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Summary

US Stock Market: Trends solidly up, rolling over to fill the America Great Again (AGA) gaps. A test of the 50 day average (SPX) looks likely. A primary concern for stocks is the failure of the front end of SOX > NDX > SPX leadership chain. If Semi fails, it’s a negative economic cycle signal. Mitigating that, defensive Healthcare is nose-diving vs. SPX. It will take is for that pair to bottom and turn up to add more importance or a trigger of sorts, to the Semi signal.

US Market Sentiment: Dumb money is still over-bullish, but took a bit of a haircut at week’s end. Smart money is burrowing southward. On balance, sentiment is over-bullish and risk is high on the big picture.

Macro Market Indications: Yield curves steepening (negative), 2yr yield divergence to Fed proxy 3 mo. T-bill yield still exists, but 2yr recently rising to close some of the gap (big picture negative), VIX bounced Friday but very depressed (positive, but with complacency risk), Junk bond spreads very depressed (positive, but much complacency risk), Gold/Silver ratio (GSR) restrained during USD’s big rally. Decision between macro bullish (GSR and USD decline) or macro bearish (they rise together) upcoming. Risk is and has been high in indicator land (and internals land, when considering the Semi index weakness).

Global Markets: Not covered this week, but recent themes intact… the world is trending down vs. the USS Good Ship Lollipop and now especially because AGA (I know, my humor can be grating to some). Global markets are relatively more impaired by a strong USD than US stocks.

Precious Metals: Correction appears to be in late stages. See segment and last week’s technical updates on GDX and silver. This correction is what the doctor ordered to clean out an overdone play. What’s more, this far into a solid correction, the macro fundamentals are still intact, AGA or not.

Commodities: Waiting for signals coming from USD and the Gold/Silver ratio (GSR). See segment.

Currencies: USD decision point. Bull here or fail here? Drag the GSR along for the ride or go it alone? Don’t be caught guessing wrong. See below.

US Stock Market

The post election excitement is wearing off and the “America great again” (AGA) gaps look like they will fill. The market rolled over but this is no short setup, unless you are day trading (which I am not) and looking at 15 or 30 minute charts. I’d look for the SPX AGA gap to fill at 5783 and evaluate an upcoming test at the uptrending SMA 50.

If the correction gets more severe, a test of the rising SMA 200 (5411) and a fill of the associated gap at 5371 could be in order. This is coming after a negative divergence by RSI played out.

I would be more than willing to deal with a loss of the SMA 50 and perhaps even the beginning of the next bear market, but technically, there is no setup because the trends are so firmly up. I may try to short for a drop to fill the 5371 gap if SPX loses the SMA 50. But a real bear market short setup would not come until a bounce occurs after a major technical violation. As an example, if SPX declines below point C and then bounces to test the underside of the SMA 200. That’s a good example of a short setup.

But as of now, it’s a short-term pullback and “bull on”.

NDX is in a similar state to SPX, with the main difference being that it is closer to filling its AGA gap. Also, it is back below the July high, unlike SPX.

Of the three main indexes we focus on, it is the Semi index that is the worst, by far. Semiconductors are the front end of our SOX > NDX > SPX leadership chain and it is failing. That is a negative sign for the bull cycle, both for stocks and the economy.

This gappy mess is forming a Head & Shoulders pattern, targeting 2645 off the Head’s measurement to the neckline. Yes, theoretically. Here the caution (if you’re a bear) is that the pattern will not become active unless/until the neckline is taken out at 4230 or so. However, if SOX were to bounce to the 200 or 50 day moving averages I might be tempted to take a spec on shorting it. That is how suspect this chart looks.

Here is the updated view of the leadership chain, showing SOX/NDX breaking down, SOX/SPX on the verge of breaking down and NDX/SPX somewhat more neutral, but with a negative bias. Not a good look for the market.

As for certain segments within the market, the Cloud/SaaS area was favored short-term, simply for the pattern on the Cloud ETF. Reference the original NFTRH+ update on October 28. The target is in, and I sold it, along with ETF component, ZM, which I had held for months for fundamental reasons. ETFs and stocks like these played some good catch-up on the AGA gap ups. Now the dust is settling.

A far different sector, Energy, continues to look okay after its hold of the moving averages and upside channel break. The target is simply a “new high”. One day before long, I’d expect that fat gap to fill if/when the broader markets come under more serious pressure. I am still holding XLE.

US Stock Market Bottom Line

The Fed is cheapening our savings, but cash is still a good risk manager and risk is and has been aplenty in the US markets. What’s more, the market’s cyclical leadership is failing and the precious metals correction has been fairly harsh. Why mention that? Because the precious metals often lead the broads by sensing abundant liquidity (leading to the upside) or waning liquidity (leading to the downside).

Risk is and has been high.

