Summary
US Stock Market [per last week]: Bull still on as the trends are up and SOX>NDX are making some hints to recover as leaders.
Market Sentiment: Sentiment flags up and down during the rally. But on the big picture it is and has been dangerously over-bullish. Today it is quite over-bullish and dangerous even on the smaller picture. Over-bullish sentiment will be a feature from here on, for as long as the rally lasts. That is the case for the precious metals as well.
Global Stocks [per last week]: Bullish, near universally trending down in relation to major US stock indexes. [This week]: Asia is an exception with its spike. This is not a trend change. Segment includes pictures relative to US market.
Precious Metals [per last week]: 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. [This week]: Normal short-term pullback in progress for miners. Thus far it is healthy and nowhere near a rally breaker.
Commodities: Still viewed as a potential “me too!” play for the broad rally. Little more, little less.
Currencies: Big time short-covering spike by Uncle Buck.
Indicators: Yield curve still un-inverted, though pulling back within its uptrend. Its future steepener is expected to bring the “bust” side of the boom/bust cycle. Debt and GDP are twins rising together as a nation uses its ability to increase its debt to leverage its economy (and politically maintain appearances). No better case for gold as a long-term “value” asset and insurance policy. 2yr/T-bill yield divergence has long-since delivered its bearish message (based on the run-ups to last two major bear markets). But it’s a slow moving process. These indicators are forward-lookers. A more real time indication comes from the Junk Bond world, where the situation is still calm. Not a care in the world in High Yield spreads to quality bonds. Risk is “ON” and that plays with the bull rally theme.
November 5
On election day we’ll register the symbolic culmination of the macro plan for 2024.
“To or through the election”, as parroted all year by your letter writer.
Using that phrase has been a way of keeping tabs on the process, after I got hit over the head, like “duhhhh…” of course they are going to debt-spend on politically favored areas… of course they are going to robo-hire for government positions like never before [in my experience]. The link shows once again an employment situation massively out of balance to services and government, while manufacturing – the re-shoring of which must continue in today’s politically contentious world – yup, went negative again.
Back on the debt, yes, the Biden admin (with former Fed Chief Yellen in the Treasury side car) has continued the time honored tradition of “debt-for-GDP”, as the twin charts from St. Louis Fed show.
Dialing in, we observe the panic phase of credit/debt creation under Trump, during the pandemic. The Biden admin has done nothing to remediate that 2020 debt explosion.
They have simply maintained the pace of what got kick started under the previous admin, as the percentage-based view shows. So, it’s “business as usual”, and business is being done with the election in mind(s).
You’ll have to pardon me. It was a nerd moment, as I sidetracked myself into those Debt-to-GDP weeds.
Now, I have dealt with markets long enough to know that there is precedent for a macro plan to look good right up to its target date range,* and then fall on its face when the anticipated next stage of the plan fails to play out. So again, let’s realize that this is no crystal ball reader or swami operating here. It is an indicator-focused macro nerd. I have slush built into the plan (not a swami!) with the “or through” end of the timing target.
What could “through” mean? It could mean either of the following…
- The very next day after the election the broad markets simply roll over and die, apparently grossed out by the election results (frankly, I don’t see this as very viable).
- The efficacy of all of that fiscal stimulation (and we’re not event talking “dovish Fed”, if it maintains that course) mainlined into the system continues to keep the dead man walking, possibly for months, well into 2025 (I see this as quite viable).
Or the “to” [the election] part will fail to play out and our analysis will have been wrong, technically at least, if not fully (as we had it right for the majority of the year and have already gotten within hailing distance of the election).
SPX (daily) is anything but bearish, however, arguing for our plan, technically. Last week it made a strong hint to hold the EMA 20 and the support defined as the two previous highs. In other words, SPX is in essence blue sky flying. Gee, who’da thunk?
* One example being our view that the “Fiscal Cliff” hysteria of 2012 was going to resolve into a negative sentiment blow off (we also used the Semi Equipment book-to-bill ratio as a macro tool) prior to a coming bull phase. Bull it did, but boy did I underestimate its longevity. 2024 and counting…
Other Notes on US Stocks
- The SOX > NDX > SPX leadership chain is not fully repaired, but it is working on repairs as SOX>NDX and NDX>SPX are each still in potential rollovers, but also showing short-term potential to continue rising and break those rollover conditions.
