Blog

Summary

US Stock Market: Bullish and at high risk. SOX may have begun an upward break from a bull flag and it is still leading the US market, while NDX leadership continues to wobble. Although nominal NDX is still bullish. Technically, the US headline indexes (including the DJIA), if not all of the sub-components, are purely bullish.

US Market Sentiment: Sentiment has progressed to the point where it is now dangerously over-bullish on balance. Again, not a timer but a condition for a correction is in place here and now. [unchanged]

Market Indicators: An ongoing mix of indications stating two things: 1) a sedate backdrop with seemingly not a care in the world and by extension, 2) high risk to broad stock markets, but especially in the US. [unchanged]

Global Markets: Still bullish on balance. [unchanged]

Precious Metals (Last week): “Sector could probably use a little cool down. Let’s watch silver’s pattern trend line breakout, however, because when this sector actually bulls it bulls hard, overbought or not. The recent rally off a double bottom in the miners felt like a launch rather than a bear market spike. CoT is not contrarian positive for gold or silver in its Commercials/Large Specs alignment, but small traders have fled and that is positive. The macro has not fully turned in favor of the PM complex (and especially gold/gold stocks) but it is well in progress. Until stock markets crack or at least start under-performing gold, it’s a long, arduous process. I am big picture bullish and anticipating the next leg of the bull market that began in 2016.”

New: The sector may have begun the projected cool down, post-FOMC. CoT is not good and indications allow for a short-term and interim pullback. But the larger picture for gold is bullish, silver is still neutral and the miners may have already launched off of an important low.

Commodities: Commodities may be ending a long downward consolidation. Items to watch closely are the Silver/Gold ratio (want to see it rise), USD (want to see it drop) and TSX-V (want to see it hold its rally parameters). See segment for more. [unchanged]

Currencies: USD bear flag projection was not correct. The flag is negated. See just below for details.

To the Point

This weekend has abruptly turned out to be time constrained (with commitments) for me, and that is just fine because I was feeling that NFTRH 802 should get right to the main points after a typically goofy FOMC week where the market gunned the dovish Fed story one day and then took up the strong dollar story the next. So we at least temporarily abandon regimented segments and get right to it.

US Dollar Index

This has been the anti-market to a large segment of the global asset markets. A notable exception has been the Goldilocks stuff, which does not really care about a strong dollar, unless it were to get impulsive to the upside in a liquidity crisis. To this point the dollar has held long-term support and been a volatile neutral in its trend since topping out in late 2022.

Last week it negated the short-term bear flag scenario we had been operating to and now it once again sets its sights on initial resistance at 105. Take that out and hold it and USD would technically target a higher high above the ‘bull trap’ high of 107.35 set last October. Taking that out would re-set the bull market on its upward course. First, much work to do.

Why on earth would a currency that rallies every time inflation signals indicate a hawkish Fed go bullish at a time when the Fed itself is indicating (dovish) rate cuts in 2024? TA does not care about such questions. TA is not predicting the USD will go bullish; it is laying out parameters for us to acknowledge such a reality, should it come about.

The weekly chart shows the support area that held when the ‘bear trap’ featured a plunge and immediate upward reversal. Weekly RSI and MACD are in solid shape and could support a rally in the buck. Not will, but could. They are biased bullish.

The very long-term view of USD should scare the daylights out of “dedollarization” / BRICS gold backed currency brigades. Again, speaking as a TA only, not a guy who thinks he knows what he knows about the macro funda, we again note that the US dollar index has been in a bull market (higher highs/lows) since 2008. Period. Fact.

This chart clearly shows that USD has already tested the support level at 101 (+/-) several times. Now, to make matters more complicated, let’s also recall that the more times support (or resistance, for that matter) is tested, the weaker it tends to become. The weekly chart above shows that support has been tested four times. So our original thesis was that USD is in a bull market, but capable of pulling back to one of the lower support areas within that bull market while the ‘anti-USD’ trades gain a bid and rally.

So let’s have no doubt that we have not been among the legions of “dedollarization” chanters. We are simply scouting the potential of a pullback within a bull market. This analysis goes back at least a year and has not changed. But another fact: by definition of its higher highs/lows bull market, USD is bullish until proven otherwise.

Bottom Line

• USD is in a long-term bull market that began in 2008. Frankly, it’s long-term chart looks similar to the long base from which Japan’s Nikkei broke out as we projected years ago. But this stuff can take a generation or two to play out.
• The implication of would-be dovish policy to come is USD-bearish. That is the signaling at this time, but USD holds clear long-term support until it no longer does.
• Within the bull market, USD could lose support and spring an ongoing global asset rally, which would fan out to include commodities, regions that are commodity/resource rich and the precious metals, as led by silver.
• If USD goes off that script and bulls, it would likely be because it is time for a significant market correction as USD gains the liquidity bid and gold declines less than silver.
• To review for newer subscribers, when the Gold/Silver ratio (GSR) rises, the implication is anti-inflationary, anti-liquidity. Thus far it has been pleasantly disinflationary, allowing the Goldilocks theme to thrive as Tech and Growth benefit with inflation trades relatively lame or bearish. Should USD and GSR start to rise impulsively, Goldilocks would morph to something worse, like a liquidity crisis of some kind, a deflation scare.
• As yet, the daily view shows USD is neutral and the GSR is on a modest uptrend. This snapshot is still pro-Goldilocks. If it stays this way or these two turn up hard, commodities, precious metals, EM, etc. would very likely come under pressure. If they break down, those things would very likely rally.

