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Summary

US Stock Market: High risk, quite bullish headline indexes with poor market breadth.

US Market Sentiment: Sentiment ticked over-bullish last week, while still not registering nosebleed levels. It is a contrary bearish condition here and now, however.

Market Indicators: Sedate macro indicated. High risk macro also indicated, by definition.

Global Markets: ACWX (world, ex-US) held the 50 day average and rallied. The world is bullish on balance and also trending down in relation to the USS Good Ship Lollipop, err the US.

Precious Metals: Correction likely signaled over as silver held its 50 day average, gold got back above its SMA 50 and the miners have all but busted the short-term H&S projection. Watching silver 35, GDX 40 and HUI 330 as next targets. Gold’s ultimate target is 3000+, but it has already registered its “next” target at 2450. The macro is still in process and will not be complete until the stock market enters a bear and the economy weakens critically. Then a post-bubble contraction will be in place.

Commodities: Gold/Silver ratio weakened further, a tailwind for commodity and resources trades. USD also weakened as the Fed is implied to weaken. Markets currently perceive this as positive (history says it will eventually prove not to be) and insofar as that remains the case, we look for a fanning out by the bull to these areas.

Currencies: USD whipsawed up and then back down amid weakening economic data. With the Gold/Silver ratio also weak, the indication is positive for US and global asset markets, especially those most ‘anti-USD’. The warning is that negative market events can come out of left field. If that were to happen the lone underpinning left for USD would be a flight to liquidity by casino patrons escaping said casino. That is the opposite of what happened in markets last week.

Admin

Well folks, my wife and I are wrapping up a stressful 4 months of prep, sale and now move-out, of our home. The last time I sold a house it just sold, and there was not much prep or concern. This time, in keeping up with the Joneses in a quasi sellers’ market, every detail must be dealt with or you don’t get top (bubble) dollar. And that is before the local regulatory check list even kicks in.

So it has been challenging for months now and we are seeing the light at the end of the tunnel. But in the way of that light is a few weeks of dishevelment, as our move-in (to an apartment much closer to Boston that we just love) is August 1st, but our move-out is in a week! Mr. & Mrs. Hobo will be accepting the kind offer of using someone’s condo to bridge the gap.

NFTRH reports have been more stream of conscious than regimented lately as time has been limited and points needed to be made. For the remainder of July, I would anticipate and even less formal format and a more bullet pointed summary for NFTRH 818, 819 and 820. It’s deep summer. Maybe you can use a break from the nuts and bolts as well. I will keep my finger on the pulse of the markets and discuss the most important aspects prior to settling in and getting back to normal in August.

US Stock Market & Indications

Two relatively tame employment numbers came in last week along with weak ISM manufacturing and services, supporting our theme of slow economic deceleration.

The week ended with some answers coming in:

• Markets are still cheering weak data, which is implied to weaken the Fed’s hawkish stance and bring on rate cuts sooner rather than later.
• Risk is still “on” with a speculative mania that is intact.
• My favored sector for the post-bubble future, gold mining, is still often aligned with other commodity/resources plays and much of the broad (anti-USD) market as well.
• The celebration of weak economic data benefited SOX, NDX and SPX, the three members of our leadership chain, SOX > NDX > SPX. But importantly, it did not include small caps, equal weight SPX (RSP), the Value Line Geo index (XVG) or other broader measures of the US market. There also continues to be a negative divergence of the Dow Transports to the Dow, and the Dow itself is relatively weak compared to the headliners above. The market’s breadth still stinks.

While broader market measures (e.g. nominal RSP in the bottom panel) are still intact to the bull market, their under-performance is an ongoing negative divergence for the future.

As is the profound divergence by the 2yr yield to the Fed Proxy T-bill as the stock market rams higher in celebration of a future weakening Fed, which if history guides us well, is when the trouble begins at/around the Fed’s first rate cut. Yet today’s participants cheer bad economic news and a future dovish Fed. Either they are wrong or history is wrong.

But the rally is ongoing and if last week is a sign of things to come, it will fan out again to the commodity, resources, precious metals and anti-USD global areas. So the theme for me is, ‘okay speculate, but remember cash is still paying out while it manages risk’.

