US Stock Market (per last 2 weeks): 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 (per last 2 weeks): 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 (per last several months): Sedate macro indicated. High risk macro also indicated, by definition.
Global Markets (per last 3 weeks): 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 (3 weeks ago): Correction has come from gold’s target of 2450 and below the targets for silver and the miners. But the sector did register 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. Per 2 weeks ago: Good work being done to the downside, but correction not yet indicated over. There are valid levels lower.
Commodities (per last 3 weeks): 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. Per Last week: Watch the GSR/GCR/USD combo and also the likes of the TSX-V (for indications in the commodity/resources patch), which is in hard correction but not yet broken.
Currencies (2 weeks ago): 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. Per last week: USD strengthens further and the Gold/Silver ratio held serve and the Gold/Copper ratio was firm. If these three continue to rise caution is indicated across many markets.
Another report that goes “top-down” macro rather than focusing on “bottom-up” stock talk as the market creeps along with little change to its bullish, high risk profile.
President Trump
We witnessed something sad and historic on Thursday night. One guy who knows little to nothing about the mechanics of inflation was himself, if a little restrained. The other guy who knows little to nothing about the mechanics of inflation is no longer himself. It was almost cruel how the democrats propped this poor old man up there… ‘give it one last go, Joe!’ when anyone who cared to look past the “he’s the only one who can beat Trump” dogma might have found an actual young, vital candidate with fresh perspective and ideas. But no, this is hubris choked, late stage America. So, Biden it was. For the republicans, equally as myopic (IMO), Trump it is. Hubris.
Joe did not go. Joe expired before our eyes. The word is that “big money” democrat donors are now scrambling to find an alternative. This begs the question ‘how did they ever get that big money?’ because they are little more than dumb money if they could not see this coming. Then again, I know lots of dumb money happily prospering by pretty much sitting on its conventional ass and accepting the gifts of inflationary policy over these last few decades.
The democrats have done all they can to keep inflation signals from tanking. As noted repeatedly, 2024 sees fiscal stimulation by various means (subsidies, tariffs, interest rate rigging through the GSEs, roads & bridges, etc.). They are hard wiring future damage into the system through economic chicanery.
As for Trump, look no further than late 2018 when we noted the futility of Trump’s constant haranguing of Powell to lower interest rates while the 30yr Treasury yield Continuum was at its upside limits! We knew then it was not going to happen and it didn’t happen until COVID came along and dropped long-term yields and put the Fed in all out inflation creation mode, printing presses set to 11.
The point is, in hectoring the Fed chief back in 2018 with inflation signals running warm Trump clearly showed that he had no idea what inflation was when he demanded the Fed loosen policy (against elevated inflation signals), which would have created more inflation.
Wonderland.
So unless something comes out of left field we are going to have another Trump presidency. Frankly, if given a choice between what is presented to us now I’ll probably either stay home from the polls for the first time in my life or vote Trump. Yes, I am the blogger who made fun of him and criticized him for four years. But this is a one man race and change is needed. The last four years (and especially the last year) have seen government meddling to prop the economy as the risk indicators we routinely watch flash red month after month. It truly is a last chance power drive for the Biden admin and we are going to pay the price sooner or later.
The question at hand is that if the democrat party falls like a ruined souffle’ will their stimulative efforts sag as well, leaving Trump with a big deflated sack of formerly elevated risk assets? Our tack has been to allow for a bullish stock market to or through the election amid nose bleed risk indications. But the world saw something on Thursday night that might possibly have pulled in the timeline. In other words, if everybody comes to believe it’s going to President Trump, part 2, might not we already be through the election functionally if not literally?
We should watch markets even more closely from here on.
US Stock Market Indications & Sentiment
Until the likes of this and other ‘internals’ charts change trend, the situation remains bullish from a logical leadership perspective. Maybe not for the broader market, but for these headliners.
Similarly, the ratio between a more defensive sector (Healthcare) and broad large caps shows risk still very much ‘on’. To review, bear markets tend to see Healthcare (XLV) bottom and rise in relation to SPX/SPY. There is no sign of that yet. Still bullish and still high risk (by definition).
- 10-2yr Yield Curve still inverted (pleasantly Goldilocks) but still poised to steepen. The eventual de-inversion and steepening should come with market and economic stress.
- High Yield (Junk) spreads are still completely asleep with risk ‘on’ and bullish. Please keep in mind the word “risk”, however. No matter how long it takes to be realized, it is high (by definition of many indicators).
- VIX is similar, wallowing at very low level of 12.45 while important historical lows are around 9. This market may just send the VIX to the 9s before it gives up the bull.
- Most other indicators of risk on/off and market calm/stress are in the ‘on’ and ‘calm’ territories. We’ll finish with the big daddy of risk indicators, the 2yr Treasury yield’s ongoing negative divergence to the Fed Funds proxy 3-mo. T-bill. Is it so hard to envision a failure of inflation signals that weakens the 2yr, compelling the Fed to cut rates? Is it so hard to realize that those calling for Fed rate cuts in order to help the bull case may be calling for their own demise? Is that the same dumb money that installed and backed Biden for another run?
