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US Stock Market: Last week: Anticipated correction is here. There could be a short-term bounce to test 50 day averages, but correction likely has lower to go. Segment illustrates SPX targets. Current: Decision time about a new ‘C’ leg down or ‘minor correction over’… technicals will be the guide in the short-term.

US Market Sentiment: Sentiment has been reset to the degree that the market can resume rallying OR drop for a harder, healthier ‘C’ leg to clear support levels. Best to use TA at this time.

Market Indicators: High Yield Spreads, Libor/T-bill yields went back to sleep last week with the market bounce. Typical. VIX pulled back hard. These things indicate two things: 1) a calm and complacent backdrop and 2) RISK as yet not realized.

Global Markets: Global (ex-US) bouncing to test the SMA 50, much like the US. Contrary play China large caps leading US large caps for most of 2024, but still in a downtrend. Generally, the world is bouncing back from a hard downturn.

Precious Metals: GDX Diamond pattern resolved downward and then gold stocks found support and rammed upward again. If they continue higher it will be on momentum as a non-unique sector. That’s fine because we are not yet tabbing them as unique or special. Gold already nearly ticked the interim target of 2450 and pulled back while silver did not get close to its pattern target of 35. If the sector goes momo, it will. But FOMC week will introduce much noise to the PMs and all other segments.

Commodities: Headliners like crude oil/energy and copper/industrial metals strong while, Uranium sector tries to hold its technicals and some bottom feeders bounce (e.g. Ni and Agricultural). Others wallow (e.g. Li, Pd, Pt). It appears that discrete supply/demand funda are asserting over macro fundamentals at this time.

Currencies: USD is eyeballing a key higher high. See segment for it and the Gold/Silver ratio, which has thus far held its uptrend. At some point they will have a say in the macro. But first…

FOMC Week: Bounce to create crosscurrents in the analysis as it usually does. The market SHOULD know already that the Fed is shoe horned into a ‘higher for longer’ stance. Yet the result of similar situations is often that the market acts surprised by any hawkish tones. I do think it is just pre-programmed bullshit. But it is what it is.

US Stock Market

Well of course the market is pushing the limit, with the limit being the 50 day moving average and associated short-term resistance. The bounce came as anticipated last week in NFTRH 806, after the index filled the upper most gap. The preferred downside target is the SMA 200 (4690) and the support cluster just above it.

If this is an A-B-C correction to the bull rally out of Q4, 2022 SPX is on ‘B’ and due to decline in leg ‘C’ before long.

But sexy market star and undisputed market leader Nvidia is posturing to beg to differ. If it takes out the April 11th high represented by the red arrow (907.39) bears could endure an all too familiar defeat. It could bode well for the Semiconductor sector, the AI hype sector and fan out to Tech and beyond. Bears… hold below that high! Otherwise, if NVDA leads the market out of the small correction it has had the buy opportunity we’ve anticipated will not have been as good as expected.

Meanwhile, the leading index, SOX, is at a clear ‘make or break’ point. A short setup does not get any clearer than this. Nor does a warning against the bears, should it break through. You can see that SOX dive bombed to fill a fat gap before making this ‘V’ recovery. I’ve not marked gaps here but there are plenty more lower. If SOX does fail, the target and clear ‘buy’ area is the uptrending SMA 200 (4008) down to support at 3800.

NDX dropped to fill a couple gaps and is looking upward at a test of the SMA 50 and clear resistance.

As to the indexes above, it is important to keep in mind that major trends are up, regardless of whether or not the correction has another leg. I would disregard the fetishism on X and other venues for a market crash or imminent bear market. Within those uptrends, our question at this time is ‘was that it, or is there an excellent downside buying opportunity upcoming?’

Leadership by the Semiconductor sector (SOX) is fully intact. Tech (NDX) continues to wobble in relation to the broader SPX, but it has not broken down. The picture is stable, if not resoundingly bullish, at this time.

US Stock Market Sentiment

Smart and Dumb money sentiment had come to a point where we’d anticipated a bounce last week. The week ended with Dumb still depressed and Smart eating the spike in fear. At the end of the week the indicators started to retrench a bit with the market bounce. This middle ground is permissive of two things: 1) a resumed market correction toward a future extreme in negative sentiment or 2) a recovery of the bull after over bullish sentiment got fixed. Hence, TA above will guide, not sentiment in the short-term.

Short-term market risk did surge to negative, per Sentimentrader’s various data. These readings tend to be very skittish and unreliable beyond a day or two. But it does show that the market could pull back from the resistance zones noted above, from a sentiment perspective.

Folks, here is an indication that the correction could already be over. As of 4/23 Newsletter bulls had gone into full retreat. They were not over-bearish, but they had relieved themselves of ALL over-bullish tendencies. That is a market sentiment correction, if not yet a complete market price correction.

In April, Individual Investors (AAII) have steadily trended away from previous over-bullishness. They are not at all over-bearish, but the steady march away from the bull side represents a decent sentiment reset for the bulls.

