A reminder that NFTRH reports will be abbreviated until August, when my wife and I will be settled in to our new living situation. Meanwhile, last week I was far from up to speed on the markets in general.
Stock Market, Commodities & USD
About the only data point I caught last week was the CPI release, which inspired those driving the stock market higher due to dovish Fed implications and rate cuts to come. Here we reference history, which if past is prologue projects the next stock bear market to begin at or around the first Fed rate cut.
Meanwhile, the SOX > NDX > SPX leadership chain is intact, the XLV/SPY and XLY/SPY ratios (defensive sectors vs. SPY) and depressed VIX and High Yield Spreads all imply an ongoing speculative/bullish backdrop with very high risk. Throw in a still inverted Yield Curve (10-2) that is likely to steepen out of inversion in the coming months and you have a setup for widespread disappointment (or worse) when risk will finally be realized.
Meanwhile, keeping aware of the risk profile we can continue to consider the market as sectors, rather than the market. For example, the Semiconductor sector is a leader and the Healthcare sector is a laggard. Insofar as I want to speculate with momo, I have some Semi (AMD, SMCI, INTC currently held) and in looking for the market to fan out and include more sectors, Biotech and various commodity related items (IBB and SBSW, MP, LYSDY, FCX, URNM, TLOFF, ARREF currently held), many of which have been laggards, more areas should benefit from a continued decline in long-term Treasury yields and the interest rate backdrop in general. That can play out as long as market participants continue to view the decelerating economy and inflation signals as bullish (Fed dovish) instead of what they likely are; a precursor to recession.
As a side note, the way we have been viewing the long-term yield picture is that a dis-inflationary pullback possibly leading to a liquidity event/deflation scare would drop yields in the interim and put Treasury bonds on a bull cycle within a larger bear market. It is the bull cycle and interim yield decline that is of interest now. This is running in tandem with happy hopes of Fed rate cuts. That is the market we have now and have had for much of 2024 (not to mention 2023).
If that view is correct, an expansion of the rally would come with US dollar weakness and not only favor commodities/resources, but also global stocks. It is not a coincidence that these broader measures of the stock market bounced in relation to SPX on Thursday and Friday as the USD came under much duress. The trends in these items continue to be down in relation to SPX but further weakness in USD, which is sitting heavy on support at 104, could propel a final phase of the rally that includes more sectors/markets/assets.
The larger view is that when party time wraps up disinflation would morph to uncomfortably dis-inflationary. In other words, a deflation scare that could boost the USD with a liquidity bid. But that is the next phase, not the current one.
Market Sentiment
Most key sentiment indicators surged further over-bullish last week and are in dangerous territory. It’s the sign of a market running on speculative fervor. It’s not healthy, but it is what happens during an extended and very bullish phase. In a report with only a few graphics let’s insert one here to view the surge in Dumb money indications and the faded status of Smart ones. This does not mean the rally will end soon. It does mean that a condition is coming into place that would be in play when the top does arrive.
Precious Metals
I continue to view the precious metals and especially gold stocks as two things:
- Nothing special currently, as they perform more in line than out of line with the broad rally.
- Something special after the bubble phase in cyclical, risk ‘on’ markets completes.
While gold stocks would be likely to take pressure when the broad top arrives (due to their positive correlation today) the buying opportunity from that pressure could be the first “buy” of a unique bull market to the counter-cyclical gold mining sector. But first, the current rally is being managed against a macro backdrop that is currently in transition to that counter-cycle and it is ongoing.
GDX broke the minor H&S pattern I’d incorrectly projected and by Friday had ticked a new high, implying the long standing target of 40 is still on. But 40 (HUI 330) does not need to be a stop sign. Indeed, in having taken that pullback in May, more fuel may have been built up for higher levels. The targets noted above are just the next objectives. After that comes the 2020 high at HUI 375 and ultimately, the best (currently projectable) target for HUI at 500.
The weekly chart of HUI shows a weekly close above the downtrend (correction) channel line. I don’t value that to a significant degree, but legions of trading jockeys the world over do. Huey is poised and eyeballing 330.
The gold price has long since taken back the daily SMA 50 to undo a negative looking pattern and is technically bullish on all time frames.
Silver is continuing its break up and out from its short-term correction. Gold and silver got knocked on Friday but each remains technically bullish.
The HUI/Gold ratio dinged a new high for the post-February bull cycle and BPGDM remains overbought. As for Commitments of Traders, speculative pressure and commercial shorting are set up much like the sentiment profile for the US stock market; over-bullish.
More and more it appears that when this bull phase does end, the precious metals will be subject to the broader asset market top we project. Meanwhile, it’s bullish out there and that includes the precious metals.
Portfolio
Funds are balanced by gold (long-term risk management & monetary stability).
Here is the general state of the new taxable investment (and cash savings) account at week’s end. Interest bearing cash is the overwhelming top holding, but there is plenty of room to continue cobbling positions into this picture. The current aim is to be somewhat diversified and also to speculate on some long-term situations that are currently bombed out and oversold. Positions are in order of size.
Roth IRA (non-taxable, no contributions)
Cash/equiv are at 84% and that might have been lower (more cash deployed) had I had more time to interface with and have a feel for the market last 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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