Summary
US Stock Market: Last week we noted “There are positives and negatives w/ respect to the “summer correction or bear market?” question. Until the trends change from up to down, we stay with the “summer correction” plan.” and the question appears answered… summer correction, as anticipated.
US Market Sentiment: Sentiment indicators registered levels that could end the correction, subject to some grind and bottom testing. At the close of the week the market was reinvigorating bullish spirits with MOMOs and FOMOs piling in. If this remains the case, it will have been a quick, semi-violent correction to clear sentiment (in the rear view mirror).
Global Stock Markets (per last week): World (ACWX) still trending down relational to the US. Generally in the same short-term condition as the US. It’s a global bull market that would come under pressure and in some of its aspects, go bearish when the US enters a bear. New: Despite its recovery, the World continues to be trending down in relation to the US S&P 500.
Precious Metals (last week): The macro-fundamentals are progressing with gold now handily out-performing commodities, and especially copper. Gold vs. stock markets is in progress but not there yet. In the short-term the sector is fine, albeit still in a moderate corrective mode. Longer-term, we look for gold to shine in relation to most cyclical assets and for the miners to leverage that relationship. New: Gold/Stock markets continued to improve and the sector’s macro backdrop continues to improve. Gold is bullish, technically and silver is on the verge of going bullish again (needs to clear the SMA 50 per chart in segment below). HUI is in channel breakout mode and if/as that holds up the next targets are 375 and 500. Unless last week was some kind of head fake, the sector looks to be ending its correction. Watch silver.
Commodities: TSX-V made a hard rally in the face of the H&S pattern and its target of 503 I may have scared you with last week. However, it is only back to the pattern’s neckline and needs to break through in order to negate the bearish potential. This index is a good indicator for the fates of the wider commodity/resources/inflation trades. Commodities, from Energy to Industrial metals, have bounced but are not yet doing anything notable, like broad stocks or even gold miners, for that matter.
Currencies: USD is bearish on the daily chart. The Yen is in pullback mode after a carry trade unwind eruption and the Euro continues to sport bullish potential, breaking upward from the pattern we noted last week. See segment for more details, including other major currencies.
Market Indicators: High yield spreads are calming down again with the relief that took hold over the last couple of weeks. VIX has been sent back to the hell it burns in all too often. Gold/Silver ratio is pulling back after spiking to impale the ‘risk on’ world. Counter-cyclical indicator Gold/Copper is still very elevated. 10-2 yield curve is easing a bit with the market relief, but is still on a trend toward un-inverting and steepening, which would one day signal market and economic difficulties, from either a deflationary or an inflationary standpoint… or both at varying times. For now, it is just percolating beneath the market’s surface as a high risk bull continues on.
US Stock Market – The Macro Of It
We in essence already reviewed this segment with Friday’s NFTRH+ update. The market has apparently selected our primary option, “summer correction to clear the pipes”, prior to an attempt at new highs. We’ll continue to mark the US presidential election as the goal for this bull. Meanwhile, the macro indications behind the process are of primary interest.
It sounds overly obvious, but there are very real initiatives in play to get the economy (and market) there or beyond. Debt spending, unprecedented government hiring even as unemployment starts to rise off the bottom, the GSE “second lien mortgage” scheme, subsidies to favored sectors of the economy, roads, bridges and so on and so forth. With inflation expectations fading on cue, the result is something of a Goldilocks environment. How convenient.
The most lagging of indicators, last week’s consumer spending report, triggered the happy feelings of the economic “soft landing” brigade and voila, the bull is back on. As unemployment starts to lift off the lows and the public debt reached $34 Trillion back in Q1 (still waiting for the updated figure)…
…as GDP apes the debt load that is driving it…
…consider that the change from a year ago was on a renewed spike at the end of Q1. Debt-for-growth operations are in full swing.
So yes, it is overly obvious that fiscal policymakers (government) are in full bailout mode. What could add an afterburner to the manufactured Goldilocks ‘feel good’? The Fed flipping dovish, that’s what. CME Group have a 75% rate cut probability for the September 18th FOMC meeting. They’ve been wrong before, but unlike most of us, it is their job to get this right.
We have historical facts that show the last two major bear cycles came about (+/-) around the time of the Fed’s first rate cut. But that +/- can be measured in months. So I would not discount the possibility of a big time party into or through the election, possibly influenced by who wins and the sentiment associated with it. If the correction that markets appear to be exiting now is what we thought it was – a strong sentiment reset – the situation would be cleared for such an expression of greed (MOMO) and desperation (FOMO). A classic sign of a terminating bull market that could kill every last active bear before termination.
Or we could just ride QE-infinity and remote controlled markets by policy forever more. I don’t buy it, but others do, and I will always keep my mind open.
