#819 continues a string of abbreviated editions for July as our transition to a new living situation continues…
US Stock Market
Last week saw the excessive risk built into the markets start to unwind a bit. The question now is (and will be at every high the market makes amid excessive bullish sentiment), will this be THE top or just another interim top along the bull run? Remember that one of our main themes is that a structurally over-bullish market like this can refuel itself along the way with little sentiment resets due to pullbacks like last week’s.
Trends are up, the SOX > NDX > SPX leadership chain is intact (but being tested hard), defensive sectors have bounced vs. SPX but not broken relational downtrends and internal breadth measures continue to bounce as the machines sell down the big names. Thus far, it’s all normal and within the context of an ongoing rally, technically.
Here is SPX (daily), pulling back and quite possibly looking for a test of the SMA 50 (blue), but also a gap below it at 5376. SPX could pull back all the way to the SMA 200 (orange) and not lose its major uptrend, assuming that the SMA 200 (4950) will be above the April low of 4953, which it surely would be at such time.
Sentiment is being addressed as Smart money had faded hard and Dumb money had spiked. The week ended with Dumb puking recent enthusiasm and Smart starting to eat the market again.
US Stock Market Bottom Line
A pullback from over-bullish sentiment and momentum readings was going to happen. It happened last week. This could be a routine short-term sentiment reset, or a “healthy” correction could take indexes a long way down before signaling a new bear market. In other words, technically it remains a firmly up-trending bull market.
One of our themes has been for a summer smack down to refresh for a perhaps final bull drive into Q4. Given the trends, we should continue to use that as the operating plan (Old Turkey from Reminiscences Of A Stock Operator: “It’s a bull market, you know”).
The other side of that coin is that so many risk indicators (VIX, 2yr yield divergence to the T-bill, High Yield spreads, Yield Curves postured to steepen, etc.) are and have been flashing red for so long that a market which has outlived their implied time lines could be vulnerable at any point. With cash still paying out, I’d rather not lean too heavily into the still favored case that this would be a healthy pullback to refresh.
Global Stock Markets
Global (ex-US) is leading SPX above to a test of the SMA 50. There is clear support in the 52-53 area and assuming an ongoing bull rally, table pounding “buy” support at the rising SMA 200. In other words, a healthy correction level that can also be used as a stop loss if it fails to hold and resolves into a bear market.
Of note, both Canada (TSX) and Australia (AORD) had busted to blue sky before the recent turbulence. These are “commodity” rich economies. In line with recently strong Gold/Silver and Gold/Copper ratios, the speculative play land for small exploration stocks, TSX-V, got cracked right at resistance. It’s rally from Q4, 2023 is intact but now suspect. The index is still working on changing trend from down to up. Still much work to do there.
EM and Asia have established daily chart uptrends, from which they are currently pulling back. China’s large caps and A-shares continue to lag.
Japan’s Nikkei appears to be declining into what would be a technical buying opportunity, all other things being equal (which is usually not the case). But if you like Japan, 36500 would be a place to buy hard (SMA 200) and if you REALLY like Japan, 39350 would be the place to start nibbling (SMA 50).
German DAX looks to be forming a short-term top and broader Europe (STOXX 600) is looking similar.
UK100 is consolidating its March-May gains in what looks like a bullish manner.
India continues to march to its own firmly uptrending drummer.
Brazil’s BVSP may have bottomed in June, but it did not break its downtrend before pulling back. Meanwhile, Argentina’s MERV got cracked a few days ago but remains in its firm uptrend.
Precious Metals
Much like the broad markets it has generally been in positive correlation with, the precious metals sector got cracked last week as the machines went risk ‘off’ and gold, silver and the miners, which had been running with risk assets, finally took a hit. The July 16 NFTRH+ update noted:
Our target and objective for GDX has for many months been to fill the gap just below 40. Today’s high so far is 39.15. If you are trading and were planning to sell the target you should be watching closely and consider not waiting for a top tick.
The update also implied that this would probably just be a pullback/correction within an ongoing rally and investors (as opposed to traders) should consider that. That view still holds.
