Summary
US Stock Market: Multi-sector SPX finishes the week in the best position, as the market rotates sectors within SPX. Leadership chain (SOX > NDX > SPX) still in jeopardy of late stage signaling, as are the recent relative uptrends in defensive sectors like Healthcare, Staples and Utilities.
US Market Sentiment: Sentiment continues to recover, which means heading back toward contrary bearish. Sentimentrader’s short and longer-term RISK indicators are bearish. It’s a high risk market, which is unchanged.
Global Stock Markets: World (ACWX) ticks a new all-time high. Still trending down relative to the S&P 500. Within the global picture, individual markets vary.
Precious Metals: Still indicated to be in corrective mode. This correction, whether ending now or due to extend, is healthy for a sector that has been right there in broad market leadership mode since March. The complex is just another bullish segment, and that means that the future uniqueness of the gold mining industry is just that, in the future. That would come after a deflationary liquidation of the macro with gold not necessarily rising, but rocketing higher in relation to assets positively correlated to economies. However, the current rally could yet be a humdinger and highly profitable in the meantime. HUI targets: 375 and possibly 500, pending vigilance about parameters to the as yet normal pullback.
Commodities: Under pressure from the disinflationary backdrop. Commodities have generally not been the place to be. Promoters would like to think that a dovish Fed will ramp the complex. But a dovish Fed would be a response to declining inflation and tanking economies. Commodities continue to not (yet) be a favored area.
Currencies: USD is on a counter (bear) trend bounce from logical support. However, the macro may still be more interested in the Yen (and its carry trade). A threatened unwinding of the YCT corresponded with recent market corrections. Now JPY/USD looks as if it could top out.
Indications: So we may have indicators at odds. Sentiment shows risk levels quite high for stocks, while the prospect of both the USD and Yen in corrective mode would be a tailwind for US and global asset markets. Let’s clear the summer by clearing Labor Day and see how the markets develop or devolve in September as da boyz ‘n da girlz come back from da Hamptins.
Currencies
USD (DXY) proceeded a bit lower after we noted it bearish but at support last weekend. Then it turned and bounced, which should have surprised no one. USD did tick a lower low, however and bounce or no bounce, is technically bearish. It could bounce all the way to 102.70 resistance and remain bearish. It could bounce all the way to resistance and the moving averages in the 103s and remain bear biased. Such a bounce could happen along side renewed market corrective activity, however.
Yet markets finished the week in generally fine technical condition. This goes for US and global stock markets. Why? Well, we have noted that the new currency threat of late has been the Yen, and the carry trade it drags around. Last week we noted that there could be some pressure on markets with the Yen firming up again. That played out with markets continuing to consolidate downward before finding relief on Friday as JPYUSD turned down. Daily RSI and MACD do not look favorable for the Yen. If they prove unfavorable, we could get the resumed asset party with our time marker of “to or through the election” still in play.
Meanwhile, the Euro is playing foil to the USD, and just as USD is bearish with a bounce in play, the Euro is still biased bullish (not yet definitively bullish), with a pullback in play.
Bottom Line
It appears that the Yen is still in the role that USD normally plays; that of foil to ‘risk on’ global asset markets. While I won’t make a prediction, a reversal in the Yen as USD finishes its bounce (assuming it remains just a bounce) could trigger a perhaps final and stunning phase of the US/global asset market bull.
The alternative would be that Uncle Buck has had enough bearishness and is getting downright pissed off in preparation for a liquidity event that wrecks the markets sooner, not later. Given the trends, however, we remain with the existing plan, which is market-bullish in the face of a weakening Fed, preparing to go dovish.
US Stock Market
SPX held support and ended the week in fine technical condition. Let’s remember that SPX is comprised of a multitude of sectors, and so it is more stable than the likes of NDX or SOX if/as the market rotates to new sectors, as has been our recent theme.
NDX did, however, end the week intact at support and the 50 day moving average. Big Tech could easily resume leadership at some point if speculative spirits recover to a certain degree.
SOX came within a whisker of filling the gap at 5000 before also finishing the week with an up day. As with NDX, it is not hard to envision SOX one day re-taking leadership of the US market if the collective investor mood tweaks more toward risk ‘on’.
