NFTRH 789 will give us both a bit of a holiday break, summarizing markets of interest rather than digging too deep.
2023 > 2024
Thank you for another year of putting up with the sometimes “overwhelming” * amount of information and indications NFTRH uses to manage the markets. To me, showing the work is the only way to go as opposed to making proclamations and asking you to take my word for it (i.e. acting like some kind of guru) with respect to my conclusions. I enjoy doing this work more now than ever because as a macro nerd I am called to task in the most challenging times (it was no coincidence that NFTRH was birthed right into the jaws of Armageddon ’08 on September 28th of that year) and I believe that 2024 may be such a challenge.
My very best wishes to you this holiday season. I think we got to this point in fine fashion, remaining generally well aligned with the realities of the markets all year long. Better still, 2024 is setting up to be a potential game breaker, as a consensus is forming about the bullish elements for the markets (lower but continued growth, easing inflation and thereby, easing Fed) as analysts follow the trend, which as we projected at the start of the year, has been a disinflationary Goldilocks environment.
It’s been an interesting year in markets that did as originally expected (rallied), but did it for longer than the original time frames of Q1 and Q1 into Q2. Christmas Eve arrives with that rally ongoing. There is no need for a “Santa Rally” this year because Santa came in November and has stuck around the whole time since.
Now the question is whether the machines will pile on during the lightly attended week between Christmas and New Years or are they programmed for something different, something bearish? Everyone expects Santa, after all, and the economic soft landing theme is gaining more adherents as the weeks go by.
I am not going to try to out-think quants, their machines and algos. I’ll just continue to use cash and its nice income proposition to manage risk while keeping a somewhat diverse group of holdings in favored market areas (currently gold mining, Semi/Tech, BioPharma and select commodity/resources stocks). We have been on the seasonal rally theme since October and it is ongoing. Could end the day after Christmas, could extend through the traditional bullish window into mid-February or… the newly dubbed soft landers and Goldilocks adherents could drag it on through H1.
In my opinion, a week to week, month to month regimen of doing the work and setting probabilities based on that work will get us where we need to be, once again intact and if things go certain ways, prospering.
* “Overwhelming” was the word used by one former subscriber, now a friend and associate in another venture you’ll be hearing about soon, who was not overly experienced in trading and markets as he described his experience with NFTRH.
US Stock Market
NDX continues to lead SPX and SOX continues to lead NDX. In other words, the Semi > Tech > Broad leadership chain is intact and bullish. What’s more, breadth indicators have been improving since mid-November in the form of the RSP/SPY (equal weight SPX vs. headline SPX), Small Caps/SPX, Value stocks/SPX and even the Value Line Geo index (median price of 1700 stocks)/SPX. Also note that the SPX Advance/Decline line is right in line with the SPX price, even positively diverging price a bit.
This positive breadth since November makes some sense with the seasonal, which often includes small caps and tax loss beat downs. In other words, if the seasonal party theme lasted long enough, this was bound to be a component of it… and it is.
As for the broad SPX, we are now in “double top” range as the DJIA, SOX and NDX all closed at…
NEW ALL-TIME HIGHS!!!!
Okay, relax. SPX lurks at 4754, just below the ATH of 4819. If we are right to expect a double top it can come from marginal new highs or from SPX’s marginal lower high. But the plan has been geared to the likelihood of a future top that will include happy headlines like the one above and happy macro scenarios like the disinflationary, Goldilocks-driven “soft landing” theme. We are still on that theme as the primary one, and with sentiment so over-bullish the party could end sooner (by January-February) rather than later (we’re allowing a lot of slush, and higher market prices, through H1, 2024 as a secondary possibility). Meanwhile, “party on!” I guess…
US Stock Market Sentiment
Dumb money indicators are dangerous, while smart ones show what is perhaps a rationale for the still-bullish stock market in the short-term. Of particular note is the extreme risk indicated for stocks over something longer than the short-term (i.e. the Santa rally seasonal).