GDX made a higher high and that was a breadcrumb for the next rally leg. But first, the pullback must complete. Objective #1 is the daily EMA 20, being tested now. I would prepare mentally for at least a test of the SMA 50 and the short-term support area below it in the 34s. GDX became overbought and this is a normal reaction. The target of the sub-40 gap fill (39.49) was barely missed and remains the next objective to the upside, assuming this is the normal pullback/correction I think it is.
HUI weekly continues to show a breakout from the trend line. It’s in fine shape now. Should this test of the trend line fail, however, more traders may start to get anxious and sell, which could prompt a deeper correction.
Other Notes on the Precious Metals
- HUI/Gold ratio is intact to the post-February uptrend and thus an important sector internal indication is a-okay.
- Gold Miners Bullish Percent index (BPGDM) continues to be overbought, but in a bull market this is a healthy sign. The trend in the BPGDM is now up. The sector became overbought, but is bullish. Traders can trade, but investors should take care to realize they could get traded out of position if they trade too much.
- The miners pulled back along with the Gold/RINF ratio, which means that the miners pulled back in line with a fundamental underpinning that will come into play in the future, after cyclical markets top. It is good to see the miners not running with inflation, if we are right about a post-bubble liquidity crisis out ahead.
- Commitments of Traders for gold and silver had become frothy with speculative spirits and that showed a ripeness for a pullback. Anecdotally, a few of the usual silver bull suspects had just come out with some lofty projections to play upon the greed of the PM herd. The pullback should fix that.
- Gold and silver got croaked on Friday with gold normal and testing the daily EMA 20 and likely, the SMA 50. Silver is again testing support above the 38% Fib retrace level at 28.50. What I don’t like is that it’s the 3rd time this level has been tested. Watch silver for a potential breakdown, which would indicate a deeper sector correction. However, as yet it’s normal and again, the HUI/Gold ratio remains in leadership mode despite a tough week.
Last week I took a couple profits (RIO.V and AMX.V) and added what may be a longer-term hold (EQX) to the taxable account. Watch list includes SKE, as it has started pulling back, and a few other usual suspects (HL, WDO.TO, MAI.V and the two noted above), aside from items still held as noted below.
Commodities
No sooner did I start to think that the bull play could fan out to commodities, then the Gold/Silver ratio started to firm and rise. This followed the big spike in the Gold/Copper ratio. None of this was positive for the commodity complex and it appears your letter writer got a bit whipsawed.
USD is grappling to hold the oft-tested support at 104, as it dropped below and then as if by magic popped right back above on Thursday and Friday. Not surprisingly, this came with pressure not only upon commodities, but also stocks and precious metals.
Bottom line on commodities is that you don’t want to hold them if the Gold/Silver ratio and USD rise together and you may want to hold them if they decline together. This has been the ‘mental whipsaw’ market as the spike in Gold/Copper, the rise in Gold/Silver and the thus far unspectacular hold of support by USD were contrary to the signaling of the previous week. In my opinion, these signals could just as easily reverse in the short-term as keep on going up and further wreck the markets.
Personally, I’ll keep watching the market’s signals and take the whipsaws as a matter of doing business. Discipline and patience will eventually pay off during the process.
Portfolio
Funds are balanced by gold (long-term risk management & monetary stability).
The taxable account recently came into existence at a time when the market was approaching another upside excess point. While initial positions caught more upside, last week’s activity began to bite. I took a few moderate losses but am still trying not to take too many (taxable) profits. That said, the portfolio is hardly in the game as it collects interest on cash/equiv. and awaits opportunity. Positions listed in order of size.
Roth IRA (non-taxable, no contributions)
Cash/equiv. are near 88%. Just about right for the moment. As noted above, RIO.V and AMX.V were released as the Gold/Silver and Gold/Copper ratios implied pressure on the inflation trades, which items listed on the TSX-V often tend to trade in kind with. Key precious metals stocks are still held. But there is a lot of room to add when I feel that the next leg up is starting.
Live by the Semi, die by the Semi. Last week was rough for the US market leader. But as noted above, leadership is intact and the market is still trending up. So I’ll go week by week. If stocks start breaking down, they’ll likely be released. If not, they’ll likely be held.
As you can see, the IRA got dinged last week. But it got dinged after making a higher high, so it’s technically intact. It also looks like it could have further to pull back in the short-term. We shall see.
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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