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Summary

US Stock Market [per last 2 weeks]: Bull still on as the trends are up and SOX>NDX are making some hints to recover as leaders.

Market Sentiment: Middling to dangerous for everything but bonds. Dumb money is eating itself some stock market. You can bet that when being impartial, one day we may look back and realize that dumb money was probably eating itself some gold as well.

Global Stocks: World continues to trend up on balance (ACWX bullish but in short-term pullback mode as USD bounces). World continues to trend down in relation to the US, on balance.

Precious Metals [per last week]: Normal short-term pullback in progress for miners. Thus far it is healthy and nowhere near a rally breaker. [This week]: So far, so good. Now the miners can confirm a next leg up (HUI target 375+). Follow-through is needed. Bigger picture, macro risk will continue to be in play. Even bigger picture, the next several years could see the rise of gold relative to bubble beneficiaries. That would leverage the gold mining industry in a positive way, improbably to most. The goal is to “change the macro” (see segment below).

Commodities [per last week]: Still viewed as a potential “me too!” play for the broad rally. Little more, little less.

Currencies [per last week]: Big time short-covering spike by Uncle Buck. [This week]: Still in play, but the reminder is that with broad risk so high, a top in assets could come out of thin air, and that would drive USD impulsively higher (to the disappointment of Team “De-Dollarize”).

Indicators [per last 2 weeks]: 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.

Market Talk

As we draw closer to the US election and our rough target for the broad bull, I’d like to continue easing away from a regimented report format in favor of just talking. Market talking. It’s me trying to say what I think. But what I think is backed by so many indications.

Like the High Yield spread on a real-time risk-on and bullish signal (note the spread actually burrowing to new lows, which means new highs in comfortable complacency by speculators)…

…and the 10-2 Yield Curve, having un-inverted and on a steepening path that will likely lead to an economic bust and stock market bear, eventually, if past is prologue.

Bearish indicators like the Yield Curve are currently flashing warnings. They are slow movers, but moving they are. Let’s again view another slow mover, the 2yr yield divergence to the Fed Proxy T-bill. It is stunning. It’s one thing to look at it today and say “okay, bear… it’s just you doing what you perma-do”. But it’s quite another thing to consider this bearish view and remain bull-biased as appropriate, as we have, all the while we’ve reviewed it since last year when the divergence began to take shape. Tough racket, this market management. But somebody’s gotta do it.

I think there is incredible value in being able to see and consider long-term signals like a curve steepener and the yield divergence, while at the same time staying calm in the short-term, rather than getting hysterical, when considering items like the HY spread above.

However, one of HY’s fellow sleepy indicators is not so sleepy of late. You may recall we managed a previous divergence by VIX to the SPX that did not play out into anything sustainably bearish for stocks, but the tendency is for a positive divergence by VIX to precede a bear phase or bear market in stocks.

Finally, we’ll leave it with another sleepy, slow moving indicator as defensive Healthcare is now making new lows vs. the broad SPX. Risk is ‘on’. Risk is high.

Bottom Line

Risk, by definition of contrarian theory, is at nose-bleed high levels. That risk has not yet been realized and more and more, it feels like when it is realized it is going to seemingly come out of nowhere. But it will have come out of the slow movers, like the yield curve and the 2yr/T-bill divergence.

Changing the Macro

I want to be clear on the big picture view. Personally, the objective is to change the macro. But what do I mean by that, beyond a simple chart showing a long macro trend broken in long-term yields?…

…I mean CHANGE. THE. TREND.

Okay, what is the trend?

The trend has been disinflationary macro signaling, like the previous trend down in yields that enabled inflationary policymaking, at will, for decades.

What will this trend change entail? How will it manifest?

If the disinflationary signaling enabled inflationary policy, making policymakers look more like…

…than villains, what will inflationary market signaling (one strong interpretation of the yield’s trend break upward) do to their ability to ride to the rescue of financial and asset market markets long dependent on that beneficial policy? Just add more debt, as usual? That is what both presidential candidates are promising to do. But rising interest rates means debt costs more to carry. Hence, there will be reduced efficacy of new heroic policies.

Ah, but we are still playing Goldilocks. Yes, we anticipated the current interim decline in yields (bouncing lately, but still trending down on the daily chart below). As long as the disinflationary Goldilocks perception is in play (and yields gently decline), I suppose markets can continue to rally. But take heed of the word “interim”. The Goldilocks phase always was viewed to be “interim”, even before the phase started.

The 2022 “bear market” that was actually just a correction may have been the first tremor of the earthquake that could erupt beneath the market’s feet. That was the initial and impulsive rise (rebellion) by Treasury yields. So let’s add a bottom in yields to our indicators above forecasting the end of the bull. Our target on the 30yr is 3.2% to 3.3%. It has recently bounced off of 4% to a current 4.4%.