NAAIM shows Investment Managers have made a hard retreat from their leveraged over-bullish state at the end of March. This is what a market correction (within a bull market) is for. This reading could end the correction as a minor one, but as noted previously, NAAIM would get heavily over-bearish (as low as the 20% to 30% range) for a major contrary buy signal if the market takes a ‘C’ leg down.

Market Sentiment Bottom Line

Enough work has been done to end the market correction, from a sentiment perspective. It has not flipped to extreme over-bearish, however. If the correction will have been routine, sentiment is not standing in the way of more bull. If it will have been more severe (and healthy), sentiment is permissive of more downside. As noted, it will be best to let index technicals (per above) guide at this key moment in time.

Global Stock Markets

A curious thing is happening. Despite the bounce in US stocks, China large caps were still out-pacing US large caps to end the week. As you can see by the orange SMA 200, the major trend is clearly down, but China has been strong relative to the US for most of 2024 thus far. A trend change would have to start somewhere, and this is that somewhere. That said, if China does continue to assert leadership it is still viewed as only a manifestation of the ending stages of the global bull, perhaps into Q4, 2024 or even into 2025.

Of relevance to we speculators in smaller and more speculative precious metals, commodity and resource related stocks, as well as the commodity sector in general, Canada’s TSX-V appears to have put in the next low at the moving average intersection. You will note a “Golden Cross” of the SMA 50 above the SMA 200. One outcome may be that when that starts getting aggressively touted, a sharp pullback may ensue. Could that come after an upside gap fill at 622? Sure could. But for now, it’s bull rally intact (from Q4, 2023).

Meanwhile, the balance of global markets (ex-US) appears in a similar state to the major US indexes. RSI looks sneaky good, but price is just below key resistance. Decision time.

Precious Metals

Friday’s video update and follow up update defined the short-term situation for GDX and hence, the gold mining sector. Let’s not belabor. Gold miners are generally in rally mode with the US stock market, several commodities and global markets. The target is GDX 40 (+/-) and the preferred macro for a unique bull market is not yet in place, although it continues to grind toward that. Gold stocks are, in my view, a swing trade right now. Not yet a buy and hold (for a longer-term) bull market.

Here is the daily chart of my chosen speculations that get a tailwind from a still rallying TSX-V, the host index for each of these items. Amex, Rio2, and Newfie are my own selections, Orogen is a pick from a subscriber who has done much closer research than I have, and Minera is a long ago heads up from a former gold mining fund manager. Generally, I am constructive on these items (Minera needs that pad permit!) as long as I am constructive on a combination of the TSX-V and the precious metals sector in general.

They are not recos for subscribers because I do not do exhaustive stock research. They are shown simply to illustrate what I hold and why. The junior mining universe is filled with other prospects (and associated risks). As a side note, I also hold AE.V, per subscriber and geologist MC’s original reco. I should probably add it to this chart.

AMX.V appears to be bull flagging above support. Hence, it was added back. I have long favored its Quebec location. OGN.V is going sideways to try to work off overbought conditions. RIO.V is different in that it had previously tanked (I had already sold it due to its degrading pre-crash technical situation) and then partially recovered on permitting news (first bad, then good). It appears to be seeking out a proper level now, as a mine developer. Still needs financing, however. MAI.V would likely be a core holding if it had its pad permit in hand and/or if I were not so averse to political risks in foreign locales. Newfie is a chart I like and a location story I like as well.

With FOMC coming up on May 1st and CME Group Fed Funds speculators having pushed out the first anticipated rate cut probability to September, you would think that the market would be fully apprised of the Fed’s ‘higher for longer’ stance. But time and time again the market has not factored in advance what we all know. So personally, I don’t trust the machines not to get woogley during FOMC week. It’s like a license for mayhem.

Compounding next week’s matters are ISM manufacturing and ADP employment on Fed day, May 1st and especially the April Payrolls report on Friday, May 3rd. It is going to be noisy and if that noise is hawkish let’s be aware that gold is still somewhat overbought and the miners are extended by the BPGDM indicator (monthly chart).

I do think that the chances are good that a low in the monthly EMA 20 is in place and a new bull trend in the indicator may be in its early stages. Despite that the sector is vulnerable by this overbought measure.

The daily chart view also indicates risk. But risk is a threat, not an outcome. An overbought BPGDM in an uptrend is a bullish thing on the bigger picture. It means the sector is under accumulation, despite periodic price risk and volatility.

Meanwhile, with the gold miner rally still intact and ongoing, let’s remain aware of the GDX 40 target and the corresponding target for HUI (monthly log scale chart). That is the top of the downtrend channel. When the day comes that Huey breaks out and targets a new high above the 2020 high we can ramp up the bigger picture view. Until then, and pending the still ‘in process’ macro fundamentals, let’s stay measured at a target at or just below 300.

We are still waiting on gold to out-perform the headline US stock indexes, like SPX. Here you see Au/SPX may well have bottomed, but that is not yet technically confirmed in any significant way. The chart attempts to show us that the entire phase out of the 2020 high has been a bleeding of those excesses as the precious metals led the way out of the Pandemic crash, HUI far outpaced Au/SPX and then the economic cycle turned pro-cyclical.