Precious Metals, etc.

Also for newer subscribers, I want to again stress some important points about the precious metals.

• Gold is less inflation sensitive and less cyclical than silver. Thus, when it rises in silver terms (usually with both metals declining), the macro signal is anti-liquidity for the markets.
• Our thesis has been that this would result in disinflationary ‘Goldilocks’ first, which has been in play for over a year now.
• Then, a shift to something worse; a negative market liquidity event or even deflation scare.
• However, with the broad rally continuing much longer than originally expected I’ve revised that outlook to include the potential for a more extended bull phase that would fan out to include the inflation trades possibly into the Q4 presidential election, prior to a deflationary phase.
• Hence, the chart directly above should be watched closely and respected in its signaling. Today the USD/GSR pair still signal:
• 1) A beneficial Goldilocks backdrop for the stock market, especially Semi/Tech/Growth.
• 2) Pressure on commodities, resources and EM. Pressure on cyclicals like Materials, Financials, Energy and Industrials. However, most of these items retain their bullish footing. So we need to determine who is right, the USD/GSR pair or several more anti-USD flavored markets that are trying to bull (Materials sector, for example, has undertaken a strong rally toward our target of XLB over 100).
• 3) Given that the GSR has risen while nominal gold has also risen with silver going sideways, the signaling is neutral for the precious metals. But the PMs have been lumped with the inflation trades and that is not their best fundamental suit. More on that in a moment. But for now, we can assume that if GSR and USD bull hard, the PMs will be under pressure again. If they breakdown, the PMs will have a strong tailwind along with the inflation trades.

Gold appears due for a pullback. “Due” for a pullback does not mean will pull back. But the impulsive and overbought spike could use some healthy correction. If that does happen it is important to remember that the gold price has spiked up to blue sky and left some breadcrumbs up there for when it returns. That post-FOMC reversal is notable to me because FOMC week often seems to include some kind of contrarian whipsaw. As if markets are compelled (or programmed) to bow before the Great and Powerful Fed of Oz, even as it weakens toward a pro-gold dovish outlook, in this case.

It is important to be prepared mentally, functionally or however you want to prepare for volatility if you are a gold bull. Because gold is bullish, technically. Not just on the daily chart above, but on the weekly chart. So prepared could simply mean understanding that volatility is part of a bullish process.

Gold is bullish on the monthly chart as well. Especially the monthly chart, which has indicated bullish since the “bull gateway” at 1378 was taken out in 2019 and especially since the Cup made a higher right side rim before earning a well deserved correction after the 2020 hysteria. Our targets have been 3000+ since 2020 and more recently based on the smaller pattern, 2450. That interim target is now activated by the break to blue sky. Short-term correction or not.

So let us hear no belly aching and do no writhing with the other gold bugs (if indeed you are a bug like me) if gold pulls back. That potential is in the daily chart, but the weekly and monthly charts are just plain bullish. So a pullback would likely represent a buying opportunity.

As for silver, the weekly chart continues to sport this tantalizing pattern that thus far refuses to break through. If it does break through it measures to 35+. “The waiting is the hardest part.”

Also arguing for an interim pullback in gold and silver are the Commitments of Traders (CoT). Gold shows large Specs bulling aggressively and Commercials fading hard. That is what happens during a bullish phase. But it does indicate rising risk as well. You can see the little guy (red) ambling along with little interest (is he chasing Bitcoin or Nvidia?). In not having hit ‘bull killer’ over-bullish readings this picture aligns with the technical picture above, where gold can take a healthy and interim pullback, that can be bought for a larger bull run.

The Silver CoT took a real spike upward in large Spec activity and a spike down by the Commercials. That is indicative of short-term silver price risk. Interestingly, the little guy is having none of it. So that is contrary positive. But the larger players are aligning to positions that could see an interim silver price pullback. As a side note, the spikes in Specs and Commercials seem out of whack with the modest rise in price. But at face value, this is a picture showing the potential for pressure on the silver price. Considering it never really became heavily overbought, I’d expect any pullback not to be a large, long lasting, or particularly scary one.

Meanwhile, gold stocks (GDX, daily) also rose impulsively. Then GDX got banged back down to test the 200 day moving average, spiked anew and got reversed, post-FOMC. So typical, annoying and tawdry. But it is what it is for now. If (and it is just forward looking analysis, so it is still an ‘if’) gold and silver take pullbacks as speculated above, we can be aware of the gaps that GDX left during the March launch. We can also be aware that a launch on the volume this one had could feature breakaway gaps, which do not need to fill any time soon.

GDX already tested the SMA 200 once and does not need to do it again. But if it does, I would be open to further short-term decline to fill a gap or two. I will also be open to hedging, as usual, until this sector breaks free for real.