If that is the start of a new rise in yields, so be it. Forget the 3.3% target. But that is not yet indicated on the shorter-term daily chart view. It may have been a double bottom to the December 2024 bottom. But as yet, it’s only been a brisk bounce as China stimulated, USD nearly broke down, the war temporarily spiked oil, the government continues to mess with Payrolls (through near constant hiring itself, and quietly revising the overall numbers later) and commodities are playing the rotation game, as they often do (Whack-A-Mole style). We’ve viewed commodities as a late stage catch-up play by these inflation trades.

So yes, yields have risen lately, presumably to address any inflationary pressures that the “strong” (ha ha ha) economy and rising “inflation trades” may instigate. If the 30yr is going to 3.3%, however, this spike should abort soon. We shall soon see.

The economy is still no good where it counts. The last Payrolls report saw job losses in manufacturing and the last ISM report showed continued weakness across the manufacturing spectrum. The economy is “servicing itself” into its latter stages.

Let’s also not forget the base and up-turn in officially reported unemployment.

A counter-cyclical backdrop appears headed our way, and that is the exact backdrop I’ve pounded the table about when seeking a fundamentally bullish gold stock view.

Gold Stocks

Despite the pressure or even price destruction that the miners are likely to experience when that high risk mess above is realized, I remain “in” the gold stock sector, and have a good view for silver as well (ref. NFTRH 830). Why? Charts. I am a chart guy, after all. I have measured targets and ongoing trends. The trends also apply to the stock market. They are up and that is a fact. It has been a fact all year. Really, since 2009 for SPX and its fellows.

To paraphrase Sgt. Barnes in Platoon, “when the trends break down, WE break down”. Hence, plans are intact, but at high risk, by definition.

HUI held its stair-step rally in almost creepy fashion, because how often to gold stocks stick to technical plans? The answer is not very, as they so often seem to drop deeper or rally harder than planned. But in this case, HUI dropped to the SMA 50 as planned, and is poised to resume its rally. If it does, the next objective will be to make a try for 375+.

Of interest to the wider commodity/resource space as well as junior mining/exploration (including gold and silver juniors), the TSX-V made a breakout move on Friday. This chart shows several of my holdings (and one potential holding, MAI.V/MAIFF) that would theoretically benefit if da ‘V’ is really extending the rally. Tax loss selling does not really come heavily into play because these items have generally trended up or sideways in 2024.

As we know, there are other commodity related areas (e.g. PGM, Li, Ni, REE) that could see pressure as tax loss season kicks in. But the items on this chart are theoretically left to their own devices (AE.V an exception).

Silver/Gold Ratio

Based on the bullish charts of silver we reviewed last week, I continue to give respect to the ‘W’ pattern in the Silver/Gold ratio (SGR), even though it has taken some punches lately. Based on the various macro signals of the moment, I think that SGR will be a leading indicator for not only the precious metals, but that of commodities, materials and other cyclical areas.

Should SGR break down, we’ll have a strong warning against the inflation trades and cyclicals. Should it break upward, we’ll have a strong indication that commodities and resources can catch up, and precious metals could increase leadership into the broad top.

US Dollar Index

The recent rough stuff that hit the SGR can be attributed to the spike in USD, which in our ironic investment world, appreciated the opportunity to spike and impale the shorts as the recent macro inputs noted above instigated a renewal of inflation expectation (and in knee-jerk fashion, a squall of Fed-hawk fear by market participants).

USD lurks just below the best target, which was the SMA 200 up to the 104 round number. If the buck fails soon, it could be “party on”, including the inflation trades to go along with the already bulling broad stock market.

It is interesting that this hard spike did not bring many market problems and it implies that it is not yet time for a USD-instigated market liquidation. If it does break down, we’d expect the anti-USD flavored stuff to lead what remains of the broad rally.

Here we should keep in mind the nosebleed risk indications across the markets. We should keep in mind the potential for Uncle Buck to become enraged at the world at the drop of his hat.

Stocks/ETFs of Interest (Daily Charts)

I feel I have to disclaim how high market risk is again before getting into stock talk because NFTRH is not a stock pick rag, focusing on “bottom-up” research of individual companies. NFTRH is a “top-down” macro researcher and from that macro, we look down at sectors that make sense.

So without getting too talky, here are some stocks I hold or am interested in as I go back to my favorite thing of yore (pre-macro nerd days), stock charts. In no particular order…

Semi Equipment maker AMAT has held within and crept outside of a ‘W’ pattern of its own. As long as it holds the uptrending SMA 200 (black) it’s okay. But there is a chance that is a bear flag on diminishing volume. On the plus side, RSI and MACD are positive and far from overbought.

Semi AI superstar NVDA has broken upward from a Symmetrical Triangle, which is what this “continuation” pattern is supposed * to do.

* Trick word. There are no “supposed” tos in TA. Just probabilities and historical facts.

While on the subject of the Semis, I’ll note that former successful trade ALAB boomed itself right off my watch list (for buy back) with some AI hype and AEHR, which was strongly considering taking a spec on, boomed 20% on Friday on Q results and some analyst excitement.

