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Summary

US Stock Market (per last week): SOX > NDX > SPX leadership intact. Breadth thinning and appearances, at least, are maintained. Short-term, the trends are generally up. Long-term, the bullish ‘all time highs’ breakouts are considered a preferred ingredient to making an eventual top.

US Market Sentiment (per the segment’s summary): US Stock Market Sentiment is big picture very complacent and at risk. Short-term risk is growing again as well. There is a lot of energy surrounding this week’s FOMC in my opinion. That is because the economic ‘soft landers’ and now, ‘no landers’ are waiting to be validated. Our view will continue to be that this is a consensus view and as such, a contrarian bear setup in the making.

Market Indicators (unchanged): As has been the case since the banking scare in Q1, 2023 the situation is generally ‘macro intact and high risk’ with cyclical indicators sleeping soundly and potentially damaging ones like the Yield Curve, Gold/Silver ratio and the 2yr yield/T-bill relationship indicating forward trouble. Patience on that.

Inflation/Deflation (unchanged): Disinflation continues, but recently some firm economic numbers and policy jawboning have indicated a little kick upward in inflation concerns. Big picture, the favored view has been deflationary prior to a potential big time inflationary phase in the next couple of years. But as per recent analysis, I am open to an inflationary outcome sooner as well.

Global Stock Markets: As per last week: “Still bullish on balance, but lagging the US now, presumably under pressure of the bouncing USD. China is notably weak.” We add charts this week.

Precious Metals: Big picture awaiting a blessed “post-bubble” environment. Gold has a target to 3000 and the miners would leverage that in the right environment. Smaller picture, the miners are still intact to a rally theme, but it sure has been a laggard. Looking for a lower gap fill (26.90) on GDX and hold of the Nov. low. Lose that and the play is busted. A stealth positive is that the sector has been in correction since mid-2020 and that is good work already done, implying the miners do not NEED to drop impulsively if/when the broad bubble does.

Commodities: Oil – and thus the index it tows, CRB – is doing as expected. Industrial metals are neutral with a bullish big picture feel (monthly charts). Uranium is still in bullish flag/pullback mode. Watching for buying opportunities per NFTRH+ update last week. Ags are messy. Pd, Pt, REE, Li, Ni are in the dumps for varying reasons. Machines can rove the sector and pop and drop individual items, from one item to the next.

Currencies (unchanged): USD is the anti-market to most asset markets. It is stuck at resistance. But with the constructive Gold/Silver ratio at its side it is recommended to have a level of caution until such time as these two may reverse. NEW: And to boot we’ve got the FOMC meeting in 1.5 weeks [this week] Oh how fun. If you love noise.

US Stock Market

The Semiconductor sector got dinged on weak guidance by Intel. It remains to be seen whether it’s an Intel thing or a Semiconductor thing. Semi is a global industry that is now integrated into everything from the traditional end user markets (computers, smart devices) to medical devices/equipment, automobiles, crypto mining/admin, war machines and of course, the shiny new toy of the investment world, AI. So it is about more than old Semi dinosaur Intel and its efforts to turn around, refocus and modernize its business.

We have long used Semis as the tip of the US stock market spear and the sector’s leadership is of much importance. A chart like this keeps me restrained from selling out or trying to short every weak looking moment in the stock market. When indications like this and others start to show a failure in the making, there should be time to cash up or position short. Day traders are probably shorting and going long routinely during many weeks, if not days. But for our purposes, we are tracking trends and the trend in leadership is still up.

Meanwhile, the three indexes are all in blue sky. Happy days, baby! I could turn out to be right or wrong, but as of now it is according to plan. The plan was begging for NEW ALL-TIME HIGHS headlines prior to a bear market.

And it doesn’t hurt that the happy soft-landers are being one-upped, at least in some quarters. A comment to Thursday’s article on the yield curve:

Heard on the radio business report today. “No landing…” Not a hard landing or soft landing, but none. We simply continue up. Sounds like a permanently high plateau type comment!

The process is very slow in evolving. We look at charts like this and our brains fire off conclusions of risk to be realized (well, mine does anyway) as the situation plays to the historical script…

…but the process is laborious.

As inflation drifted closer to the Fed’s target, consumer spending increased 0.7%, stronger than the 0.5% estimate. Personal income growth edged lower to 0.3%, in line with the forecast.

