Blog

Summary

US Stock Market (per last week): Bullish and at high risk. No change there. Major indexes at all-time highs with breadth lagging again and an internal rotation back to Growth/Tech from Value. Bullish… bullish… bullish. Risk… risk… risk. Party on and play on Garth, if you will. But remain aware of the bad risk/reward. NEW: Market dropped on CPI hype, popped on relief and filled the original ‘drop’ gap. To me, it is highly suspect although obviously still bullish.

US Market Sentiment: Still firmly over-bullish, if not epic extremely so. A condition for a top of some kind is in place.

Market Indicators (per last week): The story continues. A story of some indicators showing a bullish, complacent, FOMO-fueled speculative backdrop with danger indicators not yet triggered, but in waiting. NEW: Of interest is the ongoing positive divergence by VIX to the SPX rally.

Global Markets: As USD goes, so will much of the globe go ‘anti’, the other way. Asia (AAXJ) was added on this prospect and has a decent look by daily chart. India is under consideration after a healthy correction/consolidation. Even the Frontiers could bust bullish if USD declines. But >>>

US dollar (per last week): USD (DXY) is at a decision point, flagging just below the December high after breaking above it. That break should either resolve to a bull trap breakdown (which could rotate commodities & resources into the party) or a re-take of that high and if it brings the bull biased Gold/Silver ratio with it, renewed pressure upon the inflation stuff along with much of the cyclical world. Goldilocks items like Tech/Growth may try to resist for a while as a strong dollar would not be a direct threat. NEW: USD rammed upward on inflation hype (and thus, Fed hawk fear) and pulled back on data counter to that. Machines gone wild! USD is testing upside resistance and has all the reason in the world to pull back/correct. Except one, which would be an asset market liquidation. Which is why the near-term situation in stocks (will they or won’t they take a correction?) is so interesting.

Precious Metals: The play is for a bounce/rally from oversold and much-hated as the miners potentially report better than expected earnings. Thus far Barrick and Agnico have proven the theory (based on the positive Gold/Oil ratio during the quarter now being reported) to be a viable one. Beyond that, the proper macro fundamental backdrop for a big – and I mean BIG – opportunity is not in place. That will need to be ‘post-bubble’ and it could come after more downside in the miners. Gold and silver also came to be hated by the public while gold remains big picture bullish technically and silver is intact, at least.

Commodities: This week I started the segment and it turned into a lot of words, not all relating to commodities. Commodities are now firmly anti-USD and anti-hawking Fed. If the Fed comes to be seen for the ‘tightening but not REALLY tightening’ two-face that it is and USD fades, commodities could participate. Watch the Gold/Silver ratio along with USD. USD + GSR up = bad for commodities. USD + GSR down = good. Not rocket science.

US Stock Market – In Need of a Correction

Now, will it get one?

On the CPI down day I looked at the market and decided to leave well enough alone because of course they were going to gun it to punish anyone shorting that down day on supposedly bad news (pumping up the hawkish Fed). But I looked at the gap near the all-time highs on the daily chart of SPX and thought ‘hmm, if they close that gap maybe give it a shot…’. They closed the gap and I gave it a shot.

Now let’s again consider all those downside gaps. Sooner or later they are likely to fill. Could well be later, but there are other things going on here that could precede a correction. They are listed after the chart.

• Dumb Money sentiment continues to be excessively bullish, NAAIM are at an excessive 95% bullish, Newsletters are excessive at a 3.28 Bull/Bear ratio and AAII are also excessive at a 1.57 B/B ratio. Sentimentrader shows high risk longer-term and moderate risk short-term.
• SPX became fairly overbought by its distance from the 50 day moving average and that overbought situation came with a negative divergence by RSI. MACD is well aloft but on a down trigger.
• If – and of course with this market it’s always an ‘if’, it seems – the market corrects, the first objective would be the short-term support cluster around 4800 and the uptrending SMA 50. After that there is a clear support at 4600, right on the nose. The SMA 200 is climbing toward that area. A test of the SMA 200 could fill the first of the lower gaps. But oh how those lower gaps yawn patiently.
• But first things first. Can we simply get a healthy correction? One would think that this pig is not going to just climb unrelentingly into the November election. One would think.

A couple other considerations are the ongoing VIX divergence, which has tended to precede corrections…

…and oh by the way, while not the most reliable of indicators in any given year, the seasonal for SPX turns down… now, at least temporarily.

While market breadth has resumed fading after the much ballyhooed breadth thrusts of Q4, 2023. Everybody is buying Nvidia, Microsoft, Amazon and Meta, like good little robots. As if that is defensive behavior.

