US Stock Market: Little change. Bull trending with leadership intact amid very concerning breadth divergence and sound asleep risk indicators (meaning high but unrealized risk).
US Market Sentiment: Sentiment has backed off to the degree that could support markets in the short-term as the “last chance power drive” rally continues. But longer-term sentiment is very unhealthy, contrary-wise.
Market Indicators: Sedate macro indicated. High risk macro also indicated, by definition.
Global Markets (per last week): Still aping SPX and the US headline indexes on balance, although the world, ex-US (ACWX) continued to trend purely down vs. SPY. If the US dollar and Gold/Silver ratio get a move on, EM and commodity/resource areas could be expected to take more pressure relative to other global markets. If the inflation trades resume (which does not look like the short-term indication) they could out-perform.
Precious Metals (per last week): Correction has come from gold’s target of 2450 and below the targets for silver and the miners. But the sector did registered indications that would be consistent with an oncoming clean out. It’s healthy and if we are correct that it can continue, buying opportunities will be scouted ahead. NEW: Good work being done to the downside, but correction not yet indicated over. There are valid levels lower.
Commodities (per last week): Gold/Silver and Gold/Copper bounced, despite nominal gold’s weakness. That is not positive signaling for commodities and anti-USD trades. For now, caution is warranted.
Currencies: USD decision point decides “up”. Now, if the Gold/Silver ratio’s ‘V’ bounce turns serious these two could wreck markets for a while. As yet, the GSR is merely bouncing. But it should be watched closely.
The Plan Remains
Since being hit over the head with the facts of the oncoming 2024 US presidential election and its implications, while viewing a monetarily tight Fed and a loosey goosey government leveraging debt to the hilt, our plan has been that the market, stretched risk indicators and all, can hold together into or through the election. So far, that is playing out.
However, there exists an interim option and that is for a possibly sharp correction to clear the pipes for a drive into Q4. It feels like 2024 is steaming along rapidly as we approach mid-year, but there is still time for a correction. Although a bubbly stock market is running out of time to take such a healthy pullback. See the USD/GSR combo in the last segment of the report. These two are a would-be trigger to correction.
The signals I get from the stretched risk indicators (High Yield spreads, sleepy VIX, 2yr yield/t-bill yield divergence, poor market breadth ongoing, over-bullish sentiment and more) is that the pressure building now, under an extremely bullish regime, will bring about commensurate bearish pressure when the government lets off the gas (assuming they do let off the gas). That is the logic behind the view that this thing is going to fold like a cheap (circus) tent when the forces behind the market’s perma-stimulus are either removed from government or secure another 4 years.
Hubris
You probably know that I am not political in any standard sense. I am completely disgusted with both parties, which I see as little more than cartoons in a late stage society choking on hubris. As each party becomes more extreme to its own agenda, so too is society becoming extreme in its divide between people who see and fear where this country is going and those robots who put trust in media, large (corporate) and small (including the lunatic fringe) or think social media and its influencers are anything more than grifters and promoters (or at best, entertainment), picking over the bones of what is left of a great country.
Everything is bought, sold and paid for through a $34 trillion+ bag of debt and it is not sustainable. But of course fringe lunatics like your letter writer have been saying that for years. Still, it is what it is. The debt is real and the economic and financial leverage to it is also real. Lunatic or not, I try to present facts.
This graph from the St. Louis Fed tells us what we need to know about how far down the rabbit hole we have gone since the Bernanke Fed put the Maestro Greenspan’s monetary meddling on steroids in 2008, and began leveraging the system to the hilt. Money created out of nowhere (but debt obligations) has leveraged the economy (GDP) with an ever higher percentage of debt. In the pre-Greenspan era that leverage was below 40%. During Greenspan is was around 60%. The post-Bernanke situation is now leveraged at a mind boggling 120% debt to GDP.