The data indicated that consumers are dipping into savings to pay for their expenditures. The personal savings rate fell to 3.7% for the month, down from 4.1% in November.

From a CNBC.com article on the PCE inflation data last week

To me it feels like a table with at least one leg weakening as macro forces try to kick it out. This year will be complicated with a terribly rancorous presidential election process ongoing and a government likely to do all it can to keep that leg from breaking until after the election.

But the plan is in progress and the monthly chart above moves much slower than our conclusions about what it implies. Our conclusions – at least if you agree with my themes – need to be tempered with eternal patience. As to the chart above…

• It is under no obligation to continue to play out as originally planned (euphoric new highs amid disinflationary/Goldilocks ‘soft landing’ headlines prior to an oncoming bear market)…
• But it most certainly is playing out that way thus far.

So why alter the plan just because it is a long process? Why not take what the market presents and keep the bigger picture perspective in our back pockets? Right now the market obviously presents an intact bull.

US Stock Market Sentiment

Well, the anomaly continues as Dumb and Smart money ape each other (in a bullish direction) and risk rises again. Markedly so. They hate bonds again as Treasuries have rallied as anticipated. Gold is just lurking in wait, and oil is pumping up the bullishness, which could bump up into high risk (and a personal decision to sell USO).

• Investors Intelligence (Newsletters): Briskly over-bullish at a 3.09 Bull/Bear ratio on 1/23.
• AAII (Individuals): In retreat from briskly over-bullish as of 1/25. Still moderately frisky at 1.5 Bull/Bear ratio.
• NAAIM (Investment Managers): As suspected, NAAIM began chasing the market again to a reading of 84% bullish on 1/24, from a previous retreat to 54%.

US Stock Market Sentiment is big picture very complacent and at risk. Short-term risk is growing again as well. There is a lot of energy surrounding this week’s FOMC in my opinion. That is because the economic ‘soft landers’ and now, ‘no landers’ are waiting to be validated. Our view will continue to be that this is a consensus view and as such, a contrarian bear setup in the making.

Global Stock Markets

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.

While the US struggled a bit under the weight of Intel’s guidance, Europe sprung higher to hit a new high for the cycle on the daily chart.

Unlike the US, however, this was not a move to all-time highs, as the weekly chart shows.

Sticking with weekly charts, we find Asia (ex-Japan) still trending weak. I want to buy it as a contrary item to what is currently popular. But I am just not going to buy this chart. Not until/unless the US dollar makes a move toward failure.

Japanese Nikkei has actually taken out the target we projected years ago, exceeding 35000 and looking for a test of the 1989 all-time high of 38957.

China large caps continue to get smoked and I continue to file this away as a potential future contrarian buy. Long ago famous media star Jim Rogers promo’d that he was “teaching my baby girl Mandarin” due to the coming dominance of China. Well, baby girl is all grown up now and I picture her like ‘Jeez dad, why did you make me the poster child for the worst global macro trade call of all time?’ Actually second worst. The perma-predicted (by multiple loud orifices) ‘Gold to 10k and Silver to 100’ is worse.

I was actually looking at some Indian companies to consider buying, but held off to see if the market might ease a bit for a buying opportunity. Maybe a further decline to support at 67520 and a gap fill can be bought.

UK is ambling along its neutral course.

Canada’s TSX has broken above resistance and measures to about 22650 and a new all-time high.

Canada Junior continues to frustrate most of the gamblers who hear its siren’s song looking for quick strike riches. A few make it big and many simply pay their money to the house for the right to dream big.

Junior deserves a closer daily chart view. Da ‘V’ is still holding short-term support with the SMA 50 rising toward it. While it can hold support, we are also allowing for a tap of the SMA 50 or even the a fill of the gap at 527 within an intact intermediate uptrend. Assuming a rally continuation, the preferred target range is the SMA 200 (576) up to resistance (580).

Australia’s AORD (weekly) is much like Canada’s TSX and that makes sense, since both are considered commodity/resources based markets. These appear to be hints that the commodity complex may yet get aboard the global rally theme.

LatAm 40 is bullish and one could project a target from this pattern to 33, if not higher. This actually has my interest here and now (or pending noisy FOMC week).

