Summary
US Stock Market (2 weeks ago): 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. Last week: Or the darn thing could just accelerate into termination with the “soft landing” tout gaining more airplay.
NEW: No change.
US Market Sentiment (as per last week): Over-bullish sentiment is becoming dangerously over-bullish sentiment.
Indicators (as per last week): Some degrading, like the steepening (but still inverted) yield curve. Some still asleep (though high risk), like junk bond spreads. Some flashing future danger like the 2 year yield divergence to the t-bill yield. M2 is still bloated but rolling over (future danger). Gold/Silver ratio and USD have flopped (positive for now). Real yields dropping from October high, implies softening policy and S/T positive as long as Goldilocks holds sway. VIX has been hammered, complacency abounds. It’s positive now, very much not so later. All in all, indicator land is what it has been for much of the year, flashing forward warnings aplenty but still stable in the here and now.
Fiscal Inflation View (as per recent weeks): In my view, this comes later. Perhaps at the trigger of a deflation scare.
Global Stock Markets (last week): Global is quite biased to short-term positive side with the seasonal party and with the weak USD in its sails. Individual markets will do individual things for discrete reasons, but generally it’s anti-USD and bullish.
NEW: if USD rally fails, the party can continue. If it bounces harder we’d anticipate S/T market troubles.
Precious Metals (last week): A little too much “gold breakout!” noise for my liking on X. But bullish is bullish and gold is once again attempting to take out blue sky resistance. Not bad. The seasonal is generally positive for gold and silver until February, pending a little near-term chop and grind. The miners have risen in relation to gold in the short-term and if that continues the rally continues. Regardless, I do believe the macro is slowly shifting in favor of the counter-cyclical sector. See segment just below for much more detail.
NEW: Well, the cheerleading got what it usually gets, gold and silver got reversed hard. They are still technically constructive. The sector is pulling back but the seasonal is okay and turns up in January so if it continues to rally as expected, the gold mining sector is still far from unique as long as the bubble stuff is bulling.
Commodities (last week): CRB and oil are lame and beckoning for daddy OPEC+ to come to the rescue. Copper is making a move to join the seasonal party, the Ags may be basing for a bounce. Uraniums are still trending up their 50 day averages and it is time to evaluate seasonal tax loss candidates, which we do in the segment.
NEW: We have a 3 pronged theme for a positive view on oil. See last week’s NFTRH+ update. The Commodities segment also shows Energy (XLE) at support. Interesting. Copper is still party crashing and constructive. Uraniums are still bulling along. Ags, meh, but could base. See segment for more details on commodity/resources.
Currencies: USD got a supposed Goldilocks payrolls report last week. November payrolls were supported by returning auto workers, embedded Healthcare and even more entrenched government. Not healthy stuff beneath the surface. But it’s party season, so who cares (yet)? We have allowance for USD to bounce to its SMA 50 above 105. But if the market interprets b/s on the jobs report sooner rather than later, it can resume its decline. Longer-term, USD in conjunction with the Gold/Silver ratio would likely rally when the big policy bubble driven stock market bull tops out.
Goldilocks
It was over a year ago in Q4, 2022 that we began preparing for a stock market rally (NFTRH 731 from November 13, 2022 for one example, among others from that period). This was due to extreme over-bearish sentiment at the time (bull birther), the mid-term election cycle and the view that inflation signals would start to fade and ‘Fed hawk’ fears would start to fade along with them. Hence, by the end of 2022 our view had evolved to a Tech-led, Goldilocks flavored rally that would come amid disinflation and ‘Fed relief’.
As to the three rally inputs:
- Over-bearish sentiment came to its opposite ‘Bull Killer’ over-bullish reading last summer.
- The projections we had for the mid-term election cycle were positive for a year ahead. It’s now a year+ ahead.
- The ramp down in Fed hawk fears is lumpy, but ongoing.
There was a lot of grind in making a low after the supposed bear market in 2022. Our original projections were for a Q1, 2023 rally, then extended to H1, 2023 and now finally, it appears the election cycle was prescient, as today’s brave MOMOs, FOMOs and “Soft Landing” aficionados take the market higher amid a secondary over-bullish extreme in development (red arrow).
Regarding the bull killer, work with me here. It obviously did not literally kill the bull, as a secondary extreme develops. But it is a marker. For reverse symmetry, check out the fake bull birther that occurred prior to the actual market bottom in Q4, 2022 (green arrow). Markets can be so poetic and so in balance over time frames that maybe do not allow us to see the symmetry unless we really look for it. Why not a secondary killer since there was a preliminary birther? Eh? Sentiment is not a good short-term timer, but it is a condition. The condition is in place for a coming market top.
