Summary
US Stock Market: Bullish and at high risk. Internal rotations in play. [unchanged]
US Market Sentiment: Extremely over-bullish. Not a timer, but a condition for a market top. [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. Still largely under-performing the US.
Precious Metals: Last week: “Silver… ah silver. It don’t come easy. But it do come (I think).” It did come. Curiously, however, silver continues to lag gold. If the macro is really getting an inflationary bounce we’d expect that to change. If the inflation bounce fails, Silver/Gold may well have been a negative divergence. Gold is in a real bull market. Silver is not yet. The miners target GDX 40 (+/-) and HUI 300 (+/-) and the downtrend channel top. The macro is shifting favorable (counter-cyclical), but well, it don’t come easy (or quickly).
Commodities: Commodities are generally firming the rally, with a few laggards still on the floor. Silver/Gold ratio is as yet a negative divergence and gold is generally out-performing commodities. Not exactly the makings of a grand new inflation trade. However, there is reason to believe there may be months more rally time ahead.
Currencies: USD pulls back from resistance at 105, drops to support and the daily SMA 50 and 200. It has not shown its short-term cards yet. But it will. Long-term, it’s a major bull market. Gold is in a bull market across the board in all major currencies indicating tanking confidence in debt paper.
Turning
NFTRH is a top-down macro entity. It is not a stock pick rag, a technical analysis junkie, a market psychologist or a monetary/fiscal policy obsessive. It is all of those things, as needed. But primarily what we do is define the macro and then continually update the definition because it is always progressing, shifting, cycling and changing. From that work we then try to to take it from ‘top-down’ definition and apply it to investment strategies.
I sometimes bristle at the hype that emanates from the precious metals sphere coming in the form of gold bug doctrine, perma-cheerleading, lecturing and rigid thinking. That is because like it or not, the macro is always shifting and doctrine or not, the macro shifted away from the precious metals in 2012 and only began recovering a gold-positive view in 2018. Since then it’s been a volatile process with incomplete macro fundamentals.
Incomplete, but now turning to the preferred macro that a gold bull would want to see and a stock bull would not want to see. Let’s be clear, “turning” is not “turned”. It is not complete, but our view of transition is being proven out slowly and now, methodically. I still have a personal question as to whether the forces of bubble-making (now in their 3rd decade by my estimation) can hold ‘er together to and through the presidential election. But we don’t need to have the answer to that question. We need to manage risk and respect market signals and TA.
Gold
Here is the thing; gold to me is an indicator as much as it is a monetary value retainer and risk manager. I disregard views of gold as some kind of play; as a market among other markets. Gold miners are a play; a play on the asset that stands outside of the Keynesian debt/leverage system as the anti-bubble. When anti-bubble forces become too strong and the ‘bust’ end of the boom/bust cycle ensues, the gold miners should leverage the relative performance of gold to speculative upside based on positive leverage, just as they have chronically under-performed due to negative leverage during intense bubble phases.
Getting off the idealist views and back to the technical view, gold’s weekly chart is purely bullish. The pattern of this chart targets 2450. This is a purely bullish breakout to blue sky.
The monthly chart advises the target of the large Cup and Handle, which has been fashioned over 10 years of pain and pleasure. The max pleasure point had been the 2020 high, from which the Cup made its higher right side high. After that, the smaller pattern did its thing. You see weekly and monthly RSI flirting with overbought status (as is the daily), but let’s discuss this for a moment. Traders will watch that stuff. But investors should realize how long gold stayed overbought during the hard up phases of the previous bull market (2005-2011) and the first up phase of this bull market (2019-2020). I’ve shaded those instances.
The thing is, an overbought market is a sign of a bullish market. I, who have held the metal since 2002, would not trade it (unlike the miners). But traders would do whatever the hell they will with GLD and other bullion holders/price trackers. As we’ve been noting for months now, gold is bullish on all time frames, with the daily finally joining the weekly and monthly in that status back in Q4, 2023.
Precious Metals
Silver has finally broken the trend line off of the pattern. Last week the chart noted the quite constructive alignments of RSI and MACD. That is still the case. Silver broke out on volume. The now activated pattern conservatively targets 35.
Meanwhile, the ratio of silver to gold continues to not yet look actionable. This represents little negative fundamental bearing on the gold miners because when silver declines vs. gold it usually does so as the sector’s real counter-cyclical fundamentals improve. However, silver often leads precious metals rallies and it is curious that it is not (yet) doing so with the recent inflationary whiff that the markets have undertaken, along with a recent rise in many commodity/resources sectors (see TSX-V below). Either Silver/Gold is going to play some serious catch up or it is going to remain a negative divergence to these inflation trades.