- The XLV/SPY ratio (defensive sector/broad market) is in breakdown mode, looking likely to test the July lows (not coincidentally, that was the high in then US leaders, SOX and NDX). That is obviously a short-term positive for risk-on trades.
- By definition that means that risk is rising.
Gold bugs, and increasingly, commodity bugs will note that it’s not just stocks at risk. I am not sure what’s up with the blank Bonds panel above, but bonds have been taking a beating lately with a bump up in inflation expectations, and are probably well in the green by now, contrary sentiment-wise.
Happy Halloween
Let’s enjoy this least stressful holiday of the year because what comes after, either immediately after (Nov. 6th) or more likely, well after is indicated to be brutal. You know I don’t write words like that unless I mean them. Had I succumbed to every bearish impulse I’ve had over the last 20 years there would be no NFTRH and no one reading this quack.
That said, our longer-term plan is under no obligation to play out (as per the post-Fiscal Cliff recovery exampled noted above). So at least be prepared for the blueprint we’ve been working with to go dysfunctional. That said until otherwise proven, the trends are up, the target date is still in the future and the indicators imply… a high risk of very negative outcomes with the next bear market.
The fact that gold is not positioned differently, sentiment-wise, and is a proud participant during what may be the last great expression of greed for the “everything bubble”, I would not see its price * as a safe haven. More likely, when gold tops it would signal a coming top to the whole shootin’ match. You know, much like how gold stocks are not expected to ever please investors again, I don’t think there are many out there now thinking that shorting stocks for anything more than a day or two will be gainful. I have a feeling that short positions may pay out handsomely in the new macro.
But first things first: Bull. I have taken profits on lesser known items like ALAB and GNSS, but hold some big boys in NVDA, MSFT, AMD and AMAT. I’d prefer to bias with the market’s captains going forward rather than more speculative positions (which I will also continues). As a side note, I think it is time to take a review of the Cannabis sector’s status as well. TCNNF is leading the pack (GTBIF, CURLF, etc.), and may be leading it toward a coming rally for the bombed out sector.
* The main thing I learned down the rabbit hole of some very interesting interactions back in 2002-2004 was that “gold is not about price, it is about value”, and that has served me well ever since as I will never get stressed out about the “price” of an asset that measures its own value by the high or low values associated with the mainstream investment sphere.
Precious Metals
We have done enough non-technical (i.e. macro, sentiment, etc.) work with the precious metals to understand that they are participating with a cyclical rally (not yet unique), with improving fundamentals that are still in progress and the trends are up, and are at further “price” risk the higher they go. That’s markets.
Gold’s monthly chart shows the history of our bull view, beginning with the 1378 bull gateway in 2019, accelerating into the negative hype driven latter stages of the rally into the 2020 top, the sloppiest Cup handle on record, which actually morphed into a pattern with a measurable target (2450) and now, a break through that target, having loaded 3000+, in a strong rise (as price risk also rises).
We had previously noted that the monthly overbought RSI reading was not a concern because previous important tops had featured readings significantly more overbought on the monthly. Well, RSI is getting up into that area now.
So, the price of gold is one thing and the long-term value of gold within a hopelessly debt-addled financial system, are two completely different things. The price of gold is now and will be even more at risk if it steams upward to the next target. The value of gold just is…
Beyond that, I do believe that the extended phase that gold has spent on the outs in relation to the risk-on, cyclical world bodes well beyond whatever correction of this bull move may lay ahead.
And importantly, that view is not backed by bias, dogma or by clicking the heels of my ruby slippers. It is backed by the fact of the change in what was a decades long trend in long-term Treasury yields. In other words, this trend change argues that though they may/will try, the efficacy of our policy heroes at the next panic point could be severely dampened compared to the past. Gold, anyone?
Silver’s daily chart is knocking on the door of a breakout. Friday it tried, but then they pulled out the whipsaw.
The weekly chart is what it is, a pattern with a target. RSI and MACD are not overbought and are coiled to go higher.
Then there is the monthly chart, which we’ve noted to be bullish since it broke out of the pattern back in April. As a devil’s advocate, I added an alternate target based on a measurement from the newly created support level at 30. If silver gets a little out of control and…
…puts on a move vs. gold, could not this crazy market make 41? It’s the silver bugs. Of course it could. The week closed with the ‘W’ pattern intact and thus with the potential to head higher.