The SOX > NDX > SPX leadership chain is still under threat, however.
Bottom Line
Let’s take things a step at a time. Currently, the US stock market is bull trending but experiencing internal rotations. As we’ve noted, the likes of the defensives, Healthcare (XLV), Staples (XLP) and Utilities (XLU) are still in young uptrends relative to SPX/SPY (major trends are generally still down, although the Utes could be in the process of changing the trend to up).
If the defensives continue to lead, the next bear market would be indicated as a clear and present danger. The stock market could be setting up to roll over into a bear. If, however, items like SOX and NDX re-take US market leadership, it could be a hell of a party with the bull’s end coming as a speculative and parabolic upside ramp job (ref. silver circa 2011) and blow out.
Meanwhile, the stock market remains technically bullish by its trends, as a whole.
US Stock Market Sentiment
The sentiment picture is contrary bearish as Dumb money indicators cross the upper bound once again and Smart ones start to fade. It’s not deadly extreme yet, but it sure is not healthy from a contrarian standpoint. Worse, the Risk Summary is quite unhealthy. We gold bugs should keep in mind that the heavy anchor of monetary value is in the same sentiment setup as the stock market. This is another reminder that the precious metals are not unique during this bullish phase. More and more I believe that this can be quite a good trade (in progress), but the real unique bull market will come later, after a clearing of the macro and a pervasive global bear takes hold.
NAAIM (investment managers) are dutifully springing back toward over-bullish with the stock market’s recovery after helping foretell the recent market correction by leveraging over-bullish to 103% back in July.
Investors Intelligence (newsletters) were still in heavy pullback mode (Aug. 27) from their previous strenuously over-bullish reading of a 4.4 bull/bear ratio. Current ratio is 2.35.
AAII (individual investors) were over-bullish (Aug. 29) at a bull/bear ratio of 1.9 from a previous over-bearish reading of 1.10.
Precious Metals
We have the ongoing situation of gold’s positive correlation to risk ‘on’ asset markets, well illustrated by Sentimentrader’s risk profiles noted above. We are just going to have to accept that for as long as we may remain bullish under these circumstances.
Here is the thing about over-bullish markets; they are over-bullish for a reason. The reason is that they are bullish. They’ve been going up. You see? So the concern with the precious metals would increase when concern about the broad markets becomes actionable bearish.
Commitments of Traders data are not pleasant from a contrarian standpoint. The Gold Miners Bullish Percent is still well elevated (but no longer extreme) and the HUI/Gold ratio is intact to the uptrend from March. All of these are guides saying “bull still ON”.
But also, bull probably to be rudely interrupted when the broad markets enter a bear. I want to make that point enough so that we’ll be well prepared along the way, but not so much that I scare readers out of the sector before they’d have otherwise sold out. Just telling it like I see it and leaving the rest up to you.
GDX (daily) is still in pullback mode and still very normal to its post-February rally. I have resisted adding positions, pending at least the potential for a gap fill and test of the rising SMA 50/support combo. If GDX starts to break the corrective flag, we’d watch for signs of a completed correction.
HUI (weekly) is solidly in channel breakout mode, still contemplating the next (minor) target of 330. Some grinding here is not a bad thing because if Huey is going to make it to 375 and not become critically overbought, it could use some turbulence along the way.
HUI monthly continues to look like a thing of beauty to this man who stares at charts. What’s more, it has now closed the month of August in this channel breakout condition. We will manage the 375 target and associated resistance for now, but the main target is and has for years now, been 500. I think we can drop the ‘?’ after “the next low” noted on RSI. That bear trap was the next important low.
Gold (daily) is sporting a negative divergence by RSI (not drawn in) and a potential roll-over situation, if the down-triggered MACD means anything. A test of the clear lateral support area that includes the SMA 50 would be healthy. But again, with bullish sentiment running with that of the broad markets, we cannot discount a new up surge at any time.
