemplating whether to bounce from there. If so, seasonal partygoers may get whacked on an interim basis. It’s a logical point for a bounce at least, given over-bullish market sentiment and its own oversold situation. Fundamentally however, the implication is that USD is losing the support of a hawkish Fed, despite what its orifice has to say in the media. Its future bullish input is expected to be a market liquidity crisis of some kind. As a side note, we should watch the Gold/Silver ratio closely. It has been weak and if it stays that way any USD bounce would be indicated to be just that. If GSR and USD bounce significantly that would likely bring short-term pain to the macro.
US Stock Market
A reminder that on average, the seasonal pattern for SPX rises into year end, pulls back, ticks a new high early in the year, pulls back and then rallies into the ‘sell in May/June’ time frame. If only a seasonal average were a predictor. But it isn’t. It’s a historical average, a long-term bias, subject to failure in any given year.
But it is supportive of the idea that stock rally going on now, which a year ago I’d originally projected as a Q1-Q2, 2023 thing, could actually eat up the first half of 2024 before the bear begins. Due to this and other indicators not yet signaling imminent trouble (while our big picture macro indicators signal plenty of trouble), I’ve somewhat vaguely been labeling the projected end of the bull/start of the bear as sometime in H1, 2024. Not exactly a finely tuned target.
A lot will depend on how long the message of this contrary indicator holds sway. I believe Cramer on CNBC is a cartoon that regular people don’t think is a cartoon. Sort of like the old Kudlow cartoons they used to show on the same channel. Just biased, buffoonish and trend-following the headlines; CPI is soft, so of course that means a Goldilocks “soft landing”!
Well, just remember the paragraph above is written by someone who anticipated Goldilocks a year ago. Hence, right or wrong, I will reiterate the view that Goldilocks is likely to eventually morph into market liquidity problems and/or a deflationary problem.
What we cannot control is the persistence of Goldilocks and touts like an economic “soft landing”. But this big picture macro chart is a ticking time bomb. The more I consider it, the more credence I give to the idea that when a major bubble bursts only a grand exit will do. A pictorial image of that concept would be the red shaded areas on SPX, where two small double tops preceded the last two semi-organic (unlike 2020) bear markets while the one developing now, will be a whopper when it plays out.
A double top can come at a lower or higher high to the previous, in this case all-time, high. The yield comp in the upper panel argues that this is not just a TA trying to guess that a double top is forming on SPX. It argues that something like that should be forming on SPX.
If this view is correct we’ll have a front row seat to an epic disaster in the making. The rally going on now is the FOMO (fear of missing out) that drags ’em back in and it will extend long enough to convince ’em that they should be back in because happy days are here again and James Cramer says “soft landing” while patting the heretofore hawkish Fed chief on the back.
In all the years I’ve heard the media tout soft landings, I’ve never actually seen one. What I have seen are liquidation events that were turning disastrous for bubble participants (which if we own a home or equities, are most of us) until this guy, his predecessor and those who followed him sprang into (inflationary) action, fighting the dreaded deflation monster heroically until victory – and bubble maintenance – were secured.
The problem is that this policy was not heroic on the big macro picture. Quite the contrary, this “victory” was destructive… of the middle and lower classes and by extension, society itself. This policy of micromanaging the markets and the economy through various means of money printing (inflation) and debt leverage has made the poor (pay-check to paycheck, at best) poorer and the rich (asset owner class) exponentially richer.
That may sound like a commie or a socialist (or just plain old Robin Hood), but what I actually am is a former manufacturing person who had to manage the economy from a nuts and bolts perspective, then fell down the rabbit hole of finance and found a pit of grift, lies, ignorance, mass herding and swindling on a large scale macro level. The mechanics of this perverse macro were courtesy of our financial Maestros and heroes, along side both entrenched aisles of government. In other words, they did all they could to inflate (at will) and sustain an economy and associated markets with policy that punished savers and sound risk management, and rewarded asset (paper and otherwise) owners and risk taking.
Despite that, the charter here is to manage the market as we see it. That means not trying to will the stock bull to end, but to (personally) play it and manage risk into its end, currently projected for H1. On the flip side of that coin, a real end of the bubble (in policymakers’ ability to ably remote-control markets and the economy) will, theoretically at least, boost the ANTI-bubble in the eyes of the herds that now listen to the likes of the cartoon promoter shown above.
Precious Metals
Said anti-bubble, gold, does not pay dividends as it is nobody’s liability. It is a rock. This rock has been assigned monetary value throughout history. That is stability, don’t you think?
So while the technicals for gold imply our long-held target of 3000+, it is gold’s relative value that will go into a new bull market phase when the bubble ends, even if the gold price remains moderate.
This report is turning into a free-form thought piece (screed, diatribe, whatever… I’m going to go with it), but that is probably for a reason; we don’t want to be too regimented and orderly at all times when trying to manage a potentially epic macro turn.
So let’s review the big picture for gold just as we have for SPX above. 3000+ is the rough measurement of the monthly chart’s Cup, which includes a higher right side rim than left (I am a stickler for such things). The Handle is not a classic downtrending ‘bull flag’, but it is taking on a bullish shape nonetheless.