Other considerations:

• Despite a hard down day on April 22, Gold and Silver Commitments of Traders did not respond with large Spec selling or Commercial short covering of any significance. That could be interpreted negatively from a contrarian view, but it also means that momentum is intact despite the price pullbacks.
• It’s a similar situation to the overbought BPGDM. If the complex is in a new bull market phase upside momentum is a thing. Just ask the stock market.
• Personally, I am not a very good momentum manager because I tend to default as a risk manager. But I have to tell it like I see it, and potential momo is a consideration here. The original target objectives are not that much higher, after all (Gold: 2450, Silver: 35, HUI 300 & GDX 40).

Bottom Line

Precious Metals have remained in rally mode, but are overbought. As a result volatility entered the picture as anticipated, but a bull move with staying power can endure volatility before proceeding higher. Further correction can also come about at any time.

Fundamentally, the situation is not complete and hence, our targets noted above. Later on, after the macro pivots, we’d expect the sector to turn unique (as opposed to just another bullish participant today) and we lock in on the bigger targets (Gold: 3000, HUI: 500, Silver… don’t know that I’ve targeted it but the old high of 50 seems reasonable).

USD & Gold/Silver Ratio

The dollar appears to be bull flagging while deciding whether or not to take out the pivotal high of 107.35 while RSI stair steps higher and MACD does the same. They appear to be coiled and ready to help Uncle Buck make his move.

If the buck does do that and the Gold/Silver ratio holds its uptrend, then the options are ‘gentle disinflationary Goldilocks (benefiting Tech and Growth on a relative basis) or something not so nice, like a market liquidity problem and/or deflation scare. If the markets are to take a ‘C’ corrective leg down, this might be the recipe for it. Keep an eye on these two. They will play a role in the macro eventually.

Commodities

Yet the commodity complex continues to look more bullish than not. That is at odds with the theme of rising Gold/Silver ratio (and USD). It puts a level of caution in the mix from a macro view. But technically, here is a brief overview:

• CRB, GNX, DBC: The indexes/ETF are still in rally mode off of the December lows.
• This is driven by Crude Oil, still in rally mode off its December low. Gas continues weak, wallowing at support going back to the 1990s, despite a seasonal that has turned up. But it did take a hard shot upward recently and is declining from that in what looks like a sharp bull flag. Former hold AR is bulling and that could be a positive signal for Gas. I may have to momo AR higher than I sold it. But that’s show biz.
• Copper is leading the broad industrial metals complex (GYX) in a strong spike upward. Warehouse inventories and a renewed China story (of sorts) are driving the situation from a supply/demand perspective.
• Uranium sector ticked positive on Friday, turning suspect charts to something a little more pleasant. It could all be undone tomorrow, but as long as it is constructive I want to have exposure (URNM).
• The Agriculture index (GKX) has been rallying for nearly 2 months now. It may be time to check seasonals on some of the components as the index flirts with its downtrending major daily moving average, the SMA 200. Still a downtrend, but worth keeping an eye on.
• Nickel has been rallying since mid-February and is now also testing its downtrending SMA 200. Lithium is still face planted at the lows, Palladium turned short-term ugly in its would-be base pattern last week and Platinum needs to hold here to keep its bottoming potential on track.
• The REE space is still trending down. Current holding MP is at least constructive to continue to bounce, similar to Nickel (and copper) prospect TLOFF (TLO.TO), which I also hold.

The sector gets an implied tailwind from the still rallying TSX-V index noted above in the Global segment. So it does come down to the USD and GSR vs. a host of traditionally anti-USD markets that would also prefer gold NOT lead silver.

With FOMC on tap there will be other crosscurrents in the markets aside from this dynamic. The machines could get cranky this week. But generally, the headliners (Oil, Copper and an expanding group of Industrial Metals, and Uranium) are doing the lifting and the laggards are still lagging (with some starting to bounce in a catch-up move we’ve discussed as possible). It appears that supply/demand fundamentals for individual commodities are currently asserting dominance over what the USD and GSR may be signaling (actually, they have not yet risen together in a cohesive signal).

Portfolio

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

Holding Au/Cu explorer AE.V in a separate account. It’s a long-term play with much potential according to those much more learned about exploration than I (a geologist and a mining engineer).

Roth IRA (non-taxable, no contributions)

Cash (and equiv) is 87%, which I suppose is fine for conservative me heading into FOMC week. I am not at all averse to re-shorting the gold miners to hedge, adding more broad market shorts or, depending on what transpires and how I view the situation, releasing shorts and adding longs. As you know, I am always willing to raise more cash as well, if asset risk gathers and compels me to accept even more stable income.

A pivotal point is coming up this week for the US indexes, as they have bounced as anticipated, generally to the 50 day averages. If the likes of Nvidia lead them higher, so be it. But the potential remains for a ‘C’ leg down, which could pressure a lot of items.

This rancorous election year adds flavor to the stew. Maybe the market will not wait for a normal and healthy ‘C’ leg down because maybe a ‘do or die’ attitude by the party in power may signal it ready to fiscally inflate, I mean stimulate, its way to the election. Hence, I am ready for either event with an abundance of patience as we move through another sure to be cacophonous FOMC week.

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.