If you fight the markets by shorting this backdrop you just might win and get to tell everyone how you ticked the top. But markets can stay irrational longer than you can stay… Beuller? Anyone? Yes, solvent. For me, cash is the best risk manager and it’s paying 5%.
Meanwhile, against this backdrop I’ll continue to speculate lightly with favored areas continuing to be in the Semi and Goldilocks stuff (Tech/Growth) as long as the US dollar remains firm.
Smart and Dumb money indicators continue to portray an elevated risk situation while medium-term risk continues to be high and increasingly structural.
Investors Intelligence (newsletters): Continues to be over-bullish to an extreme, but not a nosebleed extreme at a current Bull/Bear ratio of 3.32.
AAII (individual investors): Bouncing back to a not yet extreme but over-bullish Bull/Bear ratio of 2.
NAAIM (investment managers): Still flying around at an over-bullish (but not extremely so) 85%.
US Dollar, Gold/Silver Ratio, Gold/Copper Ratio & Global Stock Markets
Obviously, if the title items above are rising together it is even less healthy for global stocks than US stocks, given that the balance of the world is generally more anti-USD than the balance of US markets (although several cyclical and inflation sensitive US sector are plenty vulnerable). Gold is less cyclical and less inflation sensitive than silver or copper. Hence, it is more of a liquidity haven during market stress. That is why we evaluate these ratios along with the reserve currency, USD. Let’s take a checkup.
The daily chart of the global ETF (ex-US) is just fine technically, having flagged to the SMA 50 and short-term support shelf. A healthy correction would be to the 50 area and the SMA 200, which still would not break the bull trend. So on balance, global stocks continue to be fine.
USD continues to try to change a neutral trend to up and is on track for that as long as it holds the 50 and 200 day moving averages.
The key is the October 23rd high of 107.35. That would install a higher high arrow after a higher low was put in at 100.61. Weekly chart…
Markets have been okay with the firm USD to this point but as we’ve noted recently, the Gold/Silver and Gold/Copper ratios have started to get in gear. As you can see, however, the GSR has halted at its 50 day average and a clear resistance area.* Break through here and pressure could ratchet up on markets. Fail here and it could be party on Garth, including commodity/resources trades.
* I believe that ratios can have support and resistance just like nominal charts, since they are the product of two nominal charts and their inputs.
Gold/Copper rammed higher, calling into question cyclical markets and inflationary signaling. The GCR is attempting to reestablish its daily uptrend.
If the USD, GSR and GCR all rise we’ll have disinflation, possibly Goldilocks or likely worse, eventually. That would be the signaling of liquidity problems for the US and global markets. If they go the other way, it would be an indication of ample market liquidity and a tailwind for risk assets.
The opening segment speculates that the democrat party could simply fold up its tent before the election and ease up on the (stimulative) gas. But that is just pure speculation at this point based on what I saw Thursday night and some of the chatter in its aftermath. What we should probably do is think less and respect the market’s indications more. Or at least not let our thinking subordinate our analysis of what the market is saying.
As of now, US and global markets are bullish. Within that, certain areas out-perform (e.g. Semi, Tech, etc.) and certain areas are under-performing (e.g. Commodities, Small Caps, etc.). The clock is ticking and I wonder if Thursday night made that ticking sound a little more audible.
Precious Metals
Gold (daily) continues in the pattern we’ve noted over the last few weeks. It could be a flag, but it looks more like a minor top. Gold bounced to end the week, but in remaining below the 50 day average, is still in the potential topping pattern. If it plays out, it’s minor. We’d be looking for the area of the gap below short-term support and the rising 200 day average (2126).
Such a pullback would, if it plays out, merely be the first correction of the new bull cycle. Gold is bullish beyond the short-term question.
Silver’s daily chart held logical short-term support and looks like it is in more of an orderly uptrend than gold. Support right here at 29 is important in determining what’s next. Hold it and break the flag and our target is 35. Lose it and our pullback target ranges to the 26 area.
Let’s draw up a similar weekly chart for silver, showing its different type bull market (than gold’s). This bull market is more like the one in the miners, where a painfully volatile bull began in 2016, washed out with a lower low in 2020, reacted impulsively upward right after, consolidated into a bullish Inverted H&S pattern and established the target of 35 with the neckline breakout. The big difference is obviously gold’s standing at new highs while silver remains far below the 2011 high of 50.
This chart advises that technically speaking, silver is a buy on this pullback. Bull investors may have added at current support (with more powder reserved for the 26s). Traders might want to be a little greedy and see if it can get dropped to the 26s, which would be a clear ‘buy’ level, technically.
Here is GDX sporting its would-be H&S (minor) top. Of course, just because I drew in that projection doesn’t mean it will play out. But so far that is what it is doing, including the chop to create symmetry with the left shoulder. I am holding the DUST hedge pending resistance and the 50 day average, which has thus far held GDX down while making a theoretical right shoulder.
