US Stock Market: Double top possibility? Yes, but not likely. Especially after the indexes put in hammer candles on Friday afternoon. Still, the healthiest thing would be to correct soon and clear risk for a bull drive into Q4. Will a desperate election year market care about “healthy”?
US Market Sentiment: Per last 2 weeks; “Risk aplenty. Over-bullish sentiment is a feature of a bull market. It will also be there as a condition of the bull’s end. On balance, participants are briskly over-bullish if not yet nose bleed heights of over-bullish.”
Market Indicators: Per last 2 weeks; “Sleepy indicators sleep, which implies risk from a complacency viewpoint. Also the Gold/Silver and Gold/Copper ratios did not go to sleep. They got hammered upside the head and PUT to sleep as froth momo speculation (and associated risk) ensues. Other slower moving indicators like 2yr yield divergence to the T-bill and Yield Curves are slogging along a muddy trail to the time they will one day end the party.”
Global Markets: Mostly still in bull mode but mostly still trending down in relation to the US stock market. Very interestingly, Canada’s TSX-V has based and broken upward vs. its own senior index (TSX) and creeping upward vs. the US broad SPX. This would be aided by a technical failure in the US dollar, which is clinging to intact status. TSX-V is the most important indication (IMO) there is on the commodity/resource/inflation/anti-USD trades. It is heavily on watch for indication of failure or perish the thought, a potential big time asset market rally.
Precious Metals: Per last week; With HUI/Gold ratio intact to the rally we have an internal indication that the rally may not be over. But the bulk of the distance to target (GDX 40, HUI 300) has been put in and that warrants an increasingly cautious view on PM/miner prices. But the technicals indicate likelihood that the next phase of the bull is already on. We know that about gold, but silver and the miners have made good technical strides and could be leading the macro, which is still fundamentally incomplete as the “everything bubble” drags on.
Commodities: Commodities on balance are floundering and looking for support. But with respect to TSX-V status noted above and in the report below, the play could really boom if the USD fails and da ‘V’ bulls (nominally and in relation to senior indexes).
Currencies: See >>>
US Dollar Decision Point Still in Progress; Big Implications At Hand
These are the markets. Moving at their own pace. Since breaking down from the bear flag USD tested the SMA 200 and the channel bottom, bounced hard, dropped again and now here it sits, testing those downside supports once again. After another up then down, the conclusions of Tuesday’s and Wednesday’s updates are still in play. Those are:
- Take out 104.08 on the downside and activate a bearish pattern with a target of 101.80 or…
- Take out 105.12 on the upside and break the correction (within the 2024 uptrend).
This chart shows the inverse of USD (green) along with the main US index ETF, SPY (blue) and global (ex-US) ETF, ACWX (orange). What had been a solid opposing relationship (a positive correlation to inverse USD) between stock markets and USD has been flipped to a positive one in 2024. The question remains, are stocks forecasting a breakdown in the US dollar or are stocks off sides?
When you consider other inter-market relationships like the TSX-V/TSX ratio making positive strides, the implication appears to be that “King Dollar” may be about to be dethroned.
As you can see, the big picture view (dating back to 2000) shows that TSX-V/TSX bulled during the big USD bear phase from 2002 into 2007. Since then, it has been an ongoing (and fully intact) bull market in USD. Small Canadian resource stocks have been utterly destroyed on balance. So if the daily chart above is on a real signal, one that would join SPY/ACWX and inverse USD above, the indication would be for a big ‘anti-USD’ trade that is already in progress.
Of course, nothing is proven yet and this could just be an election year anomaly as the US government * fiscally stimulates itself into the election, inflationary damage be damned. But the US government is doing that stimulating out of a massive pile of debt; $34 Trillion+. At some point “King Dollar” could give in to that, even if its developed market competitors are little more than calls on piles of debt of their own.
For we as speculators, it would be a good idea to keep an eye on these proceedings because while I have little interest in leveraging into the already mature bull markets in headline stock indexes, if USD were to fail and TSX-V/TSX were to break its bear (still a long way to go before that call is made) it could be a career maker. Eh?
Nominal TSX-V has filled the 622 gap, which was our best upside target. But now the question is, can it keep on going?
