Summary (per last week unless otherwise noted)
US Stock Market: Late stage bull market, as has been our projection all year. Very high risk per multitude of indicators and…
US Market Sentiment: Risk is and has been very high from a sentiment standpoint. Gold is right there in the same “price” risk category from this vantage point as well.
Global Stock Markets: Still bullish on balance, but under pressure lately from the USD spike. Still trending down relative to the US on balance (ACWX/SPY ratio).
Precious Metals: Next objective for HUI is 375+, upside “blow-off” potential to 500. Gold targets 3000+ and silver 35 to 41. NEW: Short-term pullback not yet technically over.
Commodities: A continued mixed bag of leaders, laggards, bottoming “catch-up” plays and non-starters. A weakening USD would help here, as would a rise in silver vs. gold, which made a big move on Friday.
Currencies: All eyes on USD, which has spiked upward to the best target at the SMA 200. What it does here is pivotal for many/most markets. Daily trends biased down, long-term bull market from 2008 intact. NEW: The weak Gold/Silver ratio is a negative divergence to USD as a liquidity destroyer. If it joins USD, trouble is indicated. If GSR remains weak and USD fails, it could be party time.
Indicators: Everywhere you look, there is risk. Risk in ticking time bomb indicators like the 2yr/T-bill divergence to steepening yield curves, to the sleepy real-time Junk bond spread indicator, to the still depressed but diverging VIX. Risk, baby. The bull market is towing that word around with it every step of the way. With our “to or through the election” time target a clear and present objective, risk awareness is highly recommended.
Lamely in Place
In taking a non-leveraged short against the S&P 500 last week I was fully aware of the measured price target of 6180. That is about 6.5% higher than the current level and it is what I would hope to be a “starter” short position (a starter position is also held against the Nasdaq 100) with more short positioning to follow from higher or, if in the less likely event the top has been hit, lower levels. Right now, the shorts are moderate trackers nesting in the taxable portfolio along with several long positions.
Looking at this daily chart of SPX, after a coming top, I am envisioning anything from…
- A routine decline that tests the uptrending 200 day average (orange) and fills the upper gap (5371), which would be a healthy correction within the major uptrend, if that is all that happens.
- A hard-down that breaks down, fills the 5073 gap and starts making people call “bull over!” (about which they may well be right given the macro funda, but which would not yet be the case on the market’s most major trends).
- A harder down to the cluster of gaps that launched the Q4, 2023 recovery rally. That too, could obviously come within a new bear market, but…
- The biggest picture of the bull’s trend says a real “money maker” (from the short side) of a larger bear market – a confirmed broken secular bull – will not be confirmed until a break of the 2022 correction’s low. Pardon the mess of mark-ups, and please take note of the 2022 low (3491). Unfortunately, shorting at that point would forfeit the decline to that point. So personally, I am going to poke short on the macro indications and shorter-term technicals. But first, the bull has to finish up its business.
When disseminating information about yield curves and market history, mainstream media report to the public that it would be highly unlikely for a new bear market to begin within 2 years of the last bear market (with, says the media, 2022 having been the last bear market). 2022 was a correction to the secular bull that did not come near, let alone violate its higher highs/lows trend.
For a slate of wrong-headed assertions in support of the media’s bullish views, combine these elements that are being fed right now to the public at large:
- The Yield Curve is no longer inverted. Happy days, recession averted!
- History shows you don’t get a bear market so soon after the previous bear market. Fear not!
- And of course that old chestnut, the Fed is cutting rates… don’t fight the Fed!
Sad. Regarding the points above:
- Economic busts happen on the curve steepener, not the flattening to inversion. The 10yr-2yr is un-inverted and steepening and the 10yr-3mo is following it upward.
- As we’ve discussed, the stock market’s major trends remained intact and the secular bull move from 2009 is fully intact, including the extended correction in 2022.
- It was bad to fight the Fed in Q1, 2020 when it reached into its closet of inflationary tricks and fire-hosed inflationary monetary policy upon the macro. We claimed it was bullish then and it was. But fighting the Fed on a rate cut regime? Different story as our well worn chart points out.
The last two real bear markets (2000 and 2007) saw the markets climbing all the way up walls of worry as the Fed raised rates (erecting those walls, you could say). It was good to fight the Fed much of the way up the rate hike cycle over the last two years. But as the divergence of the 2yr to the Fed proxy T-bill starts to form, risk rises. As it endures, risk rises further. That is the tale of 2000 and 2007. The Fed is projected to continue cutting rates and that is for reasons of a degrading economy (with recently muting inflation a rationale).
The 2024 theme has been “to or through the election” for the broad bull, and that setup is still in play. If the current big picture plan holds true and the big 2022 spike upward in Treasury yields really does mean a secular change upon the macro, the Fed’s bailout efforts could be halting, at best.
The extremes to which the stock market is rising under adverse macro signaling and structure of the Treasury bond market (now less helpful as a tool for the Fed in its macro manipulations) means this could be one hell of a tradable bear market. You know, a free(r) market goes both ways.