With another payrolls report that can be spun to the Goldilocks view in the books, market sentiment is steaming along into dangerous territory and folks, it is also playing to the preferred plan. Personally, I want to get hit over the head with a compelling view of the bubble’s oncoming termination (or at least violent interruption) before having strong conviction (against the stock market and for a bearish counter-cyclical view).
Dumb money is playing to the script of an epic suck-in amid Goldilocks and seasonal cheer and the economic “soft landing” tout that is gaining popularity. My wife says that I constantly repeat things and over-summarize things and that is just sort of how I am wired. When I form opinions based on things I observe I continue to flesh them out. It can be quite annoying in real life, but in the markets it is necessary, in my opinion. Hence, I continue to bludgeon you with this chart.
First, I am not making predictions here. Please understand that I will not have predicted the bear market of 2024 if it should come about. I will have clearly illustrated for us my view about why one important indicator is flashing such signals, based on historical fact. The T-bill yield (Fed Funds proxy) is being negatively diverged by the 2yr Treasury yield as was the case during the last two real bear markets. *
This chart not only shows the bond market divergence in play, but also a potential double top in progress for the S&P 500; a potential double top that is being erected amid the dangerous sentiment profile illustrated above.
* For the sake of argument, 2020 was not a real bear market, as it was a crash and hard reversal instigated by the pandemic input and the Fed/Government balls out inflationary response.
It is not like NFTRH is a rag that has been humping a bearish view all year or is even particularly bearish right now. We did, after all, scout and project the seasonal rally theme for Q4, 2023 back in October, with the help of my subscription to Sentimentrader:
So what I believe is setting up now is a last chance power drive in the stock market. A grand ending (or violent interruption) to a grand bull market that was the product of 23 years of bubble policy during the age of Inflation onDemand, as birthed by Sir Alan the Maestro Greenspan, amplified by Ben Bernanke, sustained by Janet Yellen and then amped and potentially killed by Jerome Powell.
As for strategy, I’d prefer to see a clear bullish drive and blow off by the headline indexes along with a clearly grotesque over-bullish sentiment profile (think silver in 2011, for example) in order to try to time the bear. Even then, those animal spirits can be a pain in the ass to contain. So it is sure to be gut wrenching work, managing a coming bear phase/market. Meanwhile, I’ll play happy idiot like the next guy and not fight the process like the next girl.
US Dollar Index & Global Markets
Global markets are doing their thing as well. Wayne and Garth are party animals and they are global (well, Canadian). Europe is global. Japan, EM, LatAm, China/Asia… all global. Have at your market of choice as long as the bubble holds up. But when the US bubble blows, it’s not like the rest of the world is going to look at us with pity. The rest of the world will have too many of its own problems to laugh at or pity us.
So I am going to cut to the chase of the US and global market view. That leads us to the anti-market, the US dollar. Uncle Buck. The payrolls report, bolstered by returning auto workers, fixed Healthcare elements and the least productive of all segments, Government, was stable with a slight beat of the headline. That’s all USD needed to hold the SMA 200. Now of course we will see if the market continues to interpret ‘Goldilocks’ in the very short-term or finds something new to fret about.
As a side note, global markets were generally positive on Friday even as their usual foil, USD was also positive. Let’s keep an eye on this to see who was faking and who was real.
If there is negativity before a would-be Santa rally arrives it would probably involve USD rising to its SMA 50 (105.22) if it also includes a rising Gold/Silver ratio. For newer subscribers, the Gold/Silver ratio (GSR) shows a more counter-cyclical, less inflation sensitive precious metal vs. one with more industrial utility and inflation sensitivity. In other words, it acts as a “metallic credit spread” as Bob Hoye has called it.
If USD rises further and GSR breaks out of the Triangle to the upside, there would likely be problems in the short-term. If USD’s bounce fails and GSR pulls back, even within its triangle, it could set the seasonal party free to do its thing.
Precious Metals
Well of course the SMA 200 did not hold on the pullback to test it! How naive could I have been to think that gold stocks would act like regular stocks when TA is applied? In fairness to your letter writer, we did account for the lower gaps because if I could control the markets, I would. But failing that, I have to account for all reasonable possibilities. One of those was that GDX left an upside scout above the SMA 200 prior to dropping to potentially test the SMA 50 and fill at least one, if not both of the gaps.