Bernanke was celebrated as he destroyed the concept of saving (7+ years of ZIRP) for millions of Americans and put us all in an ‘invest in asset markets or die’ mode. To this day the hero’s initiatives are working like a charm. But here is the thing; most people actually believe this is sustainable and well, the way things are. You invest in stocks because even after corrections and bear markets, they always go up again. That line of thinking is the product of inflationary monetary policy against increasingly leveraged debt, propping the economy since 2009.
Here is a view of GDP that more conventional market analysis will focus on. Real GDP in this case represents GDP adjusted by inflation. Let’s suspend for a moment questions about the validity of both GDP calculations and inflation measures, and literally view this as a picture of GDP keeping up with inflation.
But it is the machinery of inflation that I consider to be key. The symbolism of this chart indicates that debt will not be so easy to leverage moving forward due to the cost of borrowing. Let’s keep it at that, as I’ve clubbed you over the head with this picture and its perceived implications enough.
Think about the growing percentage of today’s market participants who were not in the markets in 2008, which saw a systemic crash and the beginning of the age of steroidal monetary policy. That was 16 years ago and a 32 year old investor today was 16 then and likely not caring much about the stock market or the economy. Since then it has been robo-market, robo-economy and robo-policy. All good!
Except that it will prove to not be all good. The matter at hand is “when”, not “if”.
I began NFTRH with the express purpose of maintaining a realistic view of the situation as presented above, but also out of disgust toward those set in their bias, pretending to know outcomes and leading people astray. I have my bias and it is… bearish is too gentle a word… it is frightening. Today it appears that the culture is creeping the terrible fundamentals beneath the economy as America continues to tear itself apart. But the point is that actively fighting the construct of debt-for-leverage could kill you before you (or your guru) are one day proven right. That is where my distaste for those promoting a perma-bear view came from.
Sure, this Roaring Kitty manipulating Gamestop is a cartoon-like manifestation. Previous manifestations like Tom Brady and Kim Kardashian getting caught up in Bitcoin and NFT hoaxes were similar. Memes all over X can be funny. It’s a late stage society, so why not laugh at it? Exactly. But there is some dead on serious shit out there and it is being sustained by misinformation and tended, fed and bred to certain viewpoints.
As a large percentage of the population either thinks that bull markets will go on forever (content, idle, asset owner class) or are never going to get their shot (the disenfranchised) due to the divide between the haves and have nots, many believe things that they’ve been herded to believe. Tended like farm animals. Thinking in linear terms, accepting trends. Accepting media, large and small.
I am not saying that I know the truth (whatever that means), other than this is way off the charts to what I grew up with. But I am saying that there is a social unwinding in motion and at some point it will coincide with a financial/economic unwinding. That’s where the unsustainable debt situation comes into play. The fact that society is getting dumbed down and/or polarized to alarming degree concurrent to this makes it even more dangerous.
Stock Markets
Back to our happy place, the stock market. Oh wait…
I am decreasingly interested in technically analyzing the the stock market of late. The Semi > Tech > Broad leadership chain is intact. The bull is intact, and the risk indicator extremes are intact. So when I put my conventional hat on and decide to participate, as I have to varying degrees since becoming aware that Greenspan was up to something nearly a quarter century ago, I realize that our plan continues.
The other side of me, the side that puts doom and gloom on the shelf and values innovation and progress from a technological standpoint, continues to be focused on the Semiconductor industry. What is the bedrock of Crypto currency creation/exchange, social media platforms and their influencers galore, the latest tech hype play, AI, not to mention computers, smart phones/devices and increasingly medical equipment, war machines/intel, autos and more?
Yup, Semi. Indeed, you could say that this industry is ushering in the post-modern society, for all its good and increasingly, bad. It remains a relatively cyclical industry, however, so it is not like Semi alone will resist the next bear market. But much like gold stocks for a future phase, I have interest in Semi on the current phase. It is not a coincidence that in my sparse set of holdings Semi is along with gold miners. Both have cases.
Stock Market Sentiment
Dumb money has curiously faded the rising stock market of late while smart money has bought it. While still not a healthy sentiment profile, it is the kind of micro trend that can sustain a greater rally.