The wider angle view shows resistance taken out and turned to support. The next objective would be to take out the 2023 high of 645. If it were to do that, strap in, because the odds of an improbable and lucrative bull market would increase markedly. Meanwhile, how about a little temperance and patience? Let’s watch USD and the TSX-V/TSX ratio. If Thing 1 goes down and Thing 2 goes up, get ready for a global inflation trade like ya read about.
* The analysis is missing the debt maneuvers of the rest of the world, your letter writer being US-centric and US-focused. I cannot effectively manage the world, after all. But I can manage what I see in my own back yard.
Indications & Sentiment
US stocks are still bullish as SPX hammered to positive on Friday, NDX hammered to erase its in-day loss and SOX recovered a majority of its in-day loss. Same shit, different day. The reason I took a couple brief shorts was because there was (and decreasingly, still is) the potential of double tops in the indexes before the hammers showed up.
While SOX took the brunt of the in-day bearishness on Friday, it fully retains leadership in our SOX > NDX > SPX chain.
Certain breadth indicators, like Equal Weight SPX vs. Headline SPX are unhealthy. There is an ongoing negative divergence by the Dow Transports to the Dow. Sentiment is a cauldron of over-bullish, desperate and greedy spirits and none of it matters right now.
US and global stocks may well continue upward, uninterrupted in their quest for a resoundingly bullish atmosphere come election season, but at some point we speculators who prefer a real opportunity to capitalize (as opposed to an opportunity to herd along with the forever bull in headline stocks, as instigated by inflationary policy) may look to the possibility that Uncle Buck may actually take a breakdown of some kind, even if it is within an ongoing long-term bull market. If that happens, long depressed or under-performing areas like commodities and resources could play some serious catch-up.
What we should keep in mind is that the macro has changed, as indicated by the 2022 break upward in long-term Treasury yields. New macro, new rules? Like maybe some long forgotten areas potentially to rebound as the currency that this break upward in yields is trying to support weakens? May be.
And folks, it is not just the US bond market. Other developed nations saw their yields bottom and turn up as well. This indicates that the inflation problem is global and pervasive. Finally, a reminder that we are talking big picture here. While the indications noted above imply the potential for an unabated bull in asset markets I want to keep the potential for an interim deflationary liquidation in play as well. I am a cautious sort. That brings us right back around to our focus on the world’s reserve currency, USD.
USD decision point at hand (still).
US Economy Weakening
The title of this segment is not telling us anything we did not already know. But signals are mixed and manipulated by the government in power and its fiscal efforts to stay in power. Roads, bridges, Semi Chips Act, Green initiatives, GSE jiggering, you name it, they are trying to stimulate it. But as this article notes, the economy is eroded beneath many sectors (in this case, software) that are not pet beneficiaries of the government.
Dell is one of the items that had bad news last week and as a side note, I think it had a side effect on my SMCI position, as the word was ZERO margins in Dell’s AI server business. But all that sexy Cloud/SaaS stuff is starting to decelerate. Salesforce, Okta, Snowflake and many more growth stocks are seeing waning growth.
The more I think about it, the more it appears to be a situation where monetary policy makers (Fed) are in a battle with fiscal policy makers (government) and their “higher for longer” stance. Inflation has decelerated in lumpy fashion under the pressure of a weakening economy and higher interest rates while the government merrily goes on spending (funny) munny it does not have. Add in the Fed’s back door regulation of its hawkish Fed Funds regime through bond market operations, and you’ve got a mishmash of combined policy. It’s little wonder the markets/machines seem so confused.
It’s a tough situation and a primary reason I am expecting bad things after the election, whether or not the Biden administration holds power. If they win, they can relax and back off the fiscal shenanigans (one would think). If they lose, well, they would be forced to back off and leave the new and utterly bizarre Trump administration with a massive mess on its hands.
Meanwhile, it promises to be a humdinger of an economic data week, culminating with the May Payrolls report on Friday.
Global Pictures (relative to US, daily charts)
A snapshot of global indexes in relation to the US S&P 500. As you will see, the majority of the world is still trending down in relation to the USS Good Ship Lollipop.