I got rid of some riff raff but am holding the preferred items (ref. portfolio at end of report) including SILV, which I looked at with awe about its vertical spike upward but declined to sell. I’ve been offloaded from good stocks in the past by thinking like the trader that I really am not. But I did protect holdings to a degree by adding the oft-used hedge (DUST) back and keeping cash levels high.
The problem of the moment for the precious metals is as it’s been for much of 2023; Goldilocks persists. Risk ‘on’, cyclical markets are in party mode. So while the sector can and probably will party along (if the November/December seasonal low and January seasonal upside plays out) gold stocks will not be particularly unique until gold trounces not only commodities, but stocks as well. Here is the updated view.
Goldilocks, Wayne and Garth are keeping gold contained in relation to stocks. But Goldi’s disinflationary bent is also keeping gold in good stead vs. commodities with a firm post-summer uptrend vs. CRB and oil and a modest uptrend vs. premier cyclical metal, copper.
Importantly for the gold mining industry, if/as the Gold/Oil ratio (GOR) completes Q4 in the positive manner it’s been going so far, when the miners report results in January-February we can anticipate improved cost metrics to be reported on balance. That is because crude oil is a heavy cost contributor to gold mining operations.
Meanwhile, the extended spike in the Bullish Percent index, a measure of the sector’s oversold/overbought readings, was noted last week. A reaction came. However, the spike was not to ‘show stopper’ levels. A little cool down is not necessarily a bad thing.
HUI/Gold ratio turned down and so did HUI. No surprise there. The double bottom potential is still in play.
Gold turned down vs. the rough indicator of inflation expectations. I don’t read much into this other than that HUI is still tracking a proper fundamental, which most definitely is not inflation but instead, its opposite. In other words, gold stocks continue to detach from the touts that see rising inflation as good for gold stocks. It is not.
Here is a picture that is much like the Gold/Stock Market ratios above. The indication is that speculation is alive and well as gold continues to decline in relation to that most speculative of monetary mediums, Bitcoin. When the macro shifts away from bubble-centric to something much darker for the bubble heads, I expect this ratio rise and keep on rising. But remember, gold does not do much of anything. It’s the stuff around it that are doing things. Gold’s positive status relative to these things will indicate a post-bubble macro as the spec stuff declines.
HUI monthly stopped at the resistance noted when this chart was first produced for a public article on November 30. So it’s not particularly surprising that the miners pulled back (although daily GDX had the next resistance point higher at 33). Otherwise, whether or not the miners party with the broads into Santa the big picture technical situation is unchanged. A large correction from mid-2020 is still in force, even if Huey spikes up to the top of the downtrend channel, which continues to be favored. I expect a resumed rally either into Santa or at the January seasonal upturn with a boost from implied mining fundamentals like the Gold/Oil ratio chart above.
Gold’s daily chart shows the big spike and reversal last week. “Mr. Slammy”, as some bugs call him (the evil entity always laying in wait to put a hard manip on gold). Regardless, gold is fine even if it drops to test the moving averages in the 1960 to 1968 range.
Silver got clubbed hard to test the 50 day average. Of course it did! Silly me. It seems like when I pay bullish attention to it a harsh move in the other direction ensues. As I’ve said, no genius here. But I am slowly accumulating Gold and Silver bullion fund CEF in anticipation of Q1, 2024.
Checking in on the silver monthly chart once again, there’s the reversal right from the resistance we noted last week. It was normal, although not technically necessary in my opinion. But you can see clear support at 22, which will need to hold or something will have gone wrong. Indeed, per the daily above, silver really should not make a lower low than the November low or it’ll be back to the drawing board (i.e. a bearish sign for the short-term).
I think players were getting ready for the big breakout, as was I. I thought it had a decent chance to make it happen until the upside shot and reversal day in both gold and silver. So for now, consider gold and silver to be refueling from overbought while the stock market gets a get out of jail free card and rises despite overbought readings and gross sentiment readings. Have we seen this movie before? Patience required because it’s a tawdry movie.
Rather than using the CoT charts let’s look at gold from the perspective of commercial hedgers this week using Sentimentrader’s data. As you can see, hedgers faded the gold price as the price went higher. Then came the reaction. That is normal. But as you can also see, the alignment is not at a critical bull killer level. Indeed, with the big upward spike in gold and immediate reversal on Tuesday, short covering probably took place for the remainder of the week as gold remained under pressure. All good, baby. As we’ve been noting, CoT is not particularly a friend nor foe to gold at this time.
Silver got smacked last week as well as its alignment was similar to gold. As with gold, the situation was not a show stopper (as would be a level around -75k) and silver CoT alignment is very likely to have improved by the end of a very tough week.