Similarly, NAAIM (Investment Managers) has gotten a bit squirrely lately despite the tick to new highs in the S&P 500.
Investors Intelligence (Newsletters) is still briskly over-bullish, although not yet hyper-critically so at a Bull/Bear ratio of 3.43, up from 2.4 recently.
AAII (Ma & Pa) have dive bombed from a briskly over-bullish Bull/Bear ratio of 2.7 to moderate 1.7 currently.
The bottom line on sentiment is that it is not alarmingly over-bullish and in some measures is actually permissive should the bull rally continue on. Sentiment has taken a little pause, possibly to refresh. On the longer-term picture, the situation is quite bad from a contrarian perspective.
Global Markets
As with the US above, I don’t care to get too deep here as we all know the scoop; on balance, global markets are aping the US headliners (NDX and SPX) as led by the Semis (SOX), but under-performing SPX as is much of the broader US market. I would like to update the situation with the TSX-V, however, as it is a good indicator for the wider commodity/resources markets and what we call the inflation trades.
Nominally, da ‘V’ seeks to make another higher low, which would one day turn the black arrow green. However, from the beginning our best projected target was the 622 gap, which has been registered. A target is not a stop sign and this could be a normal pullback within an ongoing uptrend from Q4, 2023. Also note that a breach of the previous low and the SMA 200 does not necessarily kill the rally as the March low of 541.20 may actually be the key low.
In relation to the TSX, TSX-V appears to be making a little bear flag after dumping below the moving averages and back into the basing box. The ratio more than the nominal above keeps me cashed and patient as the process plays out.
Precious Metals
Nor do we need much fundamental talk here. We’ve done so much work to get to this point, tracking the fundamentals in process and the targets (gold registered target at 2450 w/ a bigger picture target above 3000), silver did not make it to 35 before taking a hit (but could have another go at it after this correction plays out) and GDX did not make it to 40 +/-, nor HUI 300 +/-.
Let’s do some daily chart updates and move on. GDX did the typical thing during an FOMC week replete with hype about fewer rate cuts in 2024 than the market anticipated. Well, with the fiscally stimulating government on the other side of the coin messing with the economy’s signals you can understand why. But this mess (the economy) is weakening and the Fed is going to flip at some point…
…at least that is what the bond market is saying right now. Here is a picture of the total return of the 20+ year Treasury bond ETF. Follow through is needed, but this is heading in the direction of a pro-bond, anti-inflation setup.
Back on the GDX chart above, a 38% Fib was hit on Thursday and Friday. That may have ended the pullback. At least it is the minimum I’d have wanted to see in order to think bullish. However, support in the 32s, the gap at 31 and the combo of the 62% Fib and the SMA 200 at 30.17 also look inviting.
Gold is in an unattractive little pattern with the price currently below the SMA 50. If that remains the case I will not be surprised if gold declines to the 38% Fib level or support below it in the 2160 area. Take out the SMA 50 and we can start talking a different book. But for now the chart is considering lower prices.
Silver actually looks neater, more orderly, if more volatile. It is at a valid point to end the correction. However, in not even ticking a 38% Fib retrace yet I am dubious that the correction low is in. I will happily be proven wrong, but as noted previously by bigger picture charts, a drop to the 26s would make me quite bullish, technically, all other things being equal.
Commodities
CRB, GNX, DBC continue to trend neutral within a bigger structure that appears to be bullish consolidation of the upside into 2022. Despite a rise over the last 2 weeks the intermediate trend from April is still down.
Copper continues to pull back in a fairly hard correction from the high of 5.17 to a current 4.49. First support is 4.28 with more at 4.00 where the daily SMA 200 resides at 4.01. Industrial metals are following the good Doctor downward. Best support for GYX is at 430 +/- (current: 461).