First and in my opinion, most importantly (to those of us who would speculate in the commodity/resource trades), the TSX-V/SPX ratio is on a modest rise vs. SPX over the last couple of months.
TSX/SPX is firmly trending down.
Europe/SPX is trending down.
UK/SPX is trending up.
Australia/SPX is trending down.
Brazil/SPX is trending down.
While the inflationary miracle known as Argentina is trending up vs. SPX.
Japan/SPX is still biased to an uptrend.
India/US has weakened enough to engage a downtrend.
Hong Kong/US bounced within an intact downtrend.
EM/SPX has declined of late but is still trying to grind a weak little short-term uptrend against the dominant downtrend.
Precious Metals
Frankly, this can go either way (way to step up with a call, Gary!). But seriously, daily GDX is sitting up there in a little pattern after a false break above the upper channel line, which we expected. But if this is the end of the rally, it will be ending from a lower level than expected (sub-40 gap).
On the plus side, the HUI/Gold ratio is alive and well beneath the surface. It is not bullish from a wider angle view, but it is intact to the current rally that began in March. And dog gone it, it is even attempting to change trend from down to up on the daily chart view.
The longer (weekly) view of GDX simply shows an ETF testing its channel top with that test still in progress, technically. There is certainly no breakdown yet. Indeed, if a breakout is in the offing, a multi-week grind could be in order to provide the thrust.
This HUI monthly view is cleaner and shows a candidate to either break through or follow what has been a typical course post-2020 and drop within the channel. Our original goal was to bust the channel, have GDX fill its gap and then reverse back into the channel, as that would get the bugs trumpeting, setting them up for the usual post-trumpeting disappointment. However, the options are…
- Bust the channel and fail, per the above.
- Fail here and correct (key supports 250 & 240 +/-).
- Bust a move to the upside and break the damn bear cycle from 2020 and launch the next leg of the bull.
Monthly RSI and MACD are pleasantly coiled and gold stocks are technically positioned to continue to rally. Unfortunately, they are also positioned to correct. Sorry to be so not dynamic. The perma bull down the street can lather you up. I just want to express what I see.
Macro fundamentally, the picture is still in progress. Gold is bouncing vs. silver after taking a drubbing. That drubbing is not only not a concern for gold stocks, it is a tailwind. However, it is also a tailwind for wider “inflation trades”, which is not the proper long-term, post-bubble environment for a unique gold stock bull. If Gold/Copper put on a final downside shakeout and has bottomed, that would be fundamentally beneficial to our big picture view. Gold/Oil is beneficial to gold mining, operationally. Gold vs. stock markets is still in correction mode, however, and that is not yet beneficial to the sector.
BPGDM is interesting as it becomes even more stretched (overbought) to the upside.
This implies increased risk in the short-term but a new bull market leg engaging as the indicator enters a new bull trend with its monthly EMA 20 likely having bottomed. Traders will do what they will do at overbought/oversold situations, but investors need to know the likelihood of bull or bear markets. The likelihood is bull market. Cue Old Turkey from Reminiscences Of A Stock Operator: “It’s a bull market, you know” as he just sat there like a mother hen on his open positions.
Seasonally, silver would have topped in April and be due to bottom in late June. But this year it bulled into May. Does that mean it will bottom a month later, in late July? No, seasonals are notoriously skittish any give year. But that does look like a short-term double top. Indeed, I see it, you see it and so do legions of chart jockeys the world over. It may only have the force to test initial support at 29.
Support and the gap at 26.11 are also quite doable if a real correction manifests out of this. But that gap came on big volume, broke silver out and changed the trend so it is likely a “breakaway” gap. In other words, I would not be overly confident in it filling if I am looking to buy.
The big picture is flat out bullish as the monthly candle closed May in breakout mode. That’s not nuthin’. A serious silver bull would be looking to buy in the 28-29 area while a more miserly would-be silver bull might try to wait for 26. She might also be waiting a long time.
Regardless of a continued interim pullback, there is no technical reason to abandon the upside target measurement of 35. Weekly chart…
Gold needs only its big picture monthly chart to illustrate the bullish situation, which has poked our next target of 2450 and recoiled. Normal and in process toward the ultimate measured target of 3000+.