Market Indications

Newer subscribers, note that I sometimes use imagery to make my points. In this case, the 2 Horsemen of the [macro-liquidity] Apocalypse, the US dollar and the Gold/Silver ratio when they ride impulsively upward together would indicate increasing liquidity issues for the markets. If USD were to breakout above 107 and the 2023 highs and the GSR also rises, we would have a negative liquidity situation, which the precious metals sector will have forecast by going into a hard correction. However…

If USD was simply putting the screws to dollar bears on the “America great again” bid and reverses here and silver resumes leadership over gold, the macro – including commodity/resources sectors – could party hearty into year-end. With cash still paying us to manage risk, why not wait for an answer to these very different scenarios before committing too heavily?

But, 2000-2002…

Yes, that’s right. There was a phase when stocks declined, the Gold/Silver ratio rose and so did gold stocks (HUI). That was the 2000-2002 period when a rising GSR went with rising gold stocks. It was also a time when the US dollar was in the process of forming a major top. So there is that difference to today. Even if USD declines in the near-term is not indicated to be a major top.

Another difference is that long-term Treasury yields were firmly in a downtrend, unlike today.

So there are different ingredients in the pot this time around, but the fact is that stocks declined and completed a bear market during the 2000-2002 phase while gold stocks bottomed and began a significant bull market at the same time. Today, the post-election disconnect by gold stocks (bearish in the aftermath of the election) to the broad stock market (SPX, bullish in the aftermath of the election) is not a bad thing for gold stock bulls, in my opinion.

US Market Sentiment

From a sentiment standpoint, the market remains at risk, despite the roll-over last week. Smart money indicators are burrowing southward and Dumb ones are still elevated. Bonds are contrary bullish and gold’s extreme risk profile is getting remedied nicely.

NAAIM (investment managers) were 91.6% bullish on Nov. 13. That’s over-bullish and that O/B was punished on Thursday and Friday.

Investors Intelligence (newsletters) had bounced from a neutral Bull/Bear ratio of 1.91 to a moderately over-bullish 2.91 on Nov. 12. Then, splat! Market rollover.

AAII (Ma & Pa) ramped up to a moderately over-bullish 1.76 Bull/Bear ratio from a previously neutral 1.2. From their front porch, ole’ Ma & Pa see sunny sky ahead, investment-wise, based on the election outcome.

This marries well with AAII’s view of bullish stocks, as first noted in NFTRH 834, pre-election. Ma & Pa are ultimately contrary indicators, and if you want to be big-picture bearish, this data is for you.

Precious Metals – Gold

Last week we updated Silver (NFTRH+, Nov. 13 & Nov. 15) and GDX (Nov. 14) and had a public article on a couple internal indications. Those updates and the article still apply at week’s end.

What we have not done is look at gold recently, as it has taken a much needed correction because… “America great again”, err, AGA (get used to this, it’s becoming a thing now; a new catch phrase to make a point). In a great America gold will not be needed because it is for those feeling defensive, feeling like they want to preserve their wealth rather than compound it. Everybody seems to KNOW that Trump is good for the stock market and the economy. Everybody = the herd.

Actually, I think that a potentially great contrarian situation is developing, where a majority of investors come to believe that AGA is a thing (economy and investment-wise, at least), with the assumption that a “businessman” president cutting taxes and deregulating will keep stocks going up, as is their perceived right. No need for the monetary insurance of gold.

Well, bullshit. Regardless of the new stimulative shenanigans to come, replacing the old shenanigans of the previous administration, a bear market will not be denied, if it is brewing as our indications point to. To me, gold is as important as ever now.

Getting to the technicals of it, the daily chart shows a good pullback from the high of 2801. Our upside target is 3000+, but gold was not likely to get there without a clean-up of its very high risk profile (ref. several NFTRH reports leading up to the election). Now the question is, mini pullback (as it is now) or something major, like a hit of clear support coinciding with the rising SMA 200?

The daily chart shows a Fib retrace of 50% of the rally from the June 26 low. That Fib coincides with a minor support shelf. Given the fairly (but not extremely) oversold daily RSI, this level is (2550 +/-) has the potential to end the correction. But if things go sideways upon the macro – like a liquidity crisis sooner rather than later – gold could smash down to the firmly rising 200 day average (2408 and rising), which meets that clear and significant support shelf noted above.

I am leaning toward the correction ending at current levels or perhaps a stab to the 62% Fib around 2490 (+/-). If USD tops and broad markets are simply addressing the AGA gaps, this would be likely. But the bear has a funny way of manifesting in an unruly manner that trend analysis does not pick up on until later. So with respect to the support at the SMA 200 around 2400, forewarned is forearmed and all.

From Sentimentrader.com comes some historical context on the gold correction of 7% from its highs. One possible interpretation here (with all due notice that historical analogs and ‘quants’ have a way of not working “this” time, as expected) is that gold will rally again, and rally hard. The target is 3000+. Then, in a matter of a few months, a deeper correction takes hold in conjunction with the end of the bull market in stocks. That last part is my add-on to the historical analysis. Let’s be open minded and flexible, but let’s also have plans and respect potentials.

Meanwhile, despite the recent decline the macro fundamentals for gold – and in a leveraged fashion, gold miners – continue to be intact. Gold/Copper, Gold/Oil, Gold/Commodities are all trending up. Same with gold vs. global stock markets. The SPX breakdown? Well, that’s the Good Ship Lollipop, sailing along with its internal rotations, and big name components. It is in my opinion a pretty superficial read on the situation, because gold is intact vs., or out-performing most other aspects of the market. The headliner, SPX, thinks America is great again. Give it time.