Moving on to the gold miners, we’ve done a lot of micromanaging using the GDX daily chart. Let’s do a bit more. The target is the 40 (+/-) area and the gap just below it (not visible on this chart). GDX is overbought, thus subject to quick pullbacks, but obviously short-term bullish. I would continue to view a pullback as a buying opportunity. Pullback levels to watch for, if applicable in the near-term, are new support in the mid-32s, the gap at 31 and the cluster at 30.
HUI monthly has made a move above the very pesky resistance level we’ve been watching. This was in the 242 (+/-) area. The fact that it’s a weekly close above that level is positive, but this chart wants to see a monthly close to April above it in order to really firm up the target at the downtrend channel top. That is now key support roughly equating to the upper most support in the mid-32s on GDX daily, above. We’d really like to see this support hold, which would mean GDX only testing the upper most support level shown above.
Here again is a picture of HUI following its proper fundamentals, as Huey zooms upward to get back in line with Gold/RINF (inflation expectations) and Gold/GNX (commodities). The situation is also aided by the fact that gold has rallied hard of late vs. the stock market. As you can see, the HUI/Gold ratio, also rallying, very much wants to see gold out-performing broad stock markets.
The Gold Miners Bullish Percent shows a situation that is getting overbought. However, if the bear trend is ending it can get more overbought. Note how the most recent low in the 20 month EMA was a higher one to the previous. May be nothing. May be a new paradigm. Either way, if BPGDM were to rise to 90 or higher, an extreme overbought caution reading would be in place.
Speculating
I want to continue to highlight NFTRH’s most closely held fundamental viewpoints on gold even though it could get pretty wacky out there in the coming months/years and just like the next casino patron, I want to try to make some speculative gains. So while practicing a pure fundamentalist view of gold I want to have some fun as well.
That is why a few more denizens of the Canadian TSX-V index have been showing up among my gold stock holdings. While da ‘V’ holds all kinds of speculative stocks in various sectors, if it rises it is a tailwind for gold exploration companies and junior miners/royalties.
As you can see TSX-V (daily chart) is just below the clear resistance area at 595. That is probably the best target for this rally, assuming the index is not entering a new bull market (which I do not favor at this time). The next chart shows another potential upside target. But first, a word on the individual equities shown here.
AMX.V is still held despite a hard rally. It’s a long way down to the first clear support level, so I’ll keep an eye on it, attempting not to fall in love with it. OGN.V is well above clear support as well and very far above its 200 day moving average. Bullish, but chopping around over the last month+. RIO.V is different in that it had fundamental news of the receipt of its permits, which has the stock still playing catch up to the time back in 2022 when it tanked due to a denial of said permit. A bullish chart ticking a fresh high after a long consolidation/bull flag. MAI.V is still in pad permit hell, but that is not stopping speculators from giving it a bounce. I took a position because I did not want to be sitting outside if said permit suddenly comes in hand. I did my own quick DD on Newfie Gold, and took it on as a spec similar to when AMX.V was most recently added.
Meanwhile, here is the TSX-V chart showing a potential upside objective to fill the gap at 622. Doable? I would think so, if enough animal spirits whip up in the near-term. As often noted, that would be beneficial to the wider commodity/resources trades and EM markets as well.
US Stock Market
The technical situation is one of an intact rally with SOX, NDX and SPX dropping to test the 50 day averages. Talk about a long way to clear technical support. SOX for example, has clear support 800 points lower where the SMA 200 is rising toward the 2021 high. The same generally holds true for NDX and SPX, although their 200 day averages are not shown on this chart.
The key question is still whether the bulls can get these indexes all the way to the finish line (i.e. the election or beyond) without a significant correction. There is a ton of support at those 200 day averages and we should at least consider that a correction to those levels could clean out this pig for a big time run up into Q4.
US Market Indications
Meanwhile, SOX continues to lead the front end of the chain, although it is correcting some overdone froth in relation to both SPX and NDX, while NDX continues to pull back (but not break down) in relation to SPX. Broad SPX quite logically has been firmer than ‘Goldilocks’ Tech lately as our plan for the rally to fan out into other more diverse market areas proves to be a good one (SPX is multi-sector, hence, diverse).
On the cautionary side, VIX has recovered its uptrend and negative divergence to SPX after a drop to temporarily break the trend. Mean spirited market with trap doors and false moves strikes again.
On the positive side, a defensive sector (Healthcare) is dropping hard vs. the broad market. This is a ‘risk still on’ signal.
Risk remains ‘on’ by sleepy and calm High Yield (junk) spreads as well.