The weekly view for gold stocks has not changed. GDX remains in correction from mid-2020. How terrible the performance of the counter-cyclical sector! What garbage! Dreadful! When considering the stock market in the stratosphere, it is little wonder why gold stocks are hated with a passion or worse, completely disregarded.

But notice the term “counter-cyclical” above. While many bugs cheer inflation or simply bitch and moan about how poorly gold stocks perform in a vacuum, absent macro fundamental analysis, we need to keep our eye on the ball. Counter-cyclical means ‘counter’ most everything else that prefers the positive economic cycles as periodically stimulated by Fed and government. So why on earth should gold stocks be bullish? They shouldn’t, until the macro shifts to either a counter-cyclical phase or until the Bob Hoye squirrel finally finds his long-term “post-bubble contraction” nut.

As a reminder, the very reason I have begun to allow for the Hoye squirrel to finally find that nut is because the 30yr Treasury yield Continuum finally did something – after decades of staying in line to a disinflationary Goldilocks trend – it has not done since the 1980s. In other words, we can allow for the possibility that a primary tool for inflationary policymakers (both monetary, e.g. Fed, and fiscal, e.g. government) will no longer work as effectively (at best) or even work at all (at worst) going forward.

When debt comes under pressure on the big picture, debt manipulation (in service to inflationary policies) also comes under pressure. That is my theory and I’m sticking with it.

Moving on, let’s wrap up the PMs with a big picture view of the HUI Gold Bugs index. The correction continues, the sector is bearish, everybody hates this POS sector… and its bull market is intact. Points 1, 2, 3 & 4 (if that proves to be the ultimate low) may be a precursor to one hell of a point 5 rally. For now, however, it’s all Huey can do to muster a rally to the upper corrective trend line (target 300, +/-).

Why again do I not suggest subscribers “pile in” to gold stocks?

1. I try not to make grand statements like a media hero.
2. If I were to pound a table, the sector has not yet given reason to do so, considering the far from complete macro funda and the technical trends.

Bottom Line

Macro and even technical research implies that the bull is lurking. But these things take longer than our impulses and emotions may think. At this time, precious metals appear to be caught up with the inflation trades, like commodities. That would be the basis for a near-term rally, as led by silver. Later on, when the macro runs out of gas and rolls over, we’ll have a counter-cycle, long-term “post-bubble” or not. That would be a better fundamental buy for gold stocks on any resulting price declines.

Gold has led the way during the disinflationary Goldilocks phase, breaking to new highs. If the inflation trades are to continue rallying silver will probably take over, pending any short-term pullback. Long-term, gold miners would leverage the negative, post-bubble macro to the upside just has they have leveraged the positive, inflation-stoked macro (interrupted by some breathtaking rallies and bull phases) to the downside, on balance since 2003.

Commodities

The indexes (GNX, CRB) have broken above the daily moving averages and appear constructive to break the long consolidation from the 2022 high. But if we are going post-bubble and into a real economic contraction, commodities would come under pressure, much like stocks, because they are cyclical. That is, until the Fed/government alliance attempts its next inflationary bailout, which could be of the painful Stagflation variety, which could benefit commodities, at least in relation to stocks.

As for the interim rally scenario, the TSX-V is an important indicator market for commodities and inflation trades because it represents the more speculative aspects of them. Here is da ‘V’ having tanked to a higher low to the February 13 low of 536.31, which was the second and more important of the lows to be held in order to keep the rally going. It reversed back above resistance (support) and now needs to hold that level after filling a little gap after FOMC.

US Market Sentiment

Dangerous for stocks and somewhat elevated for gold…

Dangerous by Newsletter sentiment…

Investment managers backed off from dangerously to still briskly over-bullish…

Portfolio

Funds are balanced by gold (long-term risk management & monetary stability).

Cu/Au explorer AE.V is my pet long-term speculation because smart people (first and foremost, geologist MC) think it’s a potential home run. I may be a risk manager at heart, but I’ll speculate on occasion when I think the prospects are good. Here I keep in mind my unfortunate sale of 1000 shares of ISRG in around 2001, about a million miles lower than the current price and the happier outcome in Great Bear Resources, which was recommended and affirmed by a couple trusted sources, including MC. Sometimes it pays to speculate.

Roth IRA (non-taxable, no contributions)

Below is the 1 year chart of the IRA. I have not shown it over the last year+ because a disbursement was taken from the IRA and Fidelity does not adjust for that. So it altered the chart per actual performance. On that note, performance is moderate when compared to the stock market, but as a TA I do like to keep an eye on the look of it. To my eye, it looks like it is routinely motoring along a moderate uptrend. The consistency owes to the high levels of interest-bearing cash. On that note…

Cash and equivalents are around 80%, which is fairly comfortable for conservative me. But man, the market is flashing risk signals, not least of which is the VIX, which has actually aborted the positive (or negative, depending on how you look at it) divergence to SPX and broken down. I am going to respect sentiment and indicators like the Gold/Silver ratio and adjust accordingly (press the inflation trades or raise cash further and/or short). So for this micro moment in time, the status shown here is okay.

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.