So if ‘they’ (tin foil hat defines “they” as the administration and the Fed working the levers together) are making joint monetary and fiscal efforts to hold things together this election year, might not a correction in the interim perhaps refresh this mess for some fireworks later in the year and into the election?

We have noted that the Fed is signaling out of both sides of its disgusting, foul mouth and that government may be carrying the Semiconductor CHIPS act and whatever Green/EV initiatives they may reengage in its hip pocket. What better time to deploy? A healthy correction and then ram it right up the shorts’ orifice, not to mention the Republicans’?

It’s one plan or potential among others. But it’s good to have plans and the willingness to fine tune or alter those plans moving forward. The stock market is purely trending up after all, and the leaders are still leading, after all.

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.

It appears that the world sure has stuck to its general ‘anti-USD’ orientation. As USD rammed upward on the supposedly hawkish CPI data, markets dropped. As USD rethought that move and pulled back, markets popped. Let’s run down a few of them by indexes and ETFs.

Europe is ticking a new high for the cycle. Unlike leading US indexes, STOXX 600 is not at new all-time highs, but at 491.60, lurks just below that level (495.46). It’s getting a bit overbought, but it’s bullish.

UK 100 is making some positive noise in an effort to break the neutral situation into a positive bias.

Canada’s TSX index is on a new high for the cycle, although well below the all-time high of 22213.

Canada Junior broke down, had me thinking ‘gap fill’ and then with the rest of the anti-USD stuff, recovered. The lesson here is the oft-noted concept that TA is only one aspect of market management and any guy staring at charts trying to mystify you into believing otherwise is selling a short sighted promo (in my not so humble opinion). That includes cycles and Elliott Wave analysts. It’s a tool, not a fully equipped toolbox.

Australia’s AORD index continues bullish just a hair below its all-time high of 7956.30.

Japan’s Nikkei continues to be a star as it flies around up in the original target zone established years ago and not taken advantage of by your letter writer.

China large caps continue to trend down and in my opinion continue to be a potential rotation play, assuming firm global markets (anti-USD), in 2024.

I added Asia (ex-Japan) last week. The chart is neutral and trying to flip positive. But the main reason is that Asia is a relative value and has positive prospects over the long-term, and given a stable global market (on balance) it can get a rotation in 2024, again assuming the USD would weaken.

India’s BSE Sensex is and has been bullish. What’s more, the consolidation has worked off a daily overbought situation by allowing the 50 day moving average to catch up to the price. If I firm up on the 2024 global rally theme I may have to position a bit here.

The LatAm 40 is in the same stance as when it was reviewed in an NFTRH+ update a few weeks ago. A longer-term chart would show a trend line broken to the upside (black dotted line). This too is back under consideration.

Brazilian Bovespa, which exerts influence on the LatAm 40, is a bit more suspect looking but still biased positive, however. So I’ll keep a level of patience in the very short-term.

The Frontiers continue to ride the daily moving averages in a distinctly bull biased way. My late friend and #1 NFTRH subscriber (literally, he was the first), Jonathan Auerbach was committed to the long-term view of the Frontiers, value-wise. As is friend and fund manager Mike Churchill. They saw the value here. Perhaps when developed hegemons like the US and Europe abdicate leadership new global leaders will emerge. India came from somewhere, after all. For now, FM is just in a bull biased stance and pretty darn okay looking.

Precious Metals

Once again, we did a good amount of work in-week because gold and the companies that dig it out of the ground are a prime big picture focus in what I consider to be a latter stage bubble fueled, risk ‘on’ situation (esp. in the US). Let us not flog the macro fundamentals at this time. Suffice it to say that when gold bottoms in relation to broad ‘headline’ stocks (it may have already bottomed vs. the median stock (XVG) and small caps (SML) we will be ready to flip the macro and be prepared for outsized gains in the much hated gold stock sector.

As yet, Gold/SPX is in Drubsville and HUI is still extended by that measure. This is an ongoing picture not only of the chains that bind gold stocks, but of the policy bubble that instigates broad stocks.

Meanwhile, nominal gold is just plain bullish on this big picture. Gold requires patience. It’s not part of the multitudes of asset plays out there. It’s a historical anchor to value. An anti-bubble.

We noted in an update that BPGDM had pulled back sharply and was becoming contrary positive. Here is the picture to go with that note. After the aborted upside this indicator is becoming oversold, although not quite extreme yet.

We noted in an NFTRH+ update that a weekly chart of the HUI/Gold ratio tested its 2020 low last week and that seems quite significant for a reviled, hated stock sector.