In my discussions with some very smart and experienced people, it anecdotally appears that the bear case has thrown in the towel and submission before the Great and Powerful Fed of Oz is becoming near universal. The view being that they can and will inflate as needed. A sort of Japan-like QE-infinity.
But unlike in Japan, our society is (IMO) already falling apart, or at least radically changing; and not for the better. My new smart TV is awesome. But along with the NY Rangers games I want to watch, what it will transmit are clearer and more widespread images of a sub-divided society in increasing disarray.
Bottom Line
The market is doing as we anticipated. If it continues to do that it will continue rising, sucking ’em all in; every last FOMO with a couple bucks to spare. That is our favored, and bullish, plan. Our longer-term favored plan is bearish. Likely quite so. But first things first.
Market Sentiment
As per last week, the short-term sentiment situation allows for a quick pullback. But beyond that you can see that Smart indicators ramped high enough and Dumb ones low enough to regenerate the rally.
NAAIM sentiment did tick a bit lower as we thought might be the case last week. But with a solid up week in the markets, it did not come at the hands of stock prices pulling back. Regardless, NAAIM have registered a pullback in sentiment that would square with an end to the correction as of August 14.
Investors Intelligence sentiment continued to pull back as of August 13 and also fits with a solid sentiment reset and end to the correction at a 2.07 bull/bear ratio (down from an over-bullish high of 4.4).
AAII began to bounce off of a low of 1.09 bull/bear ratio to 1.47 as of August 15.
Bottom Line
Sentiment is likely heading right back in the over-bullish direction in all indicators, but a sharp sentiment reset like the one over the last few weeks can often build in longevity for a bull rally. That was quite a little scare people got. Just ask the nightly news.
Global Stock Markets
As with US stocks, global markets on balance (ex-US) are on a vigorous recovery. They also remain in a downtrend (ACWX/SPY ratio) in relation to the headline US index. I’d say if you think like I do that the broad global rally will continue for a while, have at your favorite countries, regions, segments and/or stocks.
For my part that means long Japan (DXJ), Asia, ex-Japan (AAXJ) and ASML (premier global Semi Equipment company). I am sure there are plenty of others, but being American, I see the US best and see little reason to go too far afield as long as the Good Ship Lollipop, I mean the US stock market, is leading.
For example, AAXJ is recovering nicely (as is its fellow, EEM) and yet it is trending down in relation to SPX. Nikkei/SPX? Trending down. India SENSEX/SPX? Trending down. UK/SPX? Down. Europe STOXX 600/SPX? Down. You get the picture.
However, there is at least one interesting thing going on for Resource/Commodity speculators. The TSX-V apparently got wind of my H&S projection to 503 and took strong exception to that last week. It bounced hard to clear resistance at the bottom of the pattern, AKA its neckline. This is a battleground and what da ‘V’ does from here will be very telling as far as the wider commodity/resources trades go.
On the plus side, volume came in on Thursday and Friday and that may have been an A-B-C correction not too different from that of SPX and others. On the negative side, it is at very clear resistance. The index is right now deciding whether to reenter its downtrend or reestablish an attempt at a new uptrend. Interesting.
Precious Metals
GDX only took a routine correction before ramming back upward and taking out the ‘B’ high on Friday. Anything is possible, but this setup is looking for new highs well beyond our previous target of 40. Check out RSI and MACD. Each is positive and coiled for more upside. A gap up and breakout like Friday’s is also a potential Mr. Slammy signal, as often is the case for ETFs, indexes or stocks. Everybody sees it, after all. So I would not be surprised by a negative reaction over the next couple of days. We shall see.
HUI weekly closed the week in channel breakout mode. This came after a previous failed breakout, which increases the odds that this one is real. The previous failure was almost obligatory to punish the breakout momos.
HUI monthly… whoa! Hows that for analysis? “Whoa!”
Seriously though, a monthly close in channel breakout mode would firm up the next target of 375 and start to bring 500 into the realm of reality. Monthly RSI and MACD are positive and looking sweet. This chart is eye candy, baby. For those of us who need to stare at charts less and get out more, at least.
The macro fundamentals continue to come in line, even though the stock market bull is ongoing. The process will be complete when a pervasive bear market is acknowledged by one and all. But in the meantime, we observe bullish trends in gold/commodities and trends that may be turning bullish in gold/stock markets.
As for the Gold/Silver ratio (GSR), it is actually beneficial more often than not to the gold stock sector when it is declining. It is a complicated indicator because when it rises it signals improving macro fundamentals (counter-cyclicality, anti-inflation, deflation/dis-inflation, market liquidity problems) for gold mining. My opinion is that gold bugs were trained over the many years of post-Volker Inflation onDemand to cheer silver as the precious metals leader. I think silver is a wildcard. It may well lead the PM complex upward, which would mean the GSR needs to break down. Bottom Line: the macro picture is, on balance, in progress to a fundamentally positive backdrop for gold mining.
