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Summary

US Stock Market: Bull still on as the trends are up and SOX>NDX are making some hints to recover as leaders.

Market Sentiment: Dumb money sentiment indicators are over-bullish and Smart money sentiment indicators are fading hard. There is sentiment risk across much of the board, from stocks to gold. Commodity/resources plays may be the final element needed to complete the over-bullish risk picture. Many are bouncing now.

Global Stocks: Bullish, near universally trending down in relation to major US stock indexes.

Precious Metals: Gold target of 3000+ loaded, and may come sooner than originally expected. Silver’s target is 35, but who knows where it would stop when it gets a spur in its side? HUI targets are 375+, longer-term 500. The global macro is aligning in favor of gold relative to risk assets and flat out in favor of the gold mining industry. Our ongoing caveat, however, is when the everything bubble bursts, the precious metals complex will most likely get corrected… hard.

Commodities: [last 2 weeks] Considered a bounce play at best, at this time. I’ve taken up several positions on that prospect. But the complex will be subject to the broad market, much like the precious metals. This week: Still holding several items (see Portfolio segment) and added a couple Ags (per NFTRH+ update) to boot. I consider commodities a trade only.

Currencies: USD is grappling, losing support as Fed policy flips dovish with a 53% to 47% majority of CME traders betting on another 50bp in November. It would appear that the only thing that could save USD from a deep decline well into the 90s (see segment) would be if the macro party terminates abruptly and aborts our “to or through the election” theme. Hey, could happen. Meanwhile, a bearish USD is the “anti” to the broad market’s “pro”. Even if USD were to decline all the way to 93 (support), it would remain in its bull cycle from 2008.

Indicators: [as per last week] The report again discusses some important macro indicators. These are the guides that keep us on the right footing amid the noise and confusion. Primary at this time are the steepening 10-2yr yield curve and the now declining Fed Funds rate. See segments below, and consider that the media are advising the public that in essence recession risk has been avoided. This could instigate an amazing speculative bull atmosphere into the election even as the yield curve’s “bust” signal lay out in the future. [this week] The yield curve is super important and is updated again this week, as is the danger signal of the 2yr yield and 3 mo. T-bill yield. Risk is all around, folks. But as you can see by this calm picture of High Yield Bond Spreads, risk has not yet become activated and started strongly in motion.

NFTRH 829 goes full macro this week, without the need for rigid segments or standard formatting. The current macro situation is anything but standard. Please keep in mind that I am not just another doomsayer howling into the prevailing winds to stir up anxiety. I am a guy who’s been directed by indicators and macro signals to be bullish on stock market prices all year long. But if our indications continue to be reliable, time is growing short.

Trends Up, Bull On, Risk High (Macro Discussion)

The segment’s title might also read “Another Week, Status Unchanged”, as it has been for so long now. That status targets “to or through the election”, as it has all year long (with a few caution points along the way).

I’d like to go back to one of my favorite charts illustrating the macro situation of 2024. While some are giddy (the casual public “playing” a stock market that always goes up, eventually), some are pissed (those who have staked their marketing schemes, and thus their reputations, on a perma-bearish view) and some are bewildered (mainstream investment houses retooling their outlooks in lagging fashion with every interim macro event/turn), we simply follow our guides, like the 2 year Treasury yield’s divergence to the (Fed proxy) 3 month T-bill yield, which is now finally starting to adjust to the divergence, as expected.

So the anticipated yield dynamic is in progress and the stock market is on our original message, with the US presidential election a little over a month away. The green arrow on the chart is the very picture of the risk we keep highlighting and that risk has progressed to an alarming state with SPX continuing upward and T-bill yields having turned down. At least that is the message of the run-ups to the last two major bear markets, in 2000 and 2007.

Sure, anything can happen. But history is what it is. It could be different this time. But the setup projects an epic heartbreak for today’s FOMOs, MOMOs and come-lately Goldilocks adherents thinking we dodged a recessionary bullet because the yield curve is finally un-inverted, eliminating the recession signal that had held so many in caution mode for so long.

Oops, that dangerous media brain fart is likely to cost anyone who takes it seriously.