In an environment of declining long-term yields – assuming the normal disinflationary reaction to poor economic data – items like Biotech and Real Estate/REITs are of interest, as they tend to correlate negatively with rising yields. It is likely no coincidence that the chart of IBB (I own it)…

…and XLRE (I have it on watch) are similar in structure on daily charts. Each has lagged during the rising interest rate regime and are in similar patterns attempting to change trend and possibly poised to play some ‘catch-up’ with market leaders.

As for the Semi sector, I kept patience with AMD as it slithered along the SMA 50, finally making a bullish move on Friday. I added a second position (in the new no longer exclusively “savings” account).

Also added was this consolidation in the more risky SMCI. These are the kind of technical situations I look for in a market like this; consolidation/correction within an existing uptrend.

Other favored areas in the ongoing speculative festivities are buying opportunities in the front end of the leadership chain, Semiconductors and Tech, where possible, on pullbacks. But if the bull fans out again, the more resources oriented aspects of SPX (e.g. Energy, Materials, Metals/Mining, etc.) are of interest as well.

Let’s end the segment with a look at market sentiment. In the short-term the market is at elevated risk and that includes gold. Keep in mind these readings are simply the product of bullish activity. Risk travels with bull markets, especially manic bull markets like the broad one in equities.

Investment Managers (NAAIM) FOMO’d the poor economic data/weakening Fed story last week to the tune of a leveraged bullish 103%. That is terrible contrarian signaling. So if/as we speculate we should be aware of who we are speculating with; a herd that fears missing out.

• Investors Intelligence (newsletters) ticked higher to a briskly over-bullish but not nosebleed critical over-bullish 3.73 Bull/Bear ratio.
• AAII (Ma & Pa) eased to a moderately over-bullish 1.6 Bull/Bear ratio.

Overall, while not at nosebleed risk levels, sentiment risk increased last week. Sentiment is a condition, not a timer.

Precious Metals, Commodities & Resources

The gold stock sector continues to be in tow with these other items, especially fellow resources markets like copper/metals. And that is okay, as long as we realize that there will likely be some vulnerability in the precious metals to the stock market bear, when it begins.

For now, the target for GDX is 40 as the right shoulder of the imagined H&S gets damaged further. The situation is that GDX Fibbed a 38% pullback, which was the minimum expected and now looks to resume the journey to 40 (or beyond). The next time a pattern shows up I’ll note it again. Be forewarned. That is my job. My job is also to not make undue hype about any single indication. As it stands now, it is very likely that my H&S projection was wrong.

I have positions in most favored gold stocks and if/as confidence increases in the miners’ rally, not to mention that of the wider resources sectors, I’ll probably add more to current positions (ref. portfolio segment) than add new ones. I do have HL, EQX, MAI.V, AMX.V and a couple others on watch, however.

TSX-V is a good signaler for the resources trades. It held the SMA 200 and turned up last week. This came after our long-held target at 622 was registered and a hard correction ensued. But that target was not necessarily a stop sign.

Here is the weekly chart showing clear resistance at 640. Take that out and the party could get going. Eh, Garth?

HUI (monthly) is in a channel that it is just waiting to bust out of. The gold stock bull market is and has been in play, but a break from this channel would signal its next leg. We are now nearly 4 years into this corrective move. The time could well be now/soon. RSI and MACD are coiled. Let’s be clear that the 40 target on GDX is just the “next” target. If this chart makes a move for leg 5 of the bull our larger target is in the 500 area. Interim targets to that would be the 2022 high in the 330s and the old target of 375 and associated resistance. First Huey needs to break the channel and keep it broken.

Gold (daily chart) took out the 50 day average and that may have croaked the negative looking pattern that I’d been highlighting. TA is one tool. Last week another tool, macro fundamentals, took over as weakening economic signals carried the day. To review, a negative economy benefits the gold mining sector as cyclical assets decline in terms of gold, whereas it impairs most other sectors. The process toward that condition is ongoing.

Similarly, silver (daily) held its parameter, which was the 50 day average and associated short-term support. From NFTRH 816:

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.

Barring an enraged “Mr. Slammy”, the 29 area has held.

Because I love beautiful pictures, big picture gold and silver charts are again included. Gold’s break above the 2100 area targets 3000+. Silver’s next target is 35 based on pattern measurement. I would think silver’s 35 is more of a near-term thing than gold’s 3000.

As for gold sector indications, the HUI/Gold ratio is intact. No divergence problem here.