Last week (NFTRH 829) while Huey was at support (now resistance):
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.
This week: No change, other than that view is hinting to play out as initial support was turned to short-term resistance. The actual downside tolerance is to hold a higher low to the September 6 low of 292.51. For perspective the Gold Miners ETF, GDX shows a gap just above that level (equivalent to HUI 304). It not only would be normal for that area to get hit within a bullish context (aside from day traders), it may be preferable as a perhaps final sentiment clean-out for the sector before an ongoing rally resumes.
As noted often by weekly and monthly charts, our targets are 375+ and if things get off the hook, 500 sooner than originally expected. Let’s manage 375 for now. If the stair step rally continues as anticipated, the next leg could be the one that dings 375+.
As you can see, gold’s relationship to “inflation expectations” has been pulling back and so have the gold miners; both within uptrends. This is righteous behavior.
HUI/Gold ratio has also been laboring and we’d want to see it hold its SMA 200 (black), after perhaps mushing around it. A breakdown there could be a rally breaker. Until then, it’s rally on.
We’d like to see the HUI/SPX ratio (weekly) hold here to keep a positive relative view to the broad US stock market in place. As yet, it’s a young uptrend from March. It doesn’t sound like much, but it’s 7 months old. It must keep going for a constructive gold stock view to be maintained.
Miner Notes
I listened to a portion of Doug Ramshaw’s interview with – I can’t remember his name, the CEO.CA guy. Doug views MAI.V (MAIFF) as a… was it “quasi producer”? Whatever he called it, he notes MAI is not yet a legit gold producer. But the theme is that the political atmosphere could be clearing in Mexico with relation to open pit mining and confidence is growing. By all credible accounts, free of political bindings, MAI could be a deep value for a gold developer transitioning to full on producer. It’s on watch now.
EQX was released for a small loss and replaced with RIO.V (RIOFF). The latter was favored to begin with, pending permits. Permits are in. Meanwhile, EQX did a financing that the market did not care for. The stock will probably recover, but I like the idea of the de-risking RIO better, management-wise. I am trusting them to be investors’ stewards as they evaluate financing offers. That financing appears to be the final piece of de-risking before the stock can start performing, perhaps in a sweet spot between development and full production. All things being equal, I would hope to increase the position after financing.
Meanwhile, I don’t watch AEM, AGI, NGD, SKE, WPM and RGLD very closely as I would like to hold them to a projected end of the larger rally. NEM has been a great stock to hold, but it’s not a commitment hold. Nor are GOLD and FNV. If these last two were not still technically intact, I might have sold them by now. But I’m not going to dump un-broken stocks unless, like EQX, I get a whiff of management not being what I want.
Bottom Line
I am expecting at least one more leg up to the next target of HUI 375+, with the potential to over-shoot by a good margin. In my perfect world, I would cover the shorts (DUST) for a profit and then add to long positions for a next leg toward HUI 375. I know, there are no perfect worlds, but it’s a plan.
Silver looks like it’s ready to go (which sometimes means pull out your flak jackets) on daily, weekly and monthly time frames. If there is a next surge in the rally, and if silver leads gold, the implications would be positive for inflation trades like commodities as well as cyclical markets. I’ll consider buying back a silver price tracker, like SLV.
It all appears to be in line with the opening segment and the view we’ve have all year: “to or through the [damn] election”. If the precious metals unexpectedly break down instead of rallying, we’d probably have a ticking clock on the timing of a top in the broad markets as well. But it’s as we’ve noted for stocks: as long as the trends are up we’ll stay with them, analytically. It’s been working that way for months now.
Commodities
The indexes and ETF were driven upward hard, by the Iran/Israel war and its effect on the crude oil price. DBC (below) and CRB broke through their 200 day averages, while GNX, which obviously has a lesser crude oil weighting, rammed upward to it gently downtrending SMA 200. I’ll continue not to view war as a legitimate factor beyond its flash point. But it could be enough to propel commodities as a late stage participant of the broad rally.
Meanwhile, the Energy sector has done this and as such, I’ll continue holding CVX, XOM and AR for the time being. The implication of a channel break like this is a new high.