“Bond Market Yield Curve Returns to Normal”? Signals for Gold, Stocks, Economy

The public post above explains that which I’ve been harping upon since 2022, when the media made such a ruckus about the 10-2yr yield curve inversion and its supposedly imminent recessionary signal; it’s not the inversion that historically kills the boom, it is the subsequent steepener. Ladies and Gentlemen, allow me to reintroduce to you our brand spanking new un-inverted yield curve steepener.

Let’s now introduce some gold discussion, as gold is the asset (IMO) that will ultimately prevail in the developing macro. However, if we can leave aside our mentalities as casino patrons, we may realize two things…

1. Gold (target 3000+) is also extremely stretched and at risk, price-wise, as well.
2. Gold’s price should rise dramatically vs. bubble assets in the coming years if a “post-bubble” macro develops after the risk portrayed in the first chart above plays out.

Where the broad markets are concerned, I want to be aware of the risk signals and also aware that I am doing something un-Gary-like in accepting such risk. The clock is ticking, if we assume that past facts of history will extrapolate to a coming fact of realized risk. Risk that has been building on itself all year. In my opinion, we are in the final stages. That sentence is written by someone who has been compelled to lean bullish all year long and has zero short positions, currently. That someone is also watching events closely from here on.

As always, the Portfolios segment will illustrate what I hold in the current macro. Of late we have expected rotations to include commodity and resources related areas. Think about a bull phase that rounds up everybody and includes them before it finally flames out. I’ll stick with “to or through the election”, but things are in progress now that would probably beg us not to be the least bit complacent or lenient with the “through the election” phase, assuming the rally even gets to the election.

Precious Metals

Here are two charts illustrating the points above. The gold price is going parabolic. The 2450 target was cut through like a hot knife through a stick of warm butter. The gold market appears to be loading our next target sooner than originally expected. Yes yes, “BRICS de-dollarizing” this… “China and India weddings” that… and “the Fed is gonna inflate and destroy the US dollar” the other thing.

The gold price is going to earn whatever correction befalls it when this spike terminates, regardless of it all.

However, if you want to call gold a bubble like the stock market, I’d simply present this picture once again.

Our view can be summed up as follows…

• The broad macro has been climbing the risk ladder all year long.
• The climb continues.
• Gold is aboard for the ride and will likely get hammered when the party concludes.
• But gold’s utility is for stability, endurance and value. As the chart directly above illustrates, gold’s “real” price measures vs. the cyclical, risk-on world is likely to enter a new bull market in a post-bubble macro.
• As an add-on, this summons our oft-noted view that the gold mining sector will leverage that macro standing for a potentially long bull market, which would feature a rising HUI/Gold ratio, to the bewilderment of many.

Reference this public post:

Think You Know Gold Stocks?

While we are on the subject, let’s veer over to the miners for a look at some internals and then update the technical situation using HUI daily, weekly and monthly charts.

HUI continues to be aligned with its proper fundamental underpinning, gold’s currently positive standing vs. inflation expectations.

The HUI/Gold ratio is intact to the post-February rally. However, there is room for it to drop toward the previous low if HUI corrects further in the short-term (see nominal daily HUI chart below).

On the big picture the HGR has not yet done anything notable, although the 2024 low may have been a secondary (and final) low to the 2015 low, which came at the dawn of the bull market (volatile though it has been thus far).

I would not fret about this low not doing what the 2015 low did, as that low preceded a big spike upward. We said at the time – as silver took a strong lead, inflation signals whipped up and commodities and stocks followed – that the move was unsustainable as gold’s fundamentals started to erode.

Today gold’s fundamentals are doing the opposite. A grind in the HUI/Gold ratio is preferable. We are managing a phase that is going to morph. Today the sector is bullish along with everything else. One day it’s going to perhaps be more of a long and mundane process, as the fundamentals grind into place and become known by a larger segment of the investing world. Sort of like frogs in a pot, with the heat slowly rising. That would be gold’s rise relative to other items within the macro.

Dialing that into the current view, we see Gold/Silver neutral, Gold/Copper in correction of its previous hard upside, Gold/Oil an excellent gold mining industry underpinning and gold vs. stock markets pulling back within potential new uptrends. None of these views are antagonistic to the current gold miner rally. If the likes of Gold/Copper and Gold/Stocks break down, we might have a different story.