Well okay, let’s also pop the daily in here for a little more detail. In the event that it too has made a double top, we’d be looking for a ‘buy’ at or just below 2200 at the gap. Imagine that, 2200 is now the downside objective, where once it was a blue sky objective. A greedy buyer will likely wait for a test of the big breakout and the daily SMA 200. Said greedy buyer may not be able to buy such a level.
Gold and silver are bullish (in different ways). They are also each candidates for continued correction. Silver could lead speculation and inflation trades. Gold would lead the new macro on the big picture as it is a way station of value in a sea of speculative excess and debt. But in the near-term you can bet that speculating casino patrons aplenty have infected the gold investor base. This can use a healthy clean out.
Commodities
GNX looks like it wants to test support in the 560 area, even though it is clinging to the 200 day moving average.
The bigger picture is at the resistance of the next fan line, but retains a constructive look. Again, there’s the key support at 560.
Oil/Gas/Energy
I am still holding crude oil fund, USO as the seasonal does not top until October. Gas seasonal tops in June and bottoms in July before a big ramp into December. Meanwhile, Gas is pulling back now and I’ll have AR on watch as usual in the event it corrects (not yet). XLE is stair stepping downward and I’d like to see the SMA 200 get tested for a buy. That’s still a good way down at 87.40 vs. today’s price of 93.20.
Uranium
Holding UEC pending its 50 day average. The sector (URNM) is still bull trending as led by CCJ. The Uranium price has been flatlining since it topped and pulled back in Q1. The U sector was an early leader and is of big picture interest. Short-term it is moderate and not yet of major interest.
Copper/Industrial Metals
Copper has taken a good hit from 5.17 to 4.60. Copper stocks also got whacked. Interestingly, copper is getting whacked with the same stick that the precious metals are getting whacked with. That’s a good indication that gold stocks are not unique and are being viewed along side the global inflation trades. Nickel also got cracked, but it retains an uptrend for 2024. I added TLOFF (TLO.TO) back and have an eye on VALE. Steel is floundering, aluminum is rallying and the index (GYX) is trending up since February but also getting cracked of late like copper.
If USD were to break down, TSX-V were to bull and the signals come in line for commodity/resource trades I’d like to enter positions in industrial metal producers.
Palladium, Platinum, REE & Lithium
Pd continues to wallow along the floor, Pt spiked and is pulling back with precious and industrial metals, REE are a disparate group of strategic materials, but REMX and currently held MP are also in pullback mode, but not broken from their moderate uptrends off the bottom. Li is still flatlining, apparently working off all that EV hype that launched it a few years ago. My main interests in this group are MP for strategic reasons, with an eye on PGM producer SBSW for reasons of value and a bottoming chart.
I’d look into more exposure in these areas as well, if USD were to break down.
Agricultural
Ag index (GKX) is pulling back but still trending up from early March. I tend to get bored with these commodities. I’m human. Not a machine. But those who are interested should check seasonals along with charts. I recently added Sugar (CANE) for its seasonal and sentiment profiles (and bad chart) and got rid of it when it looked at me wrong. I added Soybeans (SOYB) for its chart and got rid of it just because it did not go up right away. So yeah, I guess I get bored. But I’ll keep a casual eye on the sector as it is way down from the highs and making at least a pretense to have bottomed.
Portfolio
Funds are balanced by gold (long-term risk management & monetary stability).
Holding Au/Cu explorer AE.V in a separate account for the long-term (account is taxable so I want L/T tax status. But I also want to see if it realizes the big gains I think it has potential for in the next couple/few years. Position increased on pullback last week.
Roth IRA (non-taxable, no contributions)
Cash/Equivalents are about 89%. Favored miners held. Favored REE held. Favored u3o8 held. Favored Semis held. Heavy cash held. In recent and coming weeks I have less time to watch the markets due to a very busy schedule in personal life. So that is one consideration to this portfolio that does not need to be watched too closely. I expect that to change in the coming weeks/months. But for now, it’s almost summer and this is comfortable for me. And the May cash distribution from cash/equiv doesn’t hurt either.
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.