I have been bullish in 2024 because I’ve had to be bullish, in spite of the risk indicators. That is because more real-time risk indicators like High Yield spreads and the VIX have hung on all these high risk months, flashing no immediate problems. Think of the risk indicators like the 2yr/T-bill divergence above and steepening yield curves as the financial war, and items like the VIX and HY spreads, below, more as the trigger to the first live bullet fired in that war.
VIX continues to negatively diverge the stock market as it rises while the SPX also rises. At some point during this signal, if history’s odds play out, there will either be a sharp pullback in stocks or the end of the bull market.
Dialing in the VIX detail, the flag – first noted in this Oct. 14th update – may finally be breaking upward. If so folks, it’s a real-time warning here and now.
High Yield spreads (danger when rising, comfortable complacency when burrowing southward, like now) were still asleep at market close on October 24 (Thursday).
Risk, baby. It’s high.
Precious Metals
This public post reviewed the big picture that we have been operating to for many months now. It also showed the intact rallies in the gold miners (HUI) vs. their product (gold), AKA the HUI/Gold ratio, and their ratio to the Goliath (to the miners’ David), the headline US stock index, SPX.
As we know, the true macro-fundamentals are well in progress. Let’s not clutter up the segment with that. Gold is trending up in relation to the cyclical beneficiaries of Central Banks’ policies of inflationary bailouts at every negative market turn. If we are correct that the decades-long supportive trend (to those policies) in Treasury bond markets is over, then we can extrapolate gold continuing to out-perform stocks, cyclical commodities, etc.
Insofar as there is geopolitical noise in the market (and there is), short-term volatility for gold and PM complex is always on the table. War is never a real fundamental consideration for a positive long-term view on gold.
Let’s check out a couple internal considerations before charting HUI. Analysts will rightly advise that risk elevates when the BPGDM rises to extremes. And they are right. But much like with the broad market, risk will only be realized when it is realized. As it stands, this is just a measure of how under accumulation the gold stock sector has been. Key to that is the bull trend that the extreme readings are registering within. Spikes in bear trends are much more reliable as contrary negative indicators.
The gold CoT data continue to show a stretched, high risk sentiment situation. Well, of course it is stretched! We’re 12% away from the major target of 3000+, which we’ve had on plan since 2020. While not quite yet to the extremes that preceded price tops in 2016 and 2020, the CoT alignment is within hailing distance. This will be a cautionary factor if/as gold continues toward target.
Silver’s CoT is not quite as extreme as the 2016 case, when the Silver Bullet led the whole brief cacophony upward into the eventual top in 2016. But there is an option in play that sees the precious metals on a final drive higher (likely in tandem with the broad market’s coming top), sentiment extremes are recorded (CoT is mainly a sentiment gauge), HUI 375+ (w/ a hysterical outside shot at 500), Gold 3000+ and Silver 35-38 (41 possible).
But let’s be honest. By participating in the precious metals price rally we are accepting rising risk. It’s the way bullish markets work. I am hoping by establishing price objectives and keeping sentiment gauges (like the CoT and indirectly, the BPGDM, which is really a measure of overbought/oversold) in view we will hone a time window to sell (not gold, personally, but the speculations associated with gold).
On the big picture, I view the gold and the precious metals complex as ascendant macro-fundamentally, and the stock market as vulnerable, relatively. An understatement, actually. Once again, the simple pictorial snapshot of that concept.
HUI (daily) shows why I covered half, but not all of my short/hedge (DUST). Huey has pulled back sharply to a valid short-term support level at the (green dotted) EMA 20. Why did I hold the other half? Because it is the gold stock sector and it always seems to go lower than a nice comfy little support area, even in its bull markets. The chart continues to show pullback potential per the levels noted in Thursday’s NFTRH+ update. If registered, those would equate to HUI’s SMA 50 (321) and the area where lateral support meets the uptrend channel bottom in the 307 to 310 area.
Meanwhile, as Old Turkey said, “it’s a bull market, you know”, as the weekly chart shows the break of the 4+ year corrective channel and new bull market leg in progress on the weekly chart.
Which calls our attention to the bullish monthly view. Next objective is to break the 2020 high and go 375+, whatever that “+” will be. Next big picture objective beyond that is 500. But first things first. Huey is in an ongoing daily chart pullback situation.
Gold Stock Charts
We look at a few stocks I hold, none of which have been sold and some of which have been increased. Let’s use daily and weekly charts, as suits the individual view of each item.
Gold miner AEM’s monthly chart was shown last week, illustrating the stock at all-time highs, uptrending in proportion with previous major highs and in my opinion, vulnerable to a sharp pullback when the next significant (unlike the routine pullbacks so far in 2024) correction hits. The daily chart shows a hinted pullback from overbought with the SMA 50 (81.67) rising toward a short-term support shelf.
Royalty/Streamer WPM’s weekly chart pattern continues to target 74.
Royalty/Streamer RGLD asks me to apologize to you. Last week I incorrectly noted 186 as the pattern measurement (monthly chart), but the weekly chart theoretically measures to 198.