Sentiment is a warning. It is not a stop sign because it is not a very good timer. But it is a condition and as it is now, it is a condition for a market top, rationales by perma bulls and newly bullish “soft landing” bulls be damned. As for some other indications, they are contrary bearish as well…
- NAAIM was MOMO’ing hard as of 12.20.23. The reading of bullish is 97%, nearly to last summer’s tick above 100%.
- Investors Intelligence is at a 3.14 Bull/Bear ratio as of the 19th. This furthers its over-bullish reading from last week.
- AAII had dinged a new high for the year at a 2.53 Bull/Bear on 12.21. #dangerous
Global Stock Markets
Generally, those that have been bullish (e.g. Brazil) are still bullish and those that have been lagging (e.g. Frontier markets) are looking good to rally.
Japanese Nikkei looks like a buy, technically. Asia (ex-Japan) and EM (generally) look okay to rally, although Hong Kong and China large caps and A-shares are both still firmly trending down.
The World (ex-US) has busted bullish and a big driver is Europe, which has ticked a new high for the cycle (above the 2023 high, but not the ATH from 2021). UK, Canada and Australia are all rallying seasonally while not necessarily having proven anything bullish beyond the seasonal.
Speaking of market breadth, let’s apply it globally. Even the Canadian TSX Venture is on a hard bounce. While it is still trending down vs. it’s senior index, the TSX (and SPX for that matter), it has ticked a new high on the bounce and broad market willing, established an objective of the downtrending 200 day moving average at 580. A continued bounce here could really help some of those small resource stock positions (AMX.V, LGD.TO, IAUX) I have for the ‘tax loss’ seasonal play along with others like MAI.V and RIO.V.
Precious Metals
Gold is above both its 50 and 200 day moving averages, which are both trending up. Gold is technically bullish and still eyeballing a new all-time high of its own. Anecdotally, I have heard a lot about how badly gold is underperforming other markets amid ‘why bother?’ type sentiment.
Why bother? Because gold is an anti-bubble and the bubble is at high risk.
Moving on, silver is above both of its key moving averages as well and those averages are biased to the upside. Silver’s daily chart has a bullish look and here we reference the weekly chart pattern noted last week with a target of 35. Looks doable, especially considering that silver’s seasonal tends to ram higher in January.
The technical situation for GDX was covered in this update on Friday. We are operating to a theme whereby the miners can rally with the broad stuff. Next target is resistance at 33-34 with an ultimate target of 40+ for this rally. Party time, baby. But also that would make the miners vulnerable to a broad market top, when it comes.
GDX at 40 would be roughly equivalent to HUI 300+ and its channel top. Monthly HUI has ticked RSI green and MACD looks ready as well. The plan is that the downtrend from 2020 would hold if the broad market tops and the miners take perhaps a final decline. But as you can see, there is still plenty of room for a nice interim rally if the current analysis holds up and proves correct.
This chart will be trending up in all of its panels when the macro really swings positive for gold mining. The gold miners are not yet unique. But the Gold/Commodities ratios are supportive and Q4 reporting in Q1 could reflect that in upcoming results.
This is a sign of the times that is right in line with our long held favored view, that gold is not necessarily about inflation protection and gold miners are virtually never good with inflation (unless they are in a bubble like 2004-2008). HUI has followed the Gold/RINF ratio and if it continues to do so the ratio is guiding upward.
Bottom Line
We are on a plan that sees gold bullish, silver ready to bust bullish and the miners still in pattern breakout rally mode. This trade, if all goes as expected, would be very satisfying even if the miners hold within their downtrends at GDX 40 and HUI 300+. On the bigger picture the positioning for a bigger bull market would come after the broad market enters a bear and drags the miners down with it, temporarily. Of course there are other options and I am just looking ahead and making a plan. We’ll revise/adjust if/as needed.