This X post on August 16 noted that gold ticked an all-time high and was not overbought. It closed the week that way. Gold is not very overbought on the weekly time frame either. It is, however, overbought on the monthly time frame. But that is how bull markets work. They get overbought, consolidate or pull back on the shorter time frames, and then run upward again.
After barely reacting to the deep stock market correction (unlike silver, which got hammered), and in not getting punished with the broad market’s comeback I believe gold is signaling a slow and steady preparation for the next big phase in the macro, which would be counter-cyclical and feature policymakers trying every trick left in their old bag of tricks to reinflate the system.
Silver’s correction did not quite test the deepest levels (e.g. SMA 200, orange) it could have within the breakout rally, but it did put on a healthy test. It is now testing resistance associated with the 50 day moving average. If it is going to make one more corrective move, it should do it from this level or else it’s probably gone (to the upside).
As a final note on the precious metals, I am pleased to inform you that I will be gaining access to Jordan Roy Byrne’s work, which focuses on the gold mining sector and the companies therein. While I do my own more casual gold stock analysis and have access to that of some very astute sector players, it’s always a good thing to be able to add another quality source. Jordan is quality, and what I like best about him is that he is humble and has an ethic of continuous improvement and focus.
Currencies
The Japanese Yen (daily) has been pulling back with the market relief, or perhaps the market has been relieved with the Yen pullback. Regardless, we will see if the carry trade unwind erupts again. That was a spike, not a trend change. As the currency pair (w/ USD) settles back to the moving averages we’ll find out if it was a one shot wonder or the first move of something negative on the macro.
USD (DXY, daily) is looking none too good as it clings to a short-term support area at 102.40. The lower support at 100.70 is actually the best support, although its long-term rationale is not shown on this daily chart. We should not discount the idea that when a future equity bear market does unfold, reserve currency USD could get pumped with a liquidity bid, regardless of what the Yen is doing.
Quick status:
CAD/USD: Rising lately with the market relief, but still trending down.
AUD/USD: Rising lately and actually threatening to establish an uptrend.
CHF/USD: Spiked in similar fashion as JPY/USD as the Swissy is perceived as a safer currency. This pair could be grinding out a new uptrend.
EUR/USD: In NFTRH 822 we noted that “EURUSD (Europe) is actually postured in a pattern that could resolve bullish” and so far at least, that is what it is doing as it rose out of the pattern’s neckline last week.
Portfolio
Funds are balanced by gold (long-term risk management & monetary stability).
The new(ish) taxable account has been increasing its short-term Treasury bond holdings in anticipation of a Fed rate cut cycle that everyone seems to be obsessing on. This account wants to be for longer-term holds, but when the market goes south that notion will probably go south with it. Right now it’s income from cash, bonds and a few select stocks and sectors. I am pretty pleased with Nvidia (added at the ‘buying opportunity’ level noted in this July 30 NFTRH+ update), which probably means it will gross the market out at earnings on August 28 for the first time in forever. Just kidding, but not really.
Aside from AE.V, the gold stocks included here are of the less speculative variety. I hold the ETF and some captains of the sector. This account is not for gambling. Neither is the IRA for that matter. But this one even less so. I have a small trading account for that stuff. There are no positions in that account and I most likely will not include it here even when there are positions because I want to be free to lose my own money as I see fit, without endangering anyone else. :-(
Positions in order of size…
Roth IRA (non-taxable, no contributions)
As you can see, the IRA held the trendline and lateral support that I wanted to see it hold, before ticking a new high to close the week.
Cash/equiv has decreased to about 80% as I continued to take on a bit more risk. But I am in no hurry because of two things; my view that a bear market is coming, measured within months, not years and well, cash is still paying out a good return. On that last note, I remain aware that short-term bonds perceived as “quality” (e.g. US Treasury) would perform well as cash equivalents when the Fed starts starts cutting rates. So those positions are being increased slowly in both accounts.
With the gold mining sector’s macro fundamentals aligning well thus far, I am careful about taking profits in the sector, which can move very quickly. Day traders should proceed as they would, without my influence. Profit is always a good thing to have (booked). Semi is also represented along with a few other odds and ends.
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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Gary, I don’t understand your note on SKE. They are developing their own mine and have all the funding from Orion. Gold Fields is taking out Osisko Mining with its Windfall project. As far as I know there is no connection between any Osisko properties and Skeena.
Steve
Hi Steve, what I meant is that the Osisko deal is positively affecting the perceived value of SKE, according to people who know more about mining than I do.
I guess in the sense that they are both big high grade resources and big deals bring new attention. However, Gold Fields already owned half of Windfall, so it made sense on synergy alone.