Meanwhile, EM are a weak neutral, Frontiers are a positive biased neutral and Africa trends down.

Precious Metals

The Gold price continues to lurk. On the bigger picture it’s in a beautiful Cup with a really sloppy and volatile handle, which has been broken to the upside. This is a technically bullish picture, as it has been in one form or another since it took out the ‘1378 bull gateway’ back in 2019. The long-term target based on this Cup is around 3000. That target appeared when gold made its higher ‘Cup rim’ high in 2020.

But here again we should not let the perma-bugs stir up too much noise. Gold is the anti-bubble and despite arguments to the contrary, the mainstream still has implied confidence in the system. And it is the system that is the bubble, not the markets that reflect that bubble. From a US perspective, the system includes policy from both the Fed (monetary) and government (fiscal) that is accepted as normal. Just ask your financial adviser.

Undoing a system is not easy. Revolution is not easy, in thought or action. It also does not happen quickly. People touting imminent riches buried underground in pastures included in the TSX-V or in the price of an asset that is ‘anti’ to the very establishment that will fight tooth and nail not to be obsoleted are selling snake oil. The whole lot of them. That’s the stuff of casino patrons.

Gold is a lump. An anchor. A heavy and pretty rock.

It is when this rock remains stable (at least) while the system comes apart that the time comes to speculate in gold mining stocks. This is the Bob Hoye view that, save for a blessed period from 2001 to 2004, never seems to come about for longer than a flashpoint (e.g. Q4, 2008, Q2, 2020).

This purist view, a view which I subscribe to, has been routinely compromised by the system. The system is one of inflation by policy (monetary and fiscal). Yet still the promoters want you to buy gold because of said inflation, among other hype like Indian Wedding Season, China Love Trade and various other bullshit.

Gold will be valued when the system is laid bare for the debt-addled, policy-propped mess that it is.

Down from the soapbox from which I make strident proclamations, let’s simply note that the macro is not ready for the purist fundamental view. Gold lurks in wait per the first chart above, but it wallows in relation to stocks and is pulling back vs. commodities on this daily chart.

That does not mean gold stocks will not get a rally as part of the inflation trades if they gain traction. The miners probably will participate, just as they did in 2004-2008, just as they did in 2009-2011. Those were times when the miners were not at all special (as per the purist Hoye view), but they were bullish. Hence, if they do regather and rally in the near-term we must still be ready to call them a ‘sell’ at whatever target they seek out in the next rally unless something changes radically in the macro picture. The miners were a ‘sell’ in 2008 and they were a ‘sell’ in 2011. Not rocket science.

GDX (daily) dropped to fill the upper gap and then popped to fill the gap down it created when it dive bombed to fill the upper gap. That leaves the lower gap at 26.90 still open. Green gaps are filled, blue ones are open. The red one is the gap that launched the rally from Q4, 2022.

The view, after a revision of the critical higher low point to November low from the December low, remains technically intact. Getting that 26.90 gap out of there could remove a nagging issue. If the play falls apart, there lurks the Q4, 2022 gap. I still do not expect a fill of that gap, but when you look at the chart above you realize this is a sector still on the outs, fundamentally. It’s not Hoye season, that’s for sure.

GDX became moderately oversold and then it bounced last week, which was frustrating to gap watchers like myself. But as yet the bounce was just a test of the EMA 20, which was to be expected. It would be optimal to see the gap fill and the higher low hold (allowing for perhaps in-day drops below and shakeouts).

Back on the big picture, when the big party in stock markets finally ends (timing likely to be measured in months) then we will have the Hoye-esque post-bubble contraction. But that assumes any inflation operations by government/Fed (whether stealth or overt) to come are just temporary and that gold eventually wrestles to an advantage over not only commodities, but stocks as well.

We. Are. Not. There. Yet.