Public optimism toward gold did not reach bull killer extremes, although it was quite elevated before the reversal and pullback. Again, normal.
Silver optimism was similar.
Precious Metals Bottom Line
Nothing has changed. The markets are riding Goldilocks and her “soft landing” narrative during a seasonally positive period. That by definition means that the case for gold and the miners that leverage it is not fully cooked. Gold is doing well vs. commodities amid gentle disinflation, a measure of its real price. It is also doing well vs. the median stock, merely pulling back within its uptrend…
…but until critical masses of investors see it rising in relation to the likes of SPX and NDX, not to mention the venerable Dow 30, this measure of its real price has not broken positive yet. Patience. It’ll come. But not because gold bugs click the heels of their ruby slippers or make Christmas wishes. It’ll come when the stock bubble blows out.
Meanwhile, if the miners rally along with the other stuff as expected, they are not yet special. It is on average a seasonally positive period for gold and on average silver takes off in January. I am not going to position hard or near exclusively in the gold miners until I see all the macro fundamental components coming into place.
Commodities
Some positives here last week. Copper (weekly) closed the week above the nose of the Triangle after dropping back into it. Interestingly, this is despite Chinese stocks (FXI, ASHR, etc.) ticking new lows in their downtrends. I missed buying ERO on its flag (dog gone it!) but have it on watch along with ARREF (ARG.TO).
A positive case (technical support, seasonal & sentiment) for crude oil was highlighted in this NFTRH+ update and I added oil fund USO, which is still performing well in relation to WTI. Now all we need is a little OPEC+ price manip to get it going. ;-)
The lithium stocks (LTHM and ALB) got a move on, but it’s still not an area I want to be involved with quite yet. I prefer others like the two noted above, REE play MP (as illustrated last week) for a bottom feed, and am just holding on to uranium fund URNM as long as remains stable and bullish.
I am still keeping an eye on Fertilizer stock MOS and corn fund CORN.
Platinum and Palladium are on non-priority watch after I took a bottom feed profit on PALL, and then it did the right thing by dropping to fill the gap and ticking a new low (deeper into the long-term support zone than it was originally bought at in November). Here is the updated daily chart. Again, you can’t see the support zone that the price is poking into on the daily because it is long-term, but Pd is solidly testing it.
The fundamental case for the PGMs is theoretically compromised by the EV industry, which makes sense since PGMs are used for emission/pollution control in carbon emitting vehicles. But the downside is likely out of whack with existing supply/demand. As I recall, the Semiconductor industry is also a significant user of PGMs.
SBSW is back up into its wedge after getting hammered on a financing that the market did not appreciate. I am still inclined to look at the metals vs. the producer at this time. But SBSW is on watch in case commodity producers really start to decide to join the seasonal party (lot’s of theoretical tax loss opportunities here).
Other odds and ends I have on watch for the seasonal are HBM, TLOFF (TLO.TO) and UUUU. Also, I’d consider the Energy sector if crude oil stabilizes and bulls, bringing the sector with it.
Energy has not been looking good lately, but if the crude oil view plays out just maybe this unattractive chart will say “look at me, I’m in a bullish falling wedge at clear support!” Indeed, I am ready to listen as the correction is within the structure of a series of higher highs and higher lows.
Portfolios
Savings balanced by gold
Trading Account: No positions
Roth IRA (non-taxable, no contributions)
Cash is around 75%, but that includes short positions on long-term Treasury bonds and gold miners. Long-term Treasury yields bounced a bit, dropping bonds. But that bounce does not break the downtrend. So I’ll watch the TBT position closely. My main view is, after all, for developing deflationary pressure in H1, 2024. That would likely help bonds and hurt yields. Similarly, the gold miner hedge DUST also goes contrary to my preferred larger view, which is pro-gold mining. I’ll watch that closely as well. Gold stocks held are the preferred ones. Exceptions being the 4 tax loss seasonal Amigos at bottom. MAIFF (MAI.V) will graduate to preferred when it gets its permit to expand its operation.
The other stuff is some Bio/Pharma, some Tech, some Semi, a global income fund that is rising nominally and spitting out dividends and some commodity/resources related stuff. MP as a strategic position I’d like to see blossom into a long-term hold but for now a bottom feed, and oil for the 3 reasons noted in the NFTRH+ update linked above. As also noted above, I have my eye back on the Energy sector as well.
All in all, it’s a high risk and bullish period for broad stocks. I’m playing. But the income on cash remains the most important play and voila, cash is a risk managers too!
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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