Meanwhile the nominal weekly chart shows a test of the support defined as the top of the Q4, 2022 bottoming cluster. It’s viable to halt the correction. Of the negative possibilities, is it so hard to imagine a final washout to the lower trend channel line and a test of the 2022 low if the broad market also takes a correction? For me it is not.

However, checking back in on the positive side is our thesis about the Q4, 2023 Gold/Oil ratio and potential positive impact it could have on the reporting season set to continue this week. As noted in the update linked above Barrick (GOLD) already reported a beat of top and bottom lines and now, so too did Agnico Eagle (AEM). So far so good. The sector became oversold just as two premier gold producers reported and beat.

HUI monthly has since 2020 shown the ongoing correction. No matter who is saying what out there in Goldbugville’s analytical community, I will not deviate from what I see when I stare at my charts. That does not mean the sector has not bottomed. But it does mean that there is not yet any technical proof that it has.

On the plus side in my opinion, when this correction does end it will have built up some real power. Think of a damn that has been holding back increasingly heavy levels of water finally breaking. Power. The operating target continues to be 500, but that could prove conservative. First things first. Gold stocks need to stop sucking!

Interesting log scale view of monthly HUI. Hmm, eh? If I sound bullish, it’s because I am. Contrarians are supposed to feel bullish when things look bleak and yet positives are in play if you care to look.

Daily GDX broke down from the bear flag, dropped on the b/s (IMO) USD-strengthening CPI ‘inflation’ report, tested the October low and bounced… right into earnings season. If it’s going to rally, it should continue to do so over the next few weeks or else the play would probably be busted for a while. The bounce is thus far just that, a bounce. Take out the previous high at 28.70 and the converged moving averages and things get interesting.

Gold and silver Commitments of Traders show that recent corrective activity has improved the readings from a contrarian standpoint. Large speculators (blue) are selling and Commercial traders (black) are covering shorts. It’s not compelling, but it is amenable if the sector is to rally. Failing that, we’d look for relative extremes similar to 2022 and 2023 if we are to pound a table contrary bullish amid further decline in prices.

As a final thought, gold is big picture bullish, short-term neutral with a still-positive bias and laying in wait as the anti-bubble. Silver is still big picture intact and laying in wait to make a leadership move. On the daily chart view it held important support last week and rammed upward to the moving averages, where it halted right on the nose at the 200 day average. Needless to say, follow-through is now needed. I took a shot adding Au & Ag bullion fund CEF as it trades at a hearty discount to NAV, and GLD and SLV are hated by the public.

Here’s the GLD situation.

Commodity Segment Morphs to a Discussion…

At the heart of the USD/anti-USD question are inflation sensitive items, like commodities. Ironically, the worse inflation, a naturally negative thing for the currency, is indicated to be the stronger the USD tends to be as the implication is a more hawkish Fed. As long as confidence in these macro manipulators is intact, I guess that is the way it is. The implication is that the majority believe the Fed will stop inflation.

But what if “de-dollarization” and BRICS factions finally find their nut and are proven correct? What if the world de-dollarizes and leaves the United States, itself about to be torn apart by its ever more extreme and cartoon-like political divisions, outside looking in? Okay, slow down Gary. It has been correct to tune out the de-dollarizers to this point and it will probably continue to be correct through the election as certain parties attempt to keep up appearances.

But just as the US is being torn asunder from within, much of the world is slowly dividing and de-globalizing. The ‘precious resources’ story is not a false one. It’s just another one that will need to wait until the bubble in Keynesian monetary policy bursts. Of course, this is all my opinion. But I do not now and never have believed in any sort of righteousness of this system.

Why? Because inflation makes the rich richer and the poor poorer. That, by extension, fuels social divisions, discord and even hatred. One day, revolution?

The twin engines of inflation after Tricky Dick closed the gold window in 1971 are the Fed and the government. They have had license to inflate the reserve currency at will (Fed, monetary), producing as many units of it as needed to ensure that assets – and thereby asset owners – do not suffer deflation but instead, continue to rise in price over the long-term trends. That includes the things you need to live, the services you require and of course, the stock market, which any committed bear will tell you has more often than not, been a death wish to try shorting.

For the government’s (fiscal) part, chronic and ever deeper debt spending has been the norm, as if it is normal. It is not normal or healthy. It just might, however, have a shelf life, measured in decades though it has been.

So here in this commodities segment you see my bias on display. It’s just coming out here for some reason, probably because of the subject of inflation not working for this inflation trade (commodities) with confidence in the system and its policymakers intact.