Commodities

• CRB index is bouncing with crude oil. Now above the 200 day moving average, trending neutral.
• Crude oil is also poking the SMA 200. Ref. this post for a look at the point where traders would consider taking profits (I am personally undecided about whether I am a trader, reasoning also explained in the post). NatGas has broken down hard with some hype about warmer than usual weather. The sector (XLE) has rallied as expected, but I did not participate (almost talked myself into adding NOG), preferring instead to watch and potentially buy >>>
• Uranium sector is pulling back to what may be a buying opportunity. Ref. Thursday’s video update discussing the daily charts of several items.
• Copper & Industrial Metals (GYX) are floundering along in neutral. But copper has a sneaky okay look to it and also recall last week’s look at monthly charts for both it and GYX at long-term support. On casual watch for items like FCX, ERO, SCCO, HBM, RIO, BHP, etc.
• Agricultural indexes are on balance still in a downtrend that began nearly 2 years ago after the war disruption blew the sector off and blew it out. No interest, currently.
• REE, Li, Pd, Pt, Ni, etc. are all in the dumps. Badly. I hold REE producer MP and have an eye on Palladium and/or producer SBSW. The battery materials are still working off the hype of the EV craze, which itself is getting corrected hard. Were I to re-enter Li I’d likely use ALB and/or ALTM. My pet Nickel watch item is TLOFF (TLO.TO).

Currencies

Still all about Uncle Buck, folks. FOMC is on tap and most people expect them to remove supportive policy this year. If that happens the only remaining underpinning for the dollar would be a market liquidation scenario.

In that case the Gold/Silver ratio (GSR) would be watched as well for such indication if gold rises impulsively vs. silver. However, the ratio pulled back last week in non-supportive sign for the USD bull/market liquidation scenario. This came after the ratio had led USD upward and even spiked toward the 2023 high. We should continue to watch these two for signals, especially since USD is at clear long-term support (not visible on the daily chart above) and the GSR retains a bullish look.

An emailer advises that Bitcoin is getting the old pro/con debate routine again as they trot out Bitcoin bull Larry Lepard (replacing Max Keiser) to face the champ, ole’ Peter Schiff; he of perma bullish gold fame and his views about why to buy gold. Because… inflation! Whatever. But Team Bitcoin is throwing Schiff a curveball this time because Larry is a gold bull also. The dramatic tension is so thick you can cut it with a knife.

From said email pal (I left out his directly derogatory comments about the debaters because I am trying to rehabilitate my own tendency of showing public disgust for much of what I see calling itself market analysis out there):

Oh gosh, I’d better subscribe. I wouldn’t want to miss something from Larry Lepard or Peter Schiff! Thanks to the two of them, I’ve been short the stock market and long gold for every day of the last fifty years.

Literally the day after this email went out on January 21 the BTC price dropped hard for a test of support over the next two days. But it quickly recovered to bounce back toward the daily SMA 50. Below that marker BTC is still technically vulnerable. Above it and Larry may take down the champ.

Personally, I’ll continue to have little functional interest in this speculation when gold is sitting there sucking wind and holding value. It’s much the same situation as with the stock market. So insofar as I’ll play in the bubble sandbox, I’ll prefer to use stocks. But as a speculation I’ll keep an eye on BTC as well.

For your reference, here is the cavalcade of global debt paper that competes with Uncle Buck. The trends are mostly neutral although the Swiss Franc (CHF) is gently trending up.

Speaking of gold, it is lamely trending upward vs. most global currencies (sideways vs. the currency that used to be associated with sound money and hence, gold, the Swissy). It’s another picture of an asset that is not quite ready for prime time. Gold was money centuries ago. Do you think it cares how long the next phase takes to engage?

Portfolio

A perma note that funds are balanced by gold (long-term risk management, if you will).

Roth IRA (non-taxable, no contributions)

Cash is about 79%. Give me that income while I speculate a little. Since I don’t want to sell gold miners here I added a spec of DUST to hedge the very short-term (gap fill?). But… they ain’t yet special. Not at all.

I can feel the market shifting in my bones. I can feel its prevailing winds shifting toward, away from, back toward and again away from certain classes. One day Cloud/SaaS feels good, the next there is a bump into cyclicals and value. It feels like Quant machines roving the landscape looking for what’s next.

So, below is how I’ve shaken out to this point. At the bubble’s end I’ll position according to what is working (I envision gold and the miners). The value proposition there will be notable. AI, Cloud Security, Medical Devices you say? Yes, the businesses should be relatively stable if not immune to an economic downturn. But “valuation” is a derivative of the word “value”. Bear markets address valuation issues, which all the sexy stuff have.

I’ll hope to have more clarity on the nearer-term strategies as we clear FOMC and perhaps harvest a little more economic/inflation data.

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.