Commodities
- Commodity/resources related items can gain a seasonal bounce as there are a lot of tax loss candidates and bounce they have been doing.
- CRB index has trended down since September from a bearish pattern we’ve noted. This was driven by crude oil, which has bounced with the Red Sea drama. But neither of these – and NatGas for that matter – are bullish.
- Copper and the industrial metals (GYX) have been bouncing with the seasonal. So have industrial metals producers. Perma bulls go on about warehouse levels and supply/demand, but for our purposes the complex always was likely to bounce during the seasonal.
- The Ags (GKX) are very weak at cycle lows, although the ETF (DBA) is trending up for all of 2023. Strange and likely owing to the mix of Ag commodities it holds vs. the index. They are a diverse and volatile bunch. I hold CORN as a bottom feed per a recent NFTRH+ update for reasons of seasonal, sentiment and chart support. We shall see on that.
- REE and special interest MP Materials (ref. analysis in NFTRH 786) have made a sharp move off the bottom, seasonal rally style. I am also keeping a casual eye on on items like Nickel prospect TLO.TO, PGM producer SBSW (along with Pt & Pd), Lithium stocks LTHM, ALB and SQM but am currently mostly satisfied with current holdings (discussed in the Portfolio segment below).
- Uranium stocks continue apace. It’s been a bit volatile lately, but using sector ETF URNM as an example, the daily SMA 50 has held and so I hold. Meanwhile, u3o8 has been screaming upward from the base breakout. Hence, I am just hanging on to URNM and not thinking about it as long as it holds trend. UUUU has lagged and I have not looked into a reason why. It’s on casual watch along with NXE and CCJ.
Bottom Line
We have expected the beaten down commodity/resources complex to participate in the seasonal and that is what it is doing, on balance. With inflation signals and expectations fading I am no “commodity super cycle” bull. Far from it. Just dabbling for now. One day when the signals turn inflationary again the sector can be taken more seriously outside of Uranium (and possibly REE and eventually Lithium), which I think has supply/demand fundamentals apart from most other commodities.
US Dollar Index
USD is and has been the anti-market. The anti-market is still anti the bullish asset party going on. Minor support is near at hand at 101 (+/-).
Expanding the view and adding Fib retrace levels we find the 62% retrace coinciding with support at 99 and more support in the 96s and our best (or worst, depending on your perspective) case scenario to 93 for the correction. But for now, let’s manage the 99 area, shall we? A drop to that area could coincide with a shorter version of the global asset rally, while deeper depths for USD could coincide with the more extended rally view.
Portfolios
Savings balanced by gold
Trading Account: No positions
Roth IRA (non-taxable, no contributions)
Cash is around 76% reflecting my dual views of a bullish seasonal situation and the high risk it exists with. If cash were not paying me to be safe I’d likely be more ‘in’ on this market. As it is, I believe I am ready for whatever is out ahead on the short and longer-terms.
I am heavier in Semi than I’d planned because I added MRVL and AEHR but then was compelled to buy SMCI back when it dropped fairly hard after I profit-took it. SMAR is a nice growth stock not valued at its previous nose bleed levels. But its valuation – like most growth stocks – sure is not cheap. CDTX is a seasonal ‘tax-loss’ spec with a forward investment rationale (hat tip RK). But for me it is likely a trade once again. Good news popped it on Friday. Elsewhere in BioPharma related stuff GILD and ALNY are doing well and while I considered selling ALNY, I just held on Friday. I also have DVAX on watch as usual.
Gold stocks held are the ones I prefer (plus SA, which lured me in again due to its chart). Exceptions are the smaller Amigos at the bottom of the list held in smaller amounts individually but in a larger amount if viewed as one big seasonal cluster of positions. In the commodity complex there’s URNM and MP, each of which I’d need to be compelled to sell either by outstanding profits or a ‘ruh roh!’ type situation where something goes wrong. Also, NOG for Energy and CORN for Ags.
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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