Importantly to our best fundamental view, as the economy fades so too do inflation expectations relative to gold. As you can see, HUI responded in kind. That is good macro signaling for the sector. We have had much more positive correlation of HUI to this fundamental indicator than not over the last couple of years. That was not the case for much of the 2004-2008 and 2009-2011 bull phases as inflationists infiltrated the investor base. The gold miners will leverage a counter-cyclical, anti-inflationary environment.

As noted, commodity and resource related stocks would be expected to party along and maybe even play some catch up if the Goldilocks-centric asset party fans out on a ‘Fed relief’ tout. Items like copper stocks pulled back and I added a couple. Bombed out items like PGMs (SBSW) and Rare Earths (MP & LYSDY) were added. Charts are not shown because they are not actionable. The buys were due to pure bottom feeder contrarianism, not the charts, although long-term support does come into play.

I am keeping an eye on the bombed out Lithiums (ALB & ALTM) as well and of course, the Uraniums, which continue to be relatively weak, correcting within on going uptrends (unlike the bottom feeds noted above). Personally preferred items are CCJ, UEC, UUUU, NXE or to dumb it down for myself, URNM.

The Agri indexes continue to go nowhere and remain of less personal interest.

Energy sees Natural Gas declining…

…right into its average seasonal low due for mid-late July before a strong and persistent upturn (seasonals are notoriously unreliable in any given year, but are an analytical tailwind at least, when positive).

I added XLE for its downtrend channel break, but on Friday it took a hit. This bears watching. For now I hold it in the new account, with no exposure in the IRA. I would like to continue to hold it, depending on the macro view. But I’d also like to see this chart hold here.

In consideration of Gas above, I would like to see watch list item AR drop significantly further before buying. 29 to 29.50 looks good. Otherwise I likely will not participate with this former holding.

Wrap Up

With the Gold/Silver ratio threatening to fail again, the macro signal would be “party on, Garth”. And it would include precious metals, commodities and resources. Gold/Copper can go either way in that event. The counter-cyclical metal has been in a death struggle (for leadership) with the cyclical one for quite a while now. Gold is quite possibly working on a bottom in relation to US and global equities.

The weak Gold/Silver ratio is relevant to the US dollar in that these two would signal market liquidity problems if they firmly rise together. Well, the GSR never did join the bull trending USD and now Uncle Buck himself is starting to weaken under pains of poor economic signal and the implied withdrawal of its only real fundamental, firm monetary policy.

Recall that the next objective for a bullish USD was to make a higher high to the April high. It didn’t do that before turning down hard.

It appears that all USD has left for a bull case is a market liquidation. But the market’s price activity and signaling are currently implying the opposite. The analysis has been whipsawed by the battle between the forces of market correction and market speculation and this week, speculation has taken the baton.

If USD (weekly) is to hold this base and resume a bull move it will likely be due to panic liquidity-seeking in asset markets. The other option is that it’s not a base, and instead is doomed.

Portfolio

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

While I do not want to over expose this in essence new account to micromanagement and scrutiny (and thereby implied recommendation) as I cobble it together it may be worth a look at its holdings, which are intended to be aligned with the macro backdrop at any given time in one sense, and to take a longer-term view with utterly bombed out items with future potential (e.g. MP, LYSDY) in another sense. It will also probably be more diversified than the IRA is at any given time.

This account is very heavy in cash as our home equity has been converted to USD debt paper. I will book losses if/as needed but will think long and hard about taking short-term gains (unless I have offsetting losses) due to tax implications. So this account intends to be more of a ‘hold’ account in the absence of an imminent bear market. Holdings in order of position size…

Roth IRA (non-taxable, no contributions)

The chart made its move last week to break the corrective flag to the upside. It is technically intact, so the current method of management is intact: Speculate with default to aggressive risk management as needed.

Cash/Equivalents are around 86%. Cash will be reduced if I see certain signals. One signal would be an imminent dove flip by the Fed and rate cuts, in which case short-term Treasury equivalents would likely be increased as cash projects to pay out less income. The other signal would be a continued fanning out of the bull play to more precious metals, commodity and resource areas. Considering the newly cashed up account above, I’d have more tolerance for speculation in the IRA, which being non-taxable is ideal for that, assuming profits would be booked.

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.