Juxtapose the bullish stance of this chart, it’s positive RSI and MACD against what anecdotally to me seems like a fair share of gold bugs uttering words like “attack”, “smash”, “smack down”, even giving a cute nickname to the perpetrator, “Mr. Slammy”; and then juxtapose all of that against the view above of an expiring bubble on the big picture macro. Gold. Is. The. Anti. Bubble.
Might not gold bug sentiment have been trained to an extreme in the bearish direction over so many years of macro bubble-making? It is opposite of the training that bubble bulls have had under the training of Cramer and other more buttoned down cheerleaders, like maybe mainstream America’s financial adviser herd industry.
The mainstream have had monetary and fiscal inflationary policymakers as wind in their sails, after all. This chart of the 30 year Treasury bond yield and others that imply an end to or substantial impairment of the bubble-making by policy, indicate headwinds upcoming for our bubble blowing heroes. In perfect symmetry (and do let me know if you feel I am being an idealist with respect to the anti-bubble), we can expect a relative tailwind for gold and positive leverage from that flowing toward gold mining operations.
I see this chart as not so much technical analysis, as it is a clear picture of a broken tool used for decades by the Fed to inflate at will. I see the massive spike (rebellion by bond market participants) as a lever that will be pulled into the next deflationary episode. The black monthly candle is still on that theme. But there could be much lower to go before the Fed tries to inflate again. This leaves out government and any of its fiscal inflationary policies to come in the run up to what is sure to be an absurd, scary and thoroughly entertaining election.
The other option is that a consolidation/flag similar to what formed in 2022 could form if the next inflationary episode arrives sooner than expected. In essence, we have a deflationary view vs. the Mises ‘crack up boom’ view. For now, we are looking for an interim deflationary event prior to the next inflation. In either case, given the profound trend change in long-term yields, whatever lay ahead is not destined to invigorate the economy in any sort of lasting way.
A crack up boom could extend the stock market, if not the bubble. That would depend on characteristics of the inflation. If it favors gold over stocks, it would be a picture of a dead man walking. In other words, a rising Gold/SPX ratio will indicate the end of the bubble years even if stocks do not go into a grand bear market. We are not there yet, but this chart and others like it are constantly updating maps to that future.
So we dial it in each week and continue to track gold’s ratios to cyclical markets. While Gold/Commodities are flipping bullish for gold stocks, Gold/Stock Markets are not (yet). But we can track the coming of the end of the bubble by these ratios. I expect all of these to be rising in 2024.
Let’s also keep close tabs on two charts we’ve reviewed recently. If our preferred view (if not the preferred view of a majority of gold bugs) is to come about, gold will continue upward vs. inflation signals, and if the correlation that has been well in force since the rally began a year ago holds true, HUI will follow the indicator upward. That is righteous gold miner bullish signaling (counter-cyclical disinflationary to deflationary, unlike what a majority believe).
Then there is the HUI/Gold ratio, which we are watching to see if a double bottom forms here. It’s still viable, although will not be proven until the October high in the ratio is taken out.
We last detailed the daily TA for GDX in a video update on Wednesday. Not much has changed. GDX is still creeping upward for a test of the important 30 (+/-) level, including the 200 day moving average. Meanwhile, the simple chart shows a break upward from a long bull flag, which is a valid falling wedge, with its 6 touch points. Take out 30 and it’s on to a new high for the cycle, baby.
Here is the chart originally used in this post from November 13. I thought it was very speculative then, but now it’s not so speculative. The pattern has followed the projection and now must take out the SMA 200 and the associated previous price highs from September-October in order to put on a strong rally. Increasing the short-term suspect quotient is that puny holiday week volume, however. So we should remain aware that a couple of short-term downside gaps are still in play per Wednesday’s video update linked above.
Gold stocks held in order of position size: OGNRF (OGN.V), AGI, AEM, WDOFF (WDO.TO), EQX, WPM, GOLD & SILV. I’d like to increase SILV, but first want to see if it reacts downward from the SMA 200.
On watch: RGLD, NGD, KGC, MAIFF (MAI.V), BTG, EGO.
Tax Loss seasonal: LGDTF (LGD.TO), AMXEF (AMX.V), GAYMF (GWM.V) and the like… (MAIFF is also in this category).
Global Stock Markets (daily charts unless otherwise 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.
The world continues to reflect the bearish state of the US dollar, as anticipated would be the case if Uncle Buck were to break down. So just as USD’s break above the March high proved to be a bull trap, ACWX’s test of its March low proved to be launch point.
Europe and Canada are making firm moves to try to break their downtrends while UK and Australia are less firm at this point. Generally, however, a global bounce is in play contrary the USD.
The monthly chart of the Japanese Nikkei is getting close to the years old target. Doesn’t mean it has to stop at 35000, but it could be another sign of a late stage global bull market.
