Summary
US Stock Market: Rotations in play, with growth stocks doing well as Semi stocks get cycled out. It gives the appearance of a late stage cycle with Goldilocks flavor (strong USD). Operating time target for the bull is through year-end, into the inauguration. At that time…
US Market Sentiment: …it is possible that a contrarian bear play could erupt just as America as celebrated by half of its population is getting great again. Sentiment risk is and has been structurally high, aside from that factor. Note that the year-end/inauguration play is just one of several outcomes. It just seems like a classic contrarian thing. Sentiment could also drag on over-bullish well into 2025.
Macro Market Indications: The 10-2yr yield curve is wobbling in its steepener. That could indicate a little breathing room for the bulls, assuming the constructive Gold/Silver ratio does not start to spike and get impulsive along with USD. Junk bond spreads and the VIX are asleep, which means “bullish and high risk”.
Global Markets: Under-performing the US on balance, due to the strong USD, which has an effect of sucking capital into US markets. Emerging markets and especially Asia/China would be areas of interest if the USD weakens and capital shifts, globally, in 2025.
Precious Metals (last week): 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. This week: The correction may well have ended. But that is not yet conclusive as a ‘C’ leg down is a possibility, even though it may not be a probability. Bigger picture quite bullish.
Commodities (per last week): Waiting for signals coming from USD and the Gold/Silver ratio (GSR).
Currencies (last week): 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. This week: USD has ticked a breakout above previous highs and is bullish. Thus far it is sucking capital into US markets and certain non-inflation sensitive internal areas are benefiting. Now we watch it and the GSR to see if they remain contained (which could keep the bull going in certain areas) or impulsive (which could halt the party in its tracks). I’d still advise “don’t be caught guessing”.
Admin Note
For the time being, I will not be reproducing NFTRH reports as PDF files and sending to the PDF archive as usual. This is because I received a notice of a vulnerability with the “Print” plugin used for that function. So I deleted the plugin and will take no chances, until/unless a suitable substitute is found. It’s too bad. I really liked that little bugger.
So from now on the “Online Archive” will go it alone without the PDF archive, presenting reports as originally published at the site.
Content Note & Brief Macro
This week we leave the macro work mostly aside as we have reliably done this work all year in order to arrive at this “to or through the election” juncture in good stead. Let’s keep the macro in mind while also tipping our cap (not made of tin foil) to Wayne and Garth, who want nothing more than to party on…
VIX is burrowed into the ground right along with High Yield spreads. Both indicate all is calm (and at ongoing risk, by definition of rampant complacency). America is great again, you know. We have the makings of a potential market blow-off scenario, right into or through the holidays. But as a side note, the traditional market seasonal is positive into the spring, for whatever that is worth. Also of note, seasonals can fail to guide well in any given year.
Also of note, the 10-2 yield curve steepener is under pressure again, and that is beneficial to the party atmosphere in the short-term. Okay, enough macro stuff. The theme is bullish. Risk is high.
Market Talk
I see the big upside explosions in the Cloud software (and related) sector as a latter stage market rotation. The Semiconductor sector has pretty much given up leadership and that is a negative cycle signal for stocks and the economy. So I am trying to stay aware of a few things…
- As these software stocks blast off to the upside, I sure am no genius. I am a guy who saw some chart patterns (aside from ZM, which was originally a pure downtrending bottom feed), felt the market’s internal rotations (away from Semi, for one thing) and deployed (ZM, CLOU, NET, SNOW, DDOG and most recently, ZS).
- Software is generally an area considered somewhat less cyclical than the likes of, well, cyclicals (Industrials, Materials, Financials, etc.). It does relatively better as economies cool and inflation eases.
- I had long felt that the market would rotate in some former outcast “catch-up” plays before topping out. With Bitcoin zooming and other speculations perking up, the indication is late stage FOMO, an unhealthy form of MOMO within the broader market.
- We had also been open to rotations into the commodity/resources space, but with the strong USD, even as some areas have rallied a bit, the rotation has favored the likes of software and other non-inflation trades. It remains to be seen whether commodities can tag along before the bull ends.
- As a side note to the above, certain commodities, like Uranium, Rare Earths and Lithium, are structurally bullish (Uranium) or will be in future demand (REE & Li), aside from the inflation trades.
- The broader market rotations could be a sign that ending stages are setting up. Bull markets often end in vertical upside mega spikes (ref. silver, 2011).
- But I want to provide these general warnings without scaring traders, speculators and even investors out of their respective positioning. In short, it’s bullish out there! Bullish and risk are traveling the same northerly road.
- Gold stocks got ripped when America got great again, but then eased back in alignment, generally, with other sectors that have been bulling of late. Partial (approx. 60% +) hedges for the miners were installed on Friday afternoon, per an NFTRH+ update and the trade log.