The same is indicated by the very subdued state of LIBOR/T-bill yield ratio.
Gold is spiking higher in relation to stocks while still not yet establishing a bullish trend. Meanwhile, gold is grinding vs. cyclical commodities as the bull play fans out to include commodities. Aside from being a monetary metal, gold is a bear/bull indicator in relation to cyclical assets. As yet, it’s on the move, but has not yet clearly flipped the macro negative.
US Stock Market Bottom Line
Up-trending technicals are intact. Leadership is intact, but the market is fanning out to broader sectors as the Goldilocks stuff simmers down a bit. This has been as projected.
Risk remains very high by definition of the sleepy indicators, which show that risk is not yet realized. This is a condition of bullish markets, and will be a condition at the next major top. Much like over-bullish sentiment will be. Gold could be creeping the coming negative macro by getting some positive traction vs. risk ‘on’ and cyclical markets.
US Market Sentiment
We nailed the timing of the birth of the current bull market phase back in Q4, 2022 in large part due to extremely over-bearish sentiment (but also factoring the bullish mid-term election cycle and a softening Fed). But I did not at all nail an initial sentiment “bull killer” or a secondary one. Despite these extreme over-bullish signals, the bull market labors on. Personally, I find it much easier to birth a bull than kill one.
Currently, Dumb money is still over-bullish but fading, and Smart money is neutral.
Newsletters (Investors Intelligence) are extremely over-bullish and bears are in hibernation.
Investment Managers (NAAIM) continue to jump around as they have for all of 2024. Always over-bullish, sometimes extremely so, but very skittish with every market hiccup. Last week NAAIM backed off its leveraged bullish perch of 104% to 84%.
AAII (individual investors) are briskly over-bullish.
Sentiment Bottom Line
Over-bullish with conditions for a top either having been in place previously (Smart/Dumb) or in place now (Investors Intelligence, AAII and NAAIM). But “condition” is not a timer. It’s a condition that will be in place for a top when the top finally arrives.
Global Stock Markets
- Europe: (STOXX 600): In blue sky but like the US indexes, got hammered last week. Trends remain up.
- Canada (TSX): Ticking blue sky just now and was strong last week. This is a reflection of the play fanning out to commodity/resource rich areas, as projected.
- Australia (AORD): Very similar status to TSX and with good reason; Aussie is also commodity/resource rich and benefiting from the fan out to include these areas.
- UK (UK 100): Finally made a notable up move out of its bull biased pattern. UK is flirting with a new all-time high as well.
- Japan (Nikkei): The break above the all-time high of 38957 (in 1989) is being tested with a pullback. The daily trend is up as the index drops to test its SMA 50 at 38585.
- India (BSE Sensex): Grinding its way upward in 2024, routinely testing the 50 day average. Under-performing other areas but in a clear bull market, nominally.
- Latin America (LatAm 40): Still consolidating a bullish breakout. Currently riding the 50 day average.
- China (Large Caps & A-Shares): FXI is still in a constructive pattern within its major daily downtrend. It appears set to test that downtrend marker, the SMA 200. ASHR is already testing its downtrending SMA 200, thus far not successfully. Although it has not clearly failed either.
- Asia (ex-Japan) & EM: AAXJ has rallied well but is still trending neutral. The same can be said of EEM, although it is knocking on the door of new highs for the cycle.
Bottom Line
Most global markets are bullish or trying to bust bullish. However, in relation to the US headline index, SPX, most global markets (Japan’s Nikkei and exception) are still firmly trending down. Hence, I’d rather stick closer to home and manage the remainder of this bull that way unless the relative trends change. I hold AAXJ, but that may be exited at any time.
Commodities
The play has shifted to include the industrial metals after GYX and its star headliner, Copper held the long-term support per this chart we reviewed a few months ago. A chart like this makes me wonder whether I am on the right track anticipating a deflationary event before the next big cyclical inflation phase.
Perhaps they will rally enough that the next liquidity event might feel like deflation on another future pullback to the support areas. But at face value, these charts were buys at noted support. I suppose that the recent bump up on China’s manufacturing PMI was helpful here, not to mention the China smelters’ supply/demand manip.
As previously noted, the Metals & Mining ETF (XME) was thought to be a decent market rotation candidate as the play fanned out from Goldilocks to many other areas. Sure enough, it has gone bullish too.
GNX commodity index has also lifted off of long-term support. Crude oil is clearly a driver here as WTI is in a similar technical situation. While WTI is nowhere near new all-time highs, XLE – which I recently sold – has continued to drive upward to new all-time highs. The sector sure seems to think there is more upside for oil.