The weekly chart shows the negative RSI divergence from a previous overbought situation. This is a bullish chart. MACD holds the power to propel this thing much higher, pending any support testing that may happen at the SMA 50 (2441) above, in the interim. Should gold go to the plan of an upside blow-off (target 3000+) sooner rather than later, and in line with broad asset markets, don’t discount the idea that in a future broad market crash gold could decline terribly, to test the blue sky breakout at 2100.
Isn’t it interesting that not even a year ago players would have cheered for 2100? Things are moving fast.
The monthly chart is getting overbought, as we’ve noted previously. However, overbought is a feature of a serious bull market, and that is what gold is in the midst of. The yellow highlights on RSI show that it could become more overbought before the bull phase flames out. It would probably be best for longevity for some volatility and grind to come in, but as they say “there ain’t no fever like gold fever”. So, let’s not discount the prospect of a ‘silver 2011’ style upside blow-off and blow-out.
The log scale version of the chart asks “why not?” with respect to the question of whether the 3000+ target is in sight. The Andrews Fork is projected from the bear market low and the upper tine is well up there.
Speaking of silver, the weekly chart is as it has been. The pattern breakout has loaded a target of 35. First the current corrective move needs to be broken, which did not happen last week. As such, we cannot rule out a return to the 26s for a breakout test. This would probably coincide with gold testing 2440 and GDX testing the 35 to 37 range. Alternatively, if silver takes out last week’s high of 30.55, it would probably break the correction and set about its target of 35. I want to be mentally prepared for potential continued short-term corrective activity.
The monthly chart holds so much potential, it’s not funny. RSI coiled. MACD positive. We are waiting for the test to either complete in the 26s, or for silver to greatly raise the odds of corrective completion by firmly taking out 30.55. The main measurement is 35, but who knows what levels silver could go to should animal spirits get released for Team Silver Bug. 50 was the Hunt brothers high of many decades ago. 50 was the 2011 high. You would think that if silver really gets off the hook it would take out that marker this time and make a higher high, after the 2020 crash held a higher low to the 2008 crash. Viable? In my opinion, yes. First things first, however.
As for individual stocks, the portfolios hold my favored items, plus a couple specs. As for silver stocks, I will plan to buy more SLV as a price vehicle. I don’t like messing with leveraged funds and options, so I’ll just do it the old fashioned way. I really don’t care for the silver stock sector or many of the promoters within.
Let’s end the segment with an updated daily chart view of gold’s ratios to key markets. The Gold/Silver ratio is still perched in a bull biased way. If it follows through to the upside there could be more pressure on the PM sector along with many other sectors, especially those in the traditional inflation trades, like commodities and resources.
Meanwhile, gold is still consolidating vs. copper and stock markets. This after the Au/Cu ratio busted bullish (still is) and Au/Stocks made a positive move (still somewhat constructive). Gold/Oil is still trending up, a positive for the gold mining industry. All in all, it remains a macro in transition, not a completed picture of the macro that would one day support a long-term gold mining bull market.
Bottom Line
The precious metals complex is bullish and in consolidation/correction. It is also generally running with cyclical markets. The run could have quite further to go. But if it hits an upside target (e.g. 375) while stock markets and commodities go bearish, so too would the precious metals, quite likely, due to their positive correlation with other markets. If the complex puts on a laser show (e.g. HUI 500, Gold 3000, Silver where ever) and cyclical markets are topping at such time, the damage to the precious metals after that could feel profound, if gold at 2100 could be considered damaged (personally, it would not). I continue to favor a profit-taking opportunity ahead, rather than a long-term hold just yet.
That (2100 +/-) is the big picture breakout point that I believe will not be given back, even in a broad market crash. But let’s remember that what has happened since that breakout has included MOMOs, FOMOs, Anti-USD players/Fed rate cut obsessives, and plenty of mainstream players (and their machines). But be aware that I am producing bearish noise about a future potential that we should not let dissuade us from a) understanding gold’s value proposition, no matter what its price is doing and b) the bullish potentials in the interim to a still quite theoretical big picture plan noted just above.
Global Stock Markets
The World (ex-US) is in full recovery mode as ACWX ticks a new all-time high. And in case there is any question, it is still trending down in relation to the S&P 500.