The Energy sector (XLE) continues to hold the channel breakout we’ve noted previously. It put on a test and then bounced again. If TAs really want to nerd out, they may imagine a small Diamond (decision) consolidation pattern as XLE preps to fail, or all things being equal in my opinion, go higher. Our target is a new high above the April high and I hold CVX, XOM and in Gas, AR.

ZM was a previously successful bottom feed trade (lots of cash, relative value, executing operationally) that I sold on the big shot upward on August earnings. It was bought back on the sharp downward flag in September and I still like what I see. While the trend has not turned up, RSI and MACD each appear coiled for higher levels after having become overbought. This, as with most other items, is pending the broad bull of course.

On to some precious metals stocks, as you can see, AGI is stair-stepping much like HUI. Also like HUI, it looks almost too perfect as a buy signal, but buy it I did on Friday, adding a second position. It did not quite close the September gap up, but I chose not to let that bother me (yet).

NGD is very similar. As with AGI, some volume started to appear at week’s end. Not bad at all, on the face of it. Holding two positions.

SKE is another stair-stepper, with the only nag being that volume is low on the flag breaker move. It was bought in August at the bottom of the first stair-step flag and I’ve held it through two more flags. So I guess I am a holder.

KNTNF (KNT.TO) has broken upward from a bullish Ascending Triangle on volume. I originally added this on my own research after being satisfied that Papua New Guinea did not offer unacceptable political risk. Then I found out that Jordan (Daily Gold) likes it too, and that serves to firm the view of top-down macro Gary.

Let’s look at a couple commodity-related items now. ALTM was sold for an excellent profit that would have been an amazing one had I held beyond the rumor and through the actual fact of its takeout by Rio Tinto. That water under the bridge I replaced it with the more speculative LAC and its perceived bottoming/base pattern.

LAC will not be producing Lithium until 2027, but like other futures in the commodity space (e.g. TLO.TO, NXE, etc.), who can guess when they may rise preceding production (or buyout)? I’ll plan for some tax loss pressure, but hold a decent looking base and its proximity above the still downtrending SMA 50. RSI and MACD are sneaky good.

PALL was added on the decline to the 200 day moving average, per the rationale presented in an NFTRH+ update on October 2. It appears that a new leg up off the base could be happening. But bottom feeds are tricky and can really test your soul. Volume came in and that is good (and I am factoring the negative volume, as each of those down days had candles with long tails, indicating hammer-like qualities that included buying.

As a side note, much like my view of buying silver over silver miners (Abrasilver currently excepted) Palladium is doing this while PGM producer SBSW got some bad news and tanked last week (within what is still an ongoing downtrend). Who needs that risk when the product has no execution risk, and it is buyable?

Finally, profit was taken on u3o8 holder SRUUF, and it was replaced by Uranium prospect NXE, which will likely have a lot of interest as a buyout candidate one day. That is how highly people in the know think of its property. I waited a little too long to buy the ‘W’, but took a position so as not to be out the outside looking in. Time will tell if that was a good tack or not. The ‘W’ does have a measurement of around 8. So there’s that.

Portfolio

Gold is long-term risk management & monetary value/stability in a balanced portfolio.

Taxable Account

This account is lumbering along, adding a couple more holdings, thinking about the reduction in cash income per a Fed-dove cycle, and in light of what I consider to be a dangerous macro upcoming, even going back to my earliest financial market education, which for all his faults, included much value from having read Robert Prechter. In this case, his insistence on “Treasury only” money market funds for the deflationary crash that was never allowed (by constantly meddling policymakers) to play out. I am in the process of transferring funds from the “Premium” MM to a Treasury MM. Lot of words for discussion of cash. But as Boyd Fowler told Dexter as they headed out to clean up some road kill, “I’m a safety guy”. Seat belts buckled!

Another initiative about cash has been to transfer some of it to short-term Treasury bonds, which I’ve been doing on occasion. Trying to be measured and patient about everything.

Holdings below are intended to be extended holds for tax purposes, but will likely be sells when market risk hits. These positions in stocks I generally like could be long-term holds if market risk somehow remains “on” indefinitely.

Roth IRA (non-taxable, no contributions)

The chart continues to do its thing. I like that consistent thing. I am prepared for the broad rally to end in a big spike higher (likely breaking this chart up from its channel) or for a top to come out of left field. I am probably 60% in the upside bull market blow-off camp.

Cash and equivalents are 78%. Likely to be temporarily decreased if I sense an upside blow-off or increased dramatically if I get a high risk/topping signal. That could take the form of hard reversal candles after an upside blow off or at any time prior. It feels like this top is not going to be an extended multi-month/year rollover, like those preceding some bear markets. It feels like it could be more like silver’s shot to 50 in 2011, just before that clay pigeon got shot out of the air.

I try to hold a combination of quality gold stocks and some better specs. With the odd NEM and RGLD thrown in for good measure, in order to track the sector. If silver makes a hint to resume bulling, I’d like to increase the PSLV position. As for the rest of the holdings, it remains a mix of Semi, Tech and cyclical/commodity related.

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.