Daily Nikkei never did drop to my preferred level as indicated above and below, by the SMA 200. No biggie. It’s a big world out there. While parts of EM and Asia are in better (anti-USD) shape, Hong Kong (and China large caps, not shown) continue in firm downtrends. The same goes for Canada’s TSX-V, which is on a bounce and could be a holder of some good post-tax loss seasonal specs. I am cobbling the list now, in anticipation.
Brazil remains bullish, perhaps as an EM leader. Argy… wow! I guess the market likes the new leader. It’s amazing how high the stock bubble rose before the conservative libertarian was elected and now, how high it’s gone in response to a president talking about defeating inflation and the “decadence” of the way things have been run to this point. Interesting when you consider that the stock market’s price is a reflection of that inflation. It’s somewhat a corollary that can be applied to a certain super power that has run its affairs on inflation for decades (with the advantage of having the reserve currency and all the confidence implied).
Mexico is bouncing, anti-USD. FM – driven by Vietnam – is bouncing, anti-USD. Africa is going nowhere.
Currencies
Here we find the US Dollar index (DXY) bobbing around at initial key support at the daily SMA 200, as expected. With DXY getting oversold and considering unpredictable holiday trading, a hold and bounce here would not be surprising. But the USD has broken bearish on the short-term. That would remain the case if it bounces, as long as it holds below 105 (bottom of the blue box, which contained the impulsive drop from the bull trap).
The monthly chart shows a fully intact bull market from 2008. It shows clear support (2014-2019 highs) from which the rally from July, 2023 began. Now, a hard downturn. If the daily chart (not to mention weakening Fed policy) continue to indicate a bearish future for the buck, our target is around 93 and a higher low. Below that and we’re talking an end to the bull market. But first things first, eh?
Especially since the forces that would bring an end to the equity bull would bring an end to the USD correction (unless the BRICS/de-dollarization brigade finally take the baton, which I doubt it is ready to do any time soon).
So our anticipated play at this time is for a global liquidity crisis at whatever point USD finds a real low. If the 93 target is any good, that could be well out in H1, 2024 in a nice rhyme with the US stock market commentary that opened the report.
On the daily chart gold is still bull marketing vs. global currencies. This is a daily chart, but importantly gold is also rising vs. these currencies on longer-term weekly and monthly charts.
Okay, let’s check the long-term as well. Bull market for gold, outside of the US currency comp. Gold is in a quiet global bull market.
Aside from a continued rise in USD terms, another trigger to a real bull phase in gold will be when it stops declining and starts rising vs. Bitcoin which, like gold, is alternative to official currencies, but unlike gold (in my opinion), is a speculation and bubble beneficiary, not an anti-bubble. But here again the disclaimer is that I am at heart an old fashioned gold bug, bias about honest money and tangible value, and all.
Commodities
I think the simple nominal weekly chart of Doctor Copper will be telling of what’s directly ahead for the cyclical, anti-USD trades in general. Doc has broken back up into the nose of the Symmetrical Triangle. If near-term is for a continued party (Wayne? Garth?) we’ll likely see an upside breakout. If disinflation and a relatively firm USD hold sway it could weaken, and if a market liquidity issue comes sooner rather than later copper would likely smash down to clear support at 3.10 to 3.20.
Last I heard OPEC+ was squabbling among itself, unable to unify in an oil price manipulation operation. But at any such time as they do, an input for seasonal bull party goers could be spun as a rationale. Wayne? Garth?
As it is, oil is dragging the CRB index into a suspect pattern. Gas has taken a drop (despite this, I added AR on its pullback to a slight higher low). Industrial metals are on a moderate bounce with copper. Ags are trending down, trying to bounce.
On the subject of Ags, I took a look at fertilizer stock MOS and saw the kind of setup a bottom feeder might be interested in. It is just an example chart for any seasonal specs that may be of interest. The daily chart double bottomed in November, gapped above the SMA 50 and flagged to test it (thus far successfully). Also RSI is positive and swimming along its moving average, and MACD has just gone positive as well.
The Uranium sector has been the performer with URNM ticking new highs along with many of the various stocks. I’ll just hold URNM for now.
The chart of downtrending suspects is omitted this week because I am running out of time. But the downtrends endure and I am keeping this stuff, including MP, the dive bombing SBSW (now that PALL has been sold), TLOFF, LTHM and others on watch as tax-loss bottom feed specs. No personal urgency, however. Far from it at this time.
Portfolios
Savings balanced by gold
Trading Account: No positions
Roth IRA (non-taxable, no contributions)
Cash is 83% and if the markets are to take an interim pullback due to short-term risk (by over-bullish sentiment, and USD at support), that level is too low. I would likely hedge most of the gold stocks currently held rather than sell them. But a correction in the broad market stuff and non-core gold stocks like GOLD, will not be well tolerated.
Meanwhile, a moderately profitable year continues and I’ll play into the bubble’s end, as indicated. But I’ll also continue not to invest in it and default to cash and await a real bull market in gold stocks. GDX 30 (+/-) is the gateway to a big trade, but a real gold stock bull could still be out in 2024 somewhere, after a deflationary hit to the macro.
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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