After disconnecting from its inverse correlation to USD, the World has recently gotten back in line, to a degree, with its usual running mate. It is as if the global stock market was not buying the still-hawkish Fed, negatively diverging the US dollar, which would soon see the only fundamental backing it has – tight monetary policy – aborted.
As usual, I say have at the world as you will. If you are a global citizen and a global market player you probably have better insight into individual markets than your letter writer does. I am primarily sticking with the US because living here, I see it better, and the ongoing uptrend in US vs. the balance of global markets.
But I do like to keep tabs on the Canadian TSX-V for its indications on the speculative ends of the commodity/resources trades. If we who would prefer this index to re-bull for money making opportunities are being honest, we are acknowledging that one of the few things da ‘V’ has going for it is its nest atop the 200 day moving average. If it takes out the orange arrow that is a would-be marker of a key lower high, then we can talk bull. If it loses the SMA 200 the odds increase that a new low would be coming, possibly to our 503 target.
Commodities
Not all commodities are created equal, and the commodity complex often sees one segment pop, while another gets smacked down.
In my opinion, this is owing to the supply/demand fundamentals of individual commodities at any given time (e.g. Oil & Gas are often out of phase with the complex) and the legions of players (hedge funds, futures traders, producer/hedgers and algo-driven machines) going long and short the complex at varying times.
That said, the amalgamated complex (GNX) is struggling to find a low to bounce from. That would-be low is a test of the December low. If the TSX-V above fails, odds would increase that the index could hit a fresh low. Oil being a primary driver of the indexes, that would put my positive view of the Energy sector (XLE) in jeopardy, among other things. How long can the sector continue to swim against the still depressed tides of Oil and Gas?
On the plus side, daily RSI and MACD still seem to think the bottoming potential is intact.
The Industrial Metals complex continues to be interesting, however. It dropped hard and crashed support, only to spring back above it in an attempt to reestablish the very young uptrend. If this looks to hold, I have a list of usual suspect miners (TECK, HBM, RIO, VALE, etc.) that I would consider adding to currently held FCX. But I am in no hurry at all, considering the state of TSX-V and my overall interim disinflationary view. As usual, I want this stuff to prove itself to me. I don’t owe this stuff anything and will never sponsor a sector like promoters do.
I hold the Uranium ETF in the taxable account, but I will take a tax LOSS if this gap fill does not soon instigate a renewed rally. It’s a broken chart, folks. At least on the daily time frame. Watch items are CCJ, NXE, UEC, UUUU and that is where they remain for now, on watch, until I see some reparations to the technical damage.
The Agricultural index (GKX) is deep in the mud, but has been sporting a daily chart positive divergence by RSI and MACD. It might be worth checking in on seasonals for individual Ag commodities, which I have not done. If you have an interest, however, I can check the seasonals and advise. Or maybe I’ll produce an NFTRH+ update on the subject if I see anything interesting. I am a bottom feeder by nature, after all.
Portfolio
Funds are balanced by gold (long-term risk management & monetary stability).
The taxable account is biding its time, collecting interest on cash and short-term T-bonds, while holding several items to be “in the game” a little. I will continue to take losses if/as needed, but also grudgingly take a few (taxable) profits in a high risk market. For now, I am just trying to stay in touch with the market’s rotations, which is why Energy, Biotech and Utes are held and a couple Medical Device companies (MDT & EW) were added.
As side notes, MSFT (not acting right) and NVDA (took profit on 50% of position, pre-earnings) were decreased last week. Positions are in order of size.
Roth IRA (non-taxable, no contributions)
Cash/equiv is 82%, which is fine for now. The plan will be to lever in a bit more when I feel I can more definitively call the precious metals correction over, not to mention those in other areas. I have patience because cash/equiv. are still paying out nicely.
I know it may seem dorky, but I am a man who stares at charts (a lot), and so I keep an eye on this one each week. Nope, nothin’ wrong here, although maybe overbought and vulnerable to the short-term risk noted for stocks and gold in the Sentiment segment. Interest-bearing cash will act as a shock absorber.
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.
NFTRH is not to be distributed to third parties without prior written consent
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.