But what of Gas? Being a bottom feeder at heart I am going to continue holding AR on the prospect that Gas will at some point turn upward from very long-term support. Recall also that the seasonal is now quite positive. I may look for another one or two items in the Gas sector or just hold AR.
The Uranium price has corrected and as noted previously, there is no visible support until the 65 area. That does not mean it will decline to that level, but it does mean there are no obvious support points until that area.
So I am going to watch Uranium holdings (NXE and UUUU) closely. Much like Energy stocks compared to their host commodities, Uranium stocks are generally performing better than their product lately. Everything here is either bullish or biased bullish, aside from UUUU, which is trending down after an acquisition and possibly as it also gets painted with the REE brush.
Speaking of which, the REE patch, including watch item MP, continues trending down along with Lithium and despite a recently rallying Nickel price, TLO.TO, a stock I bought as a bottom feed with no undo hopes for avoiding bag holder status. Well, I hold my blessedly small bag.
As for the commodity complex in general, in my opinion the rally can keep on going as China manipulates and stimulates, the US stimulates and manipulates (ah, an election year) and inflationistas and commodity gurus get a renewed bounce in their steps. Well, we anticipated it and it is here. However, the chart above shows many laggards and non-starters that may yet do what REMX and SBSW have started to do and lift off the floor.
I do not believe there is basis yet for a long-term commitment to commodities or an inflationary view. But this election year there could be enough elements in play to really drive the situation for an extended period. Let’s see if Gas, the PGMs, REE, Nickel and others get an uptake in the coming weeks/months.
Currencies
As per usual, we have USD (daily) not showing its cards. The rally from the March 8th low remains in an uptrend channel and is testing the converged moving averages (MA 50 & 200) along with clear support, after pulling back from resistance.
The weekly chart shows that the 2023 low was just about a 62% Fib retrace of the 2021-2022 rally that occurred in anticipation of the then tardy * Fed’s coming hawkish, and currency supportive, policy. In this topsy turvy macro world, the worse inflation fears became, the higher the currency – which is theoretically eroded by inflation – went. With tons of embedded support lower, USD remains in a clear bull market from 2008 (beyond the scope of this chart).
If USD retains its status as the anti-market (precious metals, commodities and the other sectors and global markets we’ve anticipated to join the fanned out rally are rising as USD also biases upward over the last month) a breakout above resistance could cause some asset market pain. If it fails for deeper tests of bull market support, it’s probably ‘party on, Garth’.
* Recall at the time your letter writer was demanding the Fed take action against the inflation problem it created. But they just sat there, until compelled into a manic swing in the hawkish direction by no longer deniable inflation signals.
Meanwhile, it is not only a bull market in gold in USD terms, it is a bull market in gold across the board, global currency wise. That is meaningful, and the meaning is that regardless of what currencies may be rising or falling in the global currency game of Whack-a-Mole, they are all – including USD – subject to increasing distrust by the world’s population.
Yet plucky Bitcoin hangs in there as the would-be solution. Personally, I believe BTC is a speculation and with risk still very much ‘on’ in the markets, this speculation is gaining a dual bid of bullish momentum and a sexy story as a digital alternative to debt strewn paper currencies. I also believe that gold has likely bottomed vs. BTC and when the next economic bust cycle comes about this ratio will easily take out the 2023 high (at least).
Portfolio
Funds are balanced by gold (long-term risk management & monetary stability).
AE.V is held firmly, but no additional buying opportunities have materialized as yet. Long-term hold on this early exploration play with much potential (TY, Michael C).
Roth IRA (non-taxable, no contributions)
Being a man who stares at charts, once in a while I take a look at the chart Fidelity generates of my IRA. Assuming I do not transfer more funds out of the IRA (which negatively distorts the chart) I’ll keep a casual eye on this (1 year chart). I’ve marked it up to show that it recently consolidated, held support and took a new up leg. I am sure many other casino patrons have been taking up legs as well, lately. It is at the channel top, and as overbought as it was at the last high (at the end of 2023). Of course, with cash and its non-speculative income, there is a robotic aspect to the chart.
Cash is about 82%. Until USD tips its hand I am going to be aware of cash, which continues to spit out interest payments. Aside from that, portfolio is pretty well balanced with precious metals the heaviest contingent but also a couple Goldilocks Tech things and a few commodity related things. The Cannabis sector has my interest up. My common sense says be wary of the hype coming out of government about rescheduling on a Federal level. But the charts continue to tell me of a long-term base and upturn for the sector.
I remain prepared to either increase or decrease cash, given certain market signals, mainly surrounding the USD, but also many other indicators that we routinely cover.
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.