Precious Metals Bottom Line

The macro situation is as it was when the correction began; intact and in progress. This is quite positive because now the excesses are getting bled out of the precious metals and yet the macro is still constructive. That spells ‘buy opportunity’ upcoming, if it has not already arrived (I began nibbling positions last week).

Commodities

Let’s review the big picture of the industrial metals and their headliner, copper. These cyclical metals have been in correction mode of late, but the big picture is shows copper and the IM index well above important long-term support. These metals are probably just waiting for an answer to the USD question (topping or going to ram upward in a liquidity event?). If we are going to note that USD is in a bull market from 2008, we can also note that so is copper. There were some tough years from 2014 to 2020, but this is a long-term picture that is intact. That story doesn’t change unless the noted support areas are violated.

Now, how do we rationalize a stock market bear with a still-bullish copper price? Well, though it may not be a high probability, we do have a potential global market view in play that sees China/Asia rising, potentially nominally, and likely in relation to US stocks. But the September spike in Chinese stocks vs. US is coming back to earth because, well, America is great again. But it’s something to keep an eye on. If China goes up, copper will likely go up too.

If the macro resolves Stagflationary as opposed to deflationary, the scenario above could play out as capital shifts from US markets, which may take a grinding bear as in the 1970s, as opposed to the “liquidity crash” bears of the 2000-2020 era. It is highly speculative at this point, but worth thinking about.

Moving on, let’s review the multi-panel daily charts we have not checked out in a long time. The Commodity index (GNX) is trending gently downward below both the SMA 50 and the SMA 200.

Copper needs to stabilize soon to retain a semblance of constructiveness. It is below both the SMA 50 (shown) and the SMA 200 (not shown, at 4.29).

Oil is simply trending down, in lockdown below the SMA 50. The 200 day average, which it failed to exceed on the October bounce, is way up there at 76.75.

Gas is interesting, however, climbing its SMA 50 and well above its SMA 200 (2.28). See more below.

The Ag index looks constructive above its SMA 50, although it is locked just below the SMA 200 (370.01). A break through the SMA 200 could be a good signal for the Ags. I am holding Soybeans and Corn and have been tempted to sell these non-performers. But patience has won out so far.

As for Gas and its constructive state, the play I like best is AR. A fill of the upper gap and test of the moving averages just might be a buy opportunity. Regardless, as noted above I hold XLE for the Energy sector.

Uranium stocks generally appear okay as they try to swing from correction back into uptrends. That’s still in progress, but I am considering adding another NXE position and I like the looks of DNN.

A final note on commodities; the bull or bear case will be largely informed by what happens with the Gold/Silver ratio, reviewed earlier in the report. If gold out-performs silver, the pressure would likely remain on the commodity complex, especially if both precious metals decline. If silver out-performs gold, the opposite, especially if both precious metals rise.

Portfolio

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

Note

Generally regarding holdings, I have taken enough profits (on balance) to continue riding the rough going for a while. I do not believe a bear market is starting right now. So I am looking for buying opportunities. But especially pertaining to the broader (non-precious metal) world, I’ll be aware of the high risk profile and ready to alter course as needed. This is not a casino or a video game. It is real and it is challenging.

Taxable Account

In order of position size. Cash is very high. Extremely high.

For newer subscribers, this account is shown simply as an alternate view to the more important IRA holdings below. This account is taxable “savings” and a little investment and speculation. But in a nosebleed-risk environment like that currently in stocks, I will not go far afield here, getting speculative. Heck, I have a small trading account I have not even used in months. But please do not use my very conservative mode as a guide, because your situation is different than mine. I am not trying to make “coin”. Not in the least. These portfolios are only shown for reference.

Speaking of the trading account, I may use that to go Kamikaze on the markets at some point. What I mean by that is to go all in on a high conviction macro point of view, possibly using leverage. A stock market crash would be one example. But if we go 1970s Stagflationary, that could be frustrating. We’ll see. Meanwhile, it is also the only account I can outright short individual stocks with. That is more likely.

Roth IRA (non-taxable, no contributions)

The best laid plan may or may not work out here. That plan was not to revisit the bottom of the uptrend channel. IRA lost a short-term support level and the channel bottom is in view. Not a big deal, but not what I’d planned. The culprit was my failure to hold on to the DUST gold miner hedge long enough. But that’s show biz, and the correction appears in its late stages.

Cash is 83%. Nice and comfy. But I expect that to be reduced if/as the gold stock correction ends. Also, if the broad market pullback ends up just being a closure of the AGA gaps and test of the 50 day average (SPX).

I’ll keep an eye on the Semi > Tech > Broad (SPX) leadership chain and the indicators, like junk bond spreads (still sound asleep and complacent), VIX (bounced, but very depressed on AGA), yield curves (steepening) and especially the Gold/Silver ratio for guidance on when and more importantly HOW, to deploy (long and/or short) going forward.

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 on X @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.