Copper miners have reasserted the uptrend as COPX consolidates and decides whether to top or resume upward. I would not bet against “upward” if the broad rally continues.
At different times, successful “bottom feed” trades were completed in the bombed out likes of SBSW (PGMs) and MP (REE). A never ending bottom feed is ongoing in Nickel prospect TLOFF (TLO.TO). I am open to more of these or reclaiming previous positions if the commodity catch-up theme starts to clearly and more broadly kick in.
Exposure in the Uranium patch is currently limited to the u3o8 holder (SRUUF) and the sector (URNM). But I have NXE, among others, on priority watch as well.
I am still holding the Ag plays, SOYB and CORN for the original reasons: seasonal, sentiment and charts that have been sold down hard since 2022. We’ll see on that. Bottom feeding can be very tricky.
On balance, I’d be open to adding a bit more commodity exposure if/as the proposed “late stage catch-up” view continues to play out.
Global Stock Markets
The view has not changed, personally speaking. As an American, I am keeping my eye on what I know best and casting my trades there, because the balance of the world is trending down in relation to the US S&P 500…
…with the likes of China/Asia/EM responding to Chinese economic stimulus (AKA desperation). A spike, no matter how hysterical, is not a trend change (although it could be the first impulse to one).
Finally, a focus on Canada’s TSX-V (which is also trending down in relation to the S&P 500), since it is relevant to the commodity space and the speculative end of the broad rally. Da ‘V’ dropped, filled the August gap (green) and rose anew, leaving gaps aplenty.
This activity fits well with the ongoing broad rally theme. But it also fits well with the “pain comes later” theme, as all those downside gaps and our as yet unfilled target are still open. If we could get the “resources” and “commodity super-cycle” brigades humping again in the belief that it’s all bullish from here, that could be a setup for big time disappointment, along with most everything else.
But here let’s remember that the analysis has no preordained right to be correct. The next phase of inflation could well come sooner rather than later, and if so, market reactions may be more traditional to it than the post-2021 phase, where every bump up inflation signals dropped a hammer on commodities and resources as the markets bowed before the Great and Powerful Fed (of Oz). The 30yr Treasury yield “Continuum” chart does argue for a less effective and/or relevant Federal Reserve, after all. A lot of moving parts here, I know.
US Dollar Index
The bounce is about the least surprising thing going on in the markets right now, speaking personally. USD was pressured into a breakdown by increasingly dovish Fed projections after making a couple lower highs to the 2023 highs. As inflation signals continued to moderate and economic data came in marginal at best, the buck cratered under the developing dovish Fed story.
Today the short covering rally is instigated with a bump up in inflation signals manufactured by war drums, phony baloney payrolls reports and the now resolved dock workers’ strike. But none of that is legit *, in my opinion. What it is, is an excuse to ram the buck up the shorts’… well, you know.
* War is temporarily driving up oil prices: not inflation. Payrolls feature conspicuous government hiring and as we have shown, routine downward revisions in employment data after the fact. The dock workers are going to make much more per hour, driving up costs. Not inflation. A lagging effect of inflation… and a coming further impairment of the economy.
Portfolio
Gold is long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
No real changes. A couple positions subtracted (MP, LYSDY) and a couple added (AMAT, NVDA). Positions are in order of position size.
Roth IRA (non-taxable, no contributions)
I know this chart is probably the least important thing in NFTRH reports, but as a chart guy I look at it and keep an eye on its gentle uptrend. Intact as it is, it acts as a rationale for me to keep doing what I am doing. Indeed, depending on my developing views of what’s ahead in the near-term, I may do more of what I am doing (i.e. reduce cash and very temporarily get more “in” the casino).
Cash and equiv are 78%. Positions include the favored gold stock sector (with a very short-term hedge), Semi, Tech and some commodity related exposure, along with healthcare related MDT and PFE.
The report opened with a discussion about a late stage market. But I have an awareness that often the last stages of a bull are the most dynamic (ref. silver 2011, oil 2008, uranium 2007 and Nasdaq 2000). In other words, there is often a dynamic upside blow off before the herds come to realize in hindsight that it was a bubble. I want to be open – with all due risk management – to that speculative party atmosphere before hunkering down to what comes next.
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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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.