But when the worm turns there will be certain resources – like battery materials copper, nickel and lithium – being grabbed on a global basis. Rare Earth Materials are another in waiting. Uranium is already in the cycle. Energy commodities are not going away any time soon. The countries and regions that own the resources should enjoy a shift in power. This is about as slow moving a concept as you can get because first the western financialization bubble has to be popped. I don’t think power, which is still IN power, gives up its power easily. Thus, supporters of emerging regions, a more equitable planet and here in the US, a more equitable system, will continue to wait.

I believe that the pendulum may be set in motion by indications like the 30 year Treasury yield Continuum’s epic trend breakout, by the 10-2 yield curve steepening (although still inverted) under inflationary pressure, and if I am right to anticipate an end to the financialization bubble, the end of the great stock bull market, at least in western markets related to Emerging markets. We shall see. Again, tap the breaks, GT.

I have a couple of Uranium stocks (CCJ and NXE), the Energy sector (XLE) and of course, a few gold stocks. I am a believer in the pro-emerging, pro-resources and anti-Keynesian and thus, anti-USD stories put out there. As such I’ll keep poking in an effort to have a chair to sit in when the (inflated music stops). I just want to see the whites of their eyes before I shoot for real. That’s me, averse to being on a losing team and for years now TEAM Developed/Financialized World has been beating the tar out of TEAM Commodities/Resources/Emerging & Precious Metals.

Hence, I continue holding a few tech related items like TENB and a couple bottom feeds, ZM and AEHR among the relative few holdings not called ‘cash’. I shorted SPX and I also shorted long-term Treasury bonds. Anti-financialized? Yes. Pro-commodities? Not quite yet. But I want to be ready. Hence, items like MP (REE), ALB/ALTM (Li), TLO.TO/TLOFF (Ni) and some copper stocks like FCX and ERO remain on watch.

Currencies

Bitcoin took a hard rally to overbought status off of the previously noted stability at the daily SMA 50. To me, it remains a speculation like any other. But you may be more learned in this area. I don’t want to dissuade well researched individuals from their orientation. I am not well researched enough in crypto. But to me, it’s a speculation, not a sound money solution.

Global currencies continue on their neutral way, and why not? They are not any better than the US dollar index against which they are measured. Most have been correcting their previous bullish bias just as USD has been correcting its previous bearish bias with its bounce/rally.

Here you can see the buck (daily chart) pulling back from the underside of the 105-106 resistance zone. The now intermediate rally is ongoing. In a reflection of the intact confidence in (or at least full submission to) the Fed USD rises every time some currency degrading macro signals come in because the Fed is fighting inflation and is thought to be firmed in that fight with every inflation jitter that the news burps up. It’s bullshit. But it’s also the current reality.

However, a real fundamental for the USD is a would-be liquidity crisis that the market is not currently expecting. The weekly chart shows that clear and firm support was already tested.

So we continue to watch the Gold/Silver ratio in conjunction with USD, because if these two spike upward together we’d probably have a doozy of a liquidity problem and tanking markets. Not many, if any, sectors/markets would be spared in the short-term. Though the precious metals could get hit, that is the precise recipe for the best macro fundamental backdrop for gold mining thereafter.

Here is the weekly chart of the GSR. Thus far it is tame as USD also eases. So, certainly no alarming liquidity signal yet but also, no risk ‘on’ signal for the inflation trades.

Porfolios

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

The savings account only holds AE.V because I could not effectively buy it under the US symbol in the IRA (low liquidity and a $50 fee to boot). So I figured I’d pop another gold stock in here, large producer, GOLD, which is the opposite end of the spectrum from early stage explorer AE. That’ll likely be a trade only, while I’ll continue to try to increase the AE position on opportunity (I missed filling a lower bid last week even as it pulled back hard). As a side note, AE.V is set to settle in USD, which is why the per share price is lower than the CAD price.

The IRA is 83% cash, which is quite high and risk averse considering two positions are short positions. At this time I consider the gold stock sector to be three things: 1) one with the potential to rally from a sentiment low amid better than expected earnings as per Barrick & Agnico so far, 2) not yet indicated to be long-term positive macro-fundamentally, but 3) the key bigger picture sector if the great bubble does deflate.

The other stuff is a combo of Goldilocks/Growth and bottom feeds along with some Uranium and Energy, each of which could be increased if the macro swings ‘anti-USD’/inflation trades. On watch are several commodity related items, led by domestic REE producer MP and certain global markets (Asia already added).

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.