As a side note to that, consider that the best of the broad rally got going when gold turned up vs. stocks back in Q1, 2024. If gold and the miners should fail in relation to stocks that would not only be a warning on the gold sector, but we would use it as an indicator to a potential/probable collapse in the stock bull market. Gold and the precious metals very often lead the broad markets, as we’ve noted many times over the years. So we’ll keep the gold ratios in view consistently going forward, for multiple reasons.

Moving on, let’s revisit the Gold Miners Bullish Percent Index, which is still indicated to be frothy (another word for bullish) and far away from a contrarian bull/buy signal. But our view is that the sector has transitioned back to a bull trend after the 4+ year long correction out of the excessive 2020 highs.

The bigger picture view focuses on the 20 month exponential moving average to clearly show that trend change. As Old Turkey (Reminiscences Of A Stock Operator) once said, “it’s a bull market, you know.”

Hence, a frothy condition can persist longer than it would have during the bear phases. It’s not just a quick and ill-fated spike within a bear market or correction.

Making that point once again is the gorgeous consolidation break of monthly HUI as one of its fundamental indicators turns down (turns up with respect to gold mining macro fundamentals).

As you can see, the Gold Commitments of Traders (CoT) is extending well toward extreme contrary bearish levels. But risk by this indication has been rising all year long, right along with the bull market. That’s how it works, folks. Gold is in speculative excess, but there is certainly no rule that risk must be realized before target at 3000+. But if upside acceleration does happen, and CoT and other indicators are at extremes, we’ll have good intel to inform our risk management.

The Silver CoT is not quite as extreme because the silver price situation is not as extreme. The CoT is contrary bearish, like gold, however. Contrary sentiment is not a timer. But it will be a condition at the top and it is not hard (personally) to envision a catch-up move in silver that titillates the world and perhaps signals the end of this phase of the PM bull, not to mention the massive bubble in the risk-on world of stocks.

The weekly chart of silver has not hit the primary target of 35 yet. Frankly, this chart looks locked and loaded.

The monthly chart furthers that notion and asks “does it need to stop at 35?” We are sitting here at a moment in time with alarms and warnings flashing about sentiment and momentum, but silver is merely nesting atop clear and strong support. This bullish but not excessive view argues that risk in the sector could be realized after some serious upside blow out dynamics. Personally, I find it challenging to remain unwavering against these risk dynamics, but I am trying to call upon many years of market experience to wait for the whites of their eyes before going into any sort of significant profit-taking mode. This pending any changes in the macro view, of course, considering the heavy risk profile all around.

On to the HUI index, let’s first note its intact bottom/base breakout in relation to the headline US stock market, SPX. Consider this an intact macro indication for the rally.

Nominal HUI (daily) got bonked on Friday, to no technical damage. It could continue to pull back to the 50 day average (308) and associated lateral support, and still be fully intact to the rally.

HUI weekly shows some disturbance at target #1, with target #2 (375+) still out there waiting.

The more detailed and simply gorgeous monthly chart shows the next steps. 375 and then 500.

As the monthly log scale chart checks in again to lend its trend view to the positive big picture inputs. The 4+ year corrective channel is broken and the implied target is the green channel top (roughly coinciding with 500).

Commodities

The indexes (e.g. CRB, GNX) and ETF (DBC) continue to be locked within daily chart downtrends below the downward-biased 200 day averages. A weekly chart of GNX does not show any bullish patterns or RSI/MACD divergences to be optimistic about. All it shows is a bounce off of a routine oversold condition from long-term support, with some valid touch points (green arrows). It certainly could rally from here, but as yet there is nothing bullish, technically, going on. In short, it’s a support hold and little more as yet.

By my casual observance, the promoters of the “commodity super-cycle” (cool name, suspect concept, IMO) theme trumpet how valuations of commodities in relation to stocks have never been better. It’s an epic buy (of real things) in preparation for when the bubble in paper assets ends. I will not dispute the value side of the equation, but just as with gold and gold stocks, commodities and commodity stocks would not be able to prove the concept until the bubble ends.

Here is where I split from the crowd that says to buy “resources” in order to protect yourself from the monetary devastation cultivated by the Keynesian debt leverage system. The devastation will be monetary. Gold is counter-cyclical in that it will be valued as monetary value storage during times of stress (and attempted devaluations by authorities).