- A partial hedge means that I’ve installed a shock absorber if the gold stock sector gets bonked this week and also installed under-performance if it bulls (SMA 50 is still above, and it sure is no given that the miners will not bull through that marker and reassert the uptrend sooner rather than later.
- So the hedging may be very temporary.
SPX is a beneficiary of the market’s internal rotation in that it is multi-sector, including cyclicals and including software (and many others). We have an uptrending market, a measured target of 6180 and oh yes, a negative RSI divergence as well.
I wonder about one scenario, among others. Given the proximity to target we could be talking only a month or so (+/-) before the target is reached. Might it not be a pretty good contrarian setup that just as the pro-business, pro-tax cut, pro-deregulation president is sworn in, Great America takes a market and economic downturn? Again, one scenario among several, but the timing and the target seem aligned.
Broader Market Stock Charts (Daily)
So in this most merry and speculative of times, let’s have some seasonal fun and continue working with some individual stocks. Seriously, while remaining patient for the bigger picture macro situation to unfold, I am having fun. Stock charting and swing trading (not day trading, if I can help it) were my original joys in the markets before I fell down the rabbit hole and observed all of its macro machinations.
DDOG has already jumped off the constructive technical situation noted previously. CLOU is booming past the measured target (targets are not stop signs, after all) from the original NFTRH+ update. ZM jumped, was sold, bought back on a flag and sold again on another spike. Now it may be going again and I resisted chasing it with earnings on tap. SNOW has exploded out of its downtrending base on earnings, and so that one’s not to be chased (though I am still holding it).
So out of my holdings (not recos folks, I am illustrating a sector and how I am playing that sector) ZS and NET are what’s left after the Doggie finally popped to overbought last week.
ZS made a volatile pattern as the market did not know what to make of its solid growth and rich valuation. Well, of late the market is deciding that it no longer cares about valuations. That’s a sign that speculation in the markets is being led once again by growth stocks. ZS is set up much like the Cloud ETF was when we first ID’d its pattern and setup. The upside potential is similar and there’s even a similar gap up there to boot.
NET is probably a little far gone for new buying, but by way of example, it provided an opportunity on the flag back down to test the moving averages. It is another stock that has only recently gotten going.
Switching gears, I’d like to illustrate why BABA was added, technically. There is merciless punishment going on here in the fallout from the hype of the latest “China stimulus” pump. I think it can settle a bit more, but that’s a big time running of the MOMOs and fundamentally, BABA is a value (with associated risks as well). I expect it to stabilize somewhere within the support of the former base in the 77 to 81 zone.
Lithium play LAC was traded very profitably, added back too soon, loss limited and now is on watch as it tries to creep the SMA 200.
When watching LAC, I am also watching the Lithium sector (ALB, SQM, SLI, etc.) for supportive or non-supportive signs. Interest was taken after former holding and watch list item ALTM was acquired by Rio Tinto.
Here is Albie, attempting to hold a break above the SMA 200, which could set it on a future trend change to up. Interesting.
The Uranium sector (URNM) really needs to hold the orange SMA 200 to remain constructive. Current holding NXE is busting bullish and leading the sector. DNN and CCJ are flavors of bullish as well. These are leaders and we will see if they can lead URNM up and out of this volatile sideways situation.
Finally, the Semi sector has been beaten up pretty good and last week’s release by Nvidia failed to excite the market. So all due caveats on Semi stocks. But I do keep AMD on watch if for no other reason than I want to see what it does here at the lower bound of a Symmetrical Triangle. I am not considering buying it, but I would consider it under different circumstances if it holds the lower triangle line and should the market’s internals adjust back toward Semis, even temporarily.
Gold Stock Charts (Daily)
The status of the ETF was reviewed in Friday afternoon’s update. Let’s look at some of the items I prefer and hold. AEM is a quality miner that is representative of other large, quality miners and royalties I hold (e.g. KGC, RGLD, WPM) in that, unlike GDX, it currently resides above the 50 day average. I have held AEM for a long time and plan to continue doing so, which is why I use hedging as a tool. Sometimes it works well, sometimes it is frustrating, but it goes with the plan to hold rather than trade several core gold stock items.
BTG broke back above the wedge on Friday. Note that I pasted a mini-version of the weekly chart into the lower panels of this chart so you can have perspective on the wedge and the move back above formerly failed support. It made a higher low to previous lows and did all it needed to do for its correction.
There is and has been unfriendly noise coming out of Mali, but also word that BTG has its ducks in a row with that increasingly antagonistic government. But you know me and political risk. It’s like oil and water. I shoot first and ask questions later and will not willingly let any government over-interfere in my investments. But that aside, BTG is a value and it owns Sabina Gold & Silver, up in the great white north. So I am still holding a position that was increased on the mini-crash.
As with broader stocks above, I don’t want to show stocks that have already exploded higher or were bought at much lower levels. AEM above is an exception for purposes of making a point. I am trying to show stocks that are still viable for would-be buyers. Unfortunately, in many case in the mining world, they are viable (i.e. low priced) for reasons.