Uranium sector is also getting clobbered, and this is much needed, as the sector had been bulling unabated for a long time. u3o8 tracker SRUUF lost the daily SMA 200 and the March low that were noted as key levels to hold to avoid a breakdown. This was after it violated our caution point at support that coincided with the SMA 50. Many U stocks became overbought and while some are still technically fine (e.g. CCJ, DNN), others have gotten hammered. But this hammering is within a longer-term uptrend.
Indeed, I am tempted to buy a couple items down here, but am kept cautious by the lack of support for the price of u308 until the 65-70 range. It doesn’t mean it has to drop that far, but it does beg patience (IMO).
Platinum, Palladium, Lithium, REE are the outliers, having specialty applications within the economy and unique global supply/demand characteristics. Industrial metals Copper and Nickel also have niche applications in what I guess they call the “green economy”. Right now most of this stuff is getting bombed (Ni is declining hard after a big spike).
Pt and Pd are on hard pullbacks after some decent counter trend bouncing, REMX and favored REE stock MP are re-exploring the lows while REE prices also pull back with most remaining well above their 2020 levels. I keep US based REE supplier MP eternally on watch. Also on watch is future Nickel producer TLOFF (TLO.TO), which I’ve bottom fed a couple times and taken profit on. You bottom feed a downtrender and you have to be willing to eat losses if you keep holding and it does not break the trend THIS time). TLO tanked the SMA 50 on Friday. As for Li, both premier producers, ALB and ALTM have tanked to new lows. This is terrible technically, but maybe an opportunity for long-term investors and Li/EV believers.
Agricultural indexes maintain an uptrend for 2024 (unspectacular though it is) after the long downtrend from 2022. Individual Ags are doing their individual things and it is recommended that if you’re going to participate a combined view of seasonal, technical and sentiment (CoT, public optimism/pessimism) is recommended. However, you’ve seen me fail and/or not perform on a couple trades despite those factors being in line. It adds up to my lack of interest in this sub-sector. If you’d like input on CoT/sentiment/seasonal feel free to ask, as my subscription to Sentimentrader includes that stuff.
Uncle Buck
Let’s close with the ‘anti’ to risk markets’ ‘pro’, the US dollar. As we have noted over the last several weeks, markets have actually been firm despite the 2024 uptrend in the US dollar. I don’t expect that correlation to continue.
As you can see, markets cared more about the USD’s fellow liquidity destroyer, the Gold/Silver ratio, which had been dropping for that same 2024 time frame (providing pressure relief for markets). If this ‘V’ bounce in the GSR turns serious and USD continues to bull you just watch how risk markets quake under the pressure.
USD reasserted itself from the last ditch support at 104.10 we had noted in advance back on May 28 with a reminder on June 3. Uncle Buck pulled a whipsaw from that very area. Now comes the interesting part, because the Fed is a straw man stood up to make us think monetary policy is sound while the government does whatever the hell it wants to do out of its sack of debt on the fiscal end.
To repeat myself (as I tend to do in order to be clear), the only fundamental underpinning for USD that I can see is its status as official global reserve currency (BRICS currency/dedollarizers may have their day but that day is not yet, IMO) and the mass bid it is afforded during liquidity crises. Liquidity problems would be indicated by the GSR/USD combo. While I am not going to predict what’s coming short-term, if you see the GSR start to rampage and USD continue upward it would be advisable to get the hell out of the pool. There’s a you-know-what in there.
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.
Roth IRA (non-taxable, no contributions)
Cash/Equivalents are a comfortable 90%. I’d like answers on items like the USD/GSR pair above before leaning one way or the other. Cash is still paying income as the Fed is forced to continue to don its hawk suit although the character of the bond market may be changing in anticipation of a coming rate reduction regime. That is why I am creeping short to medium-term Treasury bonds, in anticipation of cash paying out less heading into 2025.
Meanwhile, favored ares for different reasons, over varying time frames and pending corrections: Gold miners, Semiconductors and Uranium. Copper as well. But I’ll let the market situation evolve as it will. I have little sense of urgency at this time.
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.