Commodities are building blocks of economies. A commodity in its purest sense is a cheap, readily available yet vital material or component of the economy. If the economy suffers deeper deflationary pressure after disinflationary Goldilocks runs her course, commodities will have the double whammy of economic deceleration and the public then worried about the opposite of inflation, amidst a deflation scare. Remember oil to zero in 2020? The whole complex crashing terribly during the deflationary Armageddon ’08?

The monthly chart of the Gold/GNX ratio clearly shows how gold rises vs. commodities against deflationary, anti-market pressure. 2000-2003 was the righteous fundamental phase for gold and especially the miners, which we are using as a rough blueprint for today’s situation.

The impulsive spike upward in 2008 came after years of under-performance by gold (and thus a gold mining bubble, as HUI rose well over 300% during that time) and a deflation scare. The 2020 spike came as markets were liquidating with extreme panic before the Fed, other central banks and fiscal authorities pig-piled onto the situation to manufacturing a hell of a bubble extension in stocks. This was through inflationary machinations, in the bond market (monetary) and government debt spending (fiscal).

Bottom line

The macro signaling is not (yet) favorable for commodities, bounce or no bounce. Theoretically, after gold one day leads markets out of a deflationary event and into the next inflation phase, that might change.

Currencies

USD resides in a precarious position, slipping support and with dovish Fed sentiment as far as the eye (and CME traders) can see.

That should crack the buck. But while ill-fated technical bounces can spring up at any time, the only thing (in my opinion) that would improbably (to most) drive USD sustainably upward in the face of this pressure would be a broad market liquidation, driving casino patrons to cash liquidity, primarily to be settled in the world’s reserve currency. “De-dollarize this!”, would say Uncle Buck.

The US and world markets are partying because the reserve currency is weak and by policy, due to get weaker. I am being kind leaving the dashed line green (implying support not yet conclusively broken). But if we are right about “to or through the election” (man, am I getting tired of writing that… and can’t wait until it’s over) most likely USD would break down hard (targets: 62% Fib at 99, support at 96.90 to 9760 and finally, the 93.30 area).

Be aware that even that most extreme decline to 93 would keep the big bull cycle from 2008 alive with a higher low to the 2021 low.

Portfolio

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

Taxable Account

Since I’ve been providing a little more detail about this account than originally intended *, I decides to add the NOTES column to do a little more detailing.

Account holds a ton of cash, which the Fed is going to continue to cheapen. That is why I’ve increased short-term Treasury bond holdings, which will gain in price while dividends are reduced. It is also part of the reason why I’ll think long and hard before doing any wholesale selling here. On the bigger picture, the Fed is implied to begin forcing market participants out of cash and into assets. So, I’ll want assets.

However… there is the question of an expected and interim deflationary bear. So I can also see a potential point where I’d think ‘screw the taxes, screw the low interest rates and protect capital already gained!

* Because I want complete freedom to buy, sell, hold, short… whatever, without feeling pressure to sponsor anything at any time because people are watching and possibly being influenced. The same actually applies to the IRA as well. These are my real funds and I am going to do as I will with them. Not as I would “advise”, like a CFA. Many CFAs put their clients at risk in a routine manner. In fact, IMO, that is what the industry is as a whole. NFTRH is a market manager, managing markets and parameters. Period. Readers should do as they will with the information presented.

Roth IRA (non-taxable, no contributions)

The same general risk management would apply to the IRA as well, although here I don’t have the tax complications to deal with. So profit taking could be more aggressive. Meanwhile, the chart is consistent and I like that.

Consider items like the currently sedate High Yield Spread shown in the Summary segment to be of important guidance going forward. For example, today I am writing about risk, big time risk. But risk not yet realized. “Real time” indicators like HY Spreads could allow us to fine tune to a degree the time when it’s “everybody out of the pool, there’s a giant policy-induced turd in there!”

Meanwhile, my 80% level of cheapening cash feels right for the moment. Again, you may be and likely are different, but I am not interested in playing a bubble full-on, to max gains into a blow-off. I am interested in remaining risk managed, intact, gainfully profiting and awaiting the next major phase on the macro.

These holdings represent the favored gold mining space, along with Semi, Tech, Pharma and some commodity/resource related positions in Energy, metals/materials and Agriculture.

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.