Silver miner ABBRF (ABRA.V) zoomed to just below the initial target, got hammered below the breakout point and SMA 50 and is still in its relatively young uptrend. There is a gap down at the SMA 200, so perhaps if there is a level of sector volatility in the near-term, a buy in the 1.60 to 1.70 ranger could work. The lower end of that range would fill two open gaps.
Fellow silver stock HL got hammered through support, now resistance and is grinding the uptrending SMA 200. It is possible that could be a bear flag forming to prep for final washout. But as long as the 4.50 area holds the stock would remain painfully intact. If it starts to lose the SMA 200 I may release at least one position, for the tax loss.
Still on the silver miner theme (and no, I am no silver stock bull, preferring gold stocks handily over this bunch) SVM was added on its financing tank job (so typical of the mining sector) and Fred Lacy’s view that the reaction is overdone. My view is that the thing tanked heavily, filled some gaps and resides above important “breakdown” support. That must remain the case or… “see ya”.
OGNRF (OGN.V, hat tip RK) is +117% since being added. AE.V (hat tip, geologist MC) is +80%. SKE is +63%. I am not adding to them, so there is no reason to chart them here unless a future “come to Jesus” moment happens in the sector, providing a table pounding buying opportunity on quality and prospective items. As a natural bottom feeder, I try not to chase stocks that have already provided significant gains to others, because I don’t want to hold their bags. I want to wait for a day when it’s bag fillin’ time and step up then (extreme case: Q4, 2008, somewhat lesser case: Q1, 2020).
US Stock Market Sentiment
As noted above, the VIX is depressed and indicative of complacency among casino patrons. That is bullish in the micro view, but the bad news for Wayne and Garth is that the VIX divergence to SPX is still in play. Hey, I don’t invent them, I just find them and interpret them. If this divergence does one day prove to have been a good signal, its timing could well coincide with the year-end presidential transition just as America starts getting great again. Whether it will play out or not, this picture should at least be respected as long as it is in play (IMO).
Needless to say, casino patrons are right back to over-bullish again, and that includes the gold price. It could remain this way through the holidays and into inauguration, especially if it continues to correlate with the risk-on stuff. That could mean ill fate for my gold stock hedges as we have observed all year how long over-bullish readings can persist. Again, the hedge could be very temporary.
US Dollar & Gold/Silver Ratio
It’s a party atmosphere and yet Uncle Buck has dinged his new high on the weekly chart. We have noted all this time that it is an ongoing bull market since 2008, but were also open to an interim breakdown within that bull market. This appears to be USD anticipating a disappointment among those thinking the Fed will continue to flip aggressively dovish.
Here let’s remember that a big part of the plan for 2024 factored the presidential admin in power, its debt spending, its Treasury secretary who is a former Fed chief (and has the presumed ear of recent dove Jay Powell), and all that government hiring. Let’s think about what USD could be reacting to. The removal of someone with Powell’s ear? Indeed, the return of a president that antagonized him repeatedly in the 2017-2020 cycle?
The USD could be looking ahead to one of two things:
- The Fed halting its dove cycle because America is gonna be great again with tarrifs, tax cuts and other economic actions that could drive inflation and stimulate the economy. Or…
- The timing zone we’ve discussed above, where a contrarian event tanks the markets at about the time America is supposed to actively start getting great again, Q1, 2025.
If it is point number 2 that is in play and USD is looking ahead to liquidity suckage amid failing asset markets, the Gold/Silver ratio (GSR) would be expected to ride along. Here is the daily chart showing bullish USD and a conspicuously intact GSR.
Meanwhile, it appears that the speculative world is using Yen (instead of USD) as the anti-market at this time. Borrowing this cheap currency to trade other currencies and asset areas. But if the two items shown directly above rally impulsively together, in the words of the guy in the Seinfeld “Bad Chicken” episode… “that’s not gonna be good for [much of] anybody.”
The 2 Horsemen of the [macro liquidity] Apocalypse would not spare many.
Portfolio
Gold is long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
In order of position size. Cash is very high. Gold stocks are partially hedged and I will take additional positions if it looks like “party on” into year-end, or additional cash if not. A small trading account lays in wait for shorting opportunities, possibly in the new year. But if the Fed does re-hawk in its policy I will gladly accept income from cash in this account.
Roth IRA (non-taxable, no contributions)
The IRA’s chart re-took its lost short-term lateral support level. Not bad, but it could be a ‘B’ up of an A-B-C correction. That potential is what the partial gold stock hedge is trying to address.
Cash is 75%, but that includes a partial hedge on the miners. I like the mix of holdings on balance, although there are a couple dogs in there (and I don’t mean DDOG) that I am having patience with. Steady as she goes for now, as I try to get a read on the next month, which I suspect could be pretty bullish and which I know sports a high risk profile.
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.