If this short-term bearish scenario gets busted, the upside target is 40 (+/-). If it plays out, the target range is at the 50% (31.50) to 62% (30) Fib retrace levels.
A positive for our longer-term macro view is that gold stocks have resumed correlation with gold’s relationship to the ‘inflation expectations’ ETF. That has historically not been a reliable correlation because many gold bugs are inflation bugs, thinking that high inflation is good for gold stocks. It is the opposite. Anything can happen during shorter cycles, but the real investment play on gold stocks will be when inflation fails and the economy fails with it. At that time gold will be strong relative to most other markets and the miners will leverage that relative strength, surprising many who no longer believe such leverage is possible.
The last disconnect where I picture inflationists selling gold stocks instead of rightly buying them was during Q1 when we noted a positive divergence by Gold/RINF to the tanking HUI. But now things are back in harmony, and for the sake of sound management of the bull market (ups and downs), it would be nice if it stays this way.
Big picture, the sector continues to look vulnerable to a continued pullback by the BPGDM’s overbought signal. But importantly, if the pullback continues the new uptrend would paint it as a buying opportunity.
Here is the close up view once again. The trend changes in the BPGDM and the bottom in its monthly EMA 20 above square well with our bull market theme.
Back on the bigger picture, we note that gold has broken to a new leg of its bull market while real yields remain strong. This is an anomaly and in my opinion it is a forecast of a weakening Fed, probably by the time 2025 rolls around. Will gold sell the news of a weakening Fed? Could happen. But more likely (IMO), gold is front running it. Our next upside target is, after all, 3000+.
A different view of the gold Commitments of Traders, this shows an index of large speculators vs. commercial trader positioning. Specs are driving the bus and while the supposed smart money* commercials will be “right” at the next turn, they are simply doing what they do, hedge, while the specs are simply doing what they do along a trend, speculate.
Silver’s CoT is a little more impulsive, but it is not alarmingly dangerous relative to the silver price on the bigger picture. The specs see the breakout and they are playing it.
* Despite myths to the contrary, there really is no “smart” or “dumb” money in the commitments of traders. There is only positioning. Hedgers hedging (and a few evil cabal “banksters” shorting), speculators longing. It is best to avoid cloak and dagger emotion.
Commodities
See the Gold/Silver and Gold/Copper ratios above and realize that if they and the US dollar continue upward, you probably don’t want to be in this trade. If they fail, you probably do. GNX turned down from the SMA 50 on Friday. That was a logical point to keep the intermediate downtrend in play heading into this week.
- Energy sector sees WTI oil looking constructive in its sideways trend as it holds its break above the 50 and 200 day averages. Gas may be making the seasonal interim top prior to the seasonal low due in July. Today the Gas price is dropping to test its moving averages and could be setting up a buy (my watch item is AR, which I’d like to see pull back further, short-term). XLE may be breaking its intermediate downtrend and can be watched here at the SMA 50 to see if it can break through or if it holds below.
- Uranium stocks (URNM) continue in correction mode as the sector generally tests its 200 day averages, which are trending up. Some stocks are stronger (e.g. CCJ, DNN) and some are weaker (e.g. UEC, URG) and the sector is still indicated in correction.
- Copper and industrial metals find the copper price still declining (at 4.37) with the first support area at 4.28 and more support at 4 to 4.10. The metals complex (GYX) is also firmly in correction mode. As with other commodities, the outcomes in the 3 Amigos noted in the first sentence of this segment will inform the situation.
- The specialty stuff like REE, Lithium, PGMs, etc. will go their own supply/demand way. Pd is still trending down. Pt is trending sideways in a long potential basing/bottoming pattern, REE watch list items MP and LYSDY (ASX: LYC) are firmly trending down and I am watching for buys. Li watch items ALB and ALTM tanked to new lows as the former Lithium demand hype continues to be addressed. One wonders what kind of a death blow might be dealt to Li, Ni and even Cu, along with the greater EV industry, if the Biden admin is swept out of office. Or perhaps these markets are already forecasting that and front running it?
- Agricultural indexes have dropped hard back to the March lows. A long and volatile basing situation could be shaping up, but it is a grind. It is advisable to check the seasonal, technical and sentiment profiles of individual Ags rather than buying the sector as a whole. To remind you, I can be of help if you’d like, due to my subscription with Sentimentrader and my own home grown charting ability. Personally, I don’t have much interest at this time, but have not dived into individual Ags lately.
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 nearly 88% in a buttoned down portfolio not accepting of much risk. I sold the gold stocks I’d have wanted to sell around the sector top, including NGD, which was added back last week to replace SKE, which I was compelled to sell due to too much paper profit in too short a time. DUST sits in the portfolio overseeing gold stock positions. In a perfect world it would be released for profit at a big gold stock buying opportunity. Now let’s see what happens in the real world.
A few other odds and ends, mostly slanted toward a more Goldilocks (less inflation-centric) backdrop. Risk management, aside from gold stocks, is through cash and its monthly income.
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.