Royalty/Streamer FNV was added as a laggard “me too!” play and it has recently begun to get on that script, breaking above what had been daily chart resistance. Next objective is resistance at 140.
Gold and copper miner NGD is breaking down from what I had thought could be the next leg up. Whatever drove it upward so hard may still be getting addressed. I may take the profit in the non-taxable IRA position, while holding onto the position in the other account. I’ll have to evaluate the market this week.
AGI is doing something similar. As with NGD, I have two positions in this one as well. One might be sold. I just don’t love the patterns they are sporting. Like AEM, AGI is another stock at its all-time highs. Quality miner, but at some point some profit needs to be taken.
NEM served me up a big fat loss (in-week) but remains a profitable position on a large gold miner that got slammed to support per this weekly chart. The company is doing fine, but the progress is halting and according to some research I did, the market is simply adjusting its expectations.
BTG was added for its “value” per analysis noted previously, and for its possession of the former Sabina Gold & Silver’s assets. It got dinged last week, but remains safely above the base breakout point. Holding.
KNTNF (KNT.TO) weekly chart advises two measurements, based on this breakout. A reasonable one and a more speculative one. Still holding this Papua New Guinea operation, which is still in growth mode.
Silver miner HL is playing the dual measurement game as well, on the weekly chart. A second position was added on the pullback last week.
Finally, silver miner ABBRF (ABRA.V) makes it three items asking us to consider the routine and the more speculative. If/when silver gets a next leg up a stock like this could really motor (as in, through the upper target).
Commodities (daily charts)
From Thursday’s trade log:
COPX was added for this daily chart bull flag, declining toward the converged moving averages on moderately declining volume. I could have waited for the gap to fill at the SMA 50 (blue), but I have been miserly in the past and missed opportunities.
ERO was the item of the miners I watch that appeared to be giving the best technical setup. But that means holding a higher low to the September low (18.19) or preferably, the 200 day average that it is struggling with now.
My main reason for interest in the miners is the copper price itself, shown here looking potentially bullish on a daily chart after an extended pullback. The moving average convergence will be key in keeping it bullish. I have an eye on copper price tracker CPER for potential addition or, if the sector fails, the items above will be let go.
The complex (using the ETF) is still a mixed bag. Daily DBC is biased to a gentle downtrend under the pressure of crude oil while other commodity areas flash bullish, bearish and everything in between.
Apparently Russia’s new PGM policy is having a material affect on current holding, PALL. I am trying to be a little patient in continuing to hold what is already a nice percentage gain. Ever weary of hype, however, I’ll keep an open mind, both ways.
Indeed, what’s good for the goose (Pd) could well be good for the gander (Pt) as the Platinum fund has already been biased to trending up, unlike PALL, which was trending down prior to our NFTRH+ update on Pd on October 2nd.
In the Uranium sector, the commodity and the stocks got hit last week, correcting recent upside. URNM has a gap just below the 200 day moving average that could fill. We’d like to see the 47-48 zone hold for URNM to remain bullish. I am just holding a moderate position in NXE for now.
My Soybeans position is going nowhere since it and CORN were highlighted in updates.
The chart for CORN is not much better. Still holding both, however, for the original reasons of seasonality, sentiment and previous price destruction. My patience won’t be limitless.
Commodities in general are doing what they often do; playing Whack-a-Mole, one pops up, gets its head smashed, and another pops up.
US Dollar Index
USD has spiked to put implied danger front and center in the markets, as it (and an also bullish Gold/Silver ratio) would mean liquidity issues for asset markets. As long as the GSR is weak, the danger is “implied”, not activated.
As you can see, the GSR is not playing ball with Uncle Buck. Not yet, anyway.
The situation remains the same. We are on a macro pivot point where the whole mess (or majority of it) is either going to crack and fail or gold is going to continue under-performing silver and USD’s spike/short-covering rally will fail and the macro parties on…
Portfolio
Gold is long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
In order of position size.
This account is extremely high on cash and safer equivalents, and has begun a campaign to be short the US indexes, with timing still up for debate and higher prices favored. Gold miner hedge DUST working well. Half position sold. If there is one last hurrah in the markets I want to be ready for it and speculate bullish for a bit. If it goes the other way, I want to be ready for that too. Letting the market deliver its signals (per report above and those leading up to this point) before leaning one way or the other.
Roth IRA (non-taxable, no contributions)
As you can see, the trend is still my friend and so I continue on as I’ve been, interpreting market signals and not overreacting, yet, anyway.
Cash is 75%, which is about my tolerance for risk right now. Let’s also keep in mind that despite the Fed’s campaign to cheapen it again, cash is still paying out a decent % of income on a monthly basis. Some of that cash is in risk mitigation instrument, DUST, however. As noted above, cash will be increased or decreased depending on the market’s next signal (risk ‘on’ and speculative or risk ‘off’ and defensive). I’ll watch the indicators noted in the report and those reports leading up to today by which to steer my ship.
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.
