Summary
US Stock Market: SPX target is 6180. No change. Speculative forces could easily cut through that. Risk is nose-bleed high and our current operating time target is late January, around the inauguration. But only the intensity of the mania will decide whether the actual timing is shorter or longer.
US Market Sentiment: Structurally over-bullish, as it has been all year. May finally line up with a contrarian bear opportunity in January, or Q1 – H1, 2025.
Global Stock Market: Under-performing US on balance, would benefit relatively if USD weakens and declines, or remain in under-performance mode if USD remains firm. China/Asia are a focus for 2025, insofar as a bull view can be extended to stocks. Making no such assumption right now.
Precious Metals: The macro-fundamentals for gold and the miners are still in progress and still trending positive. Current correction in gold and the miners not indicated to be over (potential ‘C’ corrective leg down), but is still indicated to be a healthy one within a larger bull rally. One positive internal for the miners: The Gold/RINF ratio is positively diverging HUI and the gold stock sector. A more intense version of a positive divergence preceded the lows and hard upturn in the miners back in March.
Commodities: Show me a weak USD and Gold/Silver ratio, and I’ll show you more commodity and resource related assets looking to bull. Right now, on balance commodities remain in clear under-performance mode. TSX-V index, which carries speculative commodity-related stocks, is technically unbroken. Keep an eye on it for clues.
USD & Indicators: The US dollar is in rally mode and we currently watch to see if it pulls back or reasserts its bull phase after making a key higher high. Importantly, if the Gold/Silver ratio convincingly follows the USD in a given direction, the messaging will be USD & GSR up = market liquidity problems or… USD & GSR down = year-end party including currently under-performing items like commodities, EM/Asia, etc. Other indicators are as they have been, with complacency at an extreme (VIX & High Yield spreads are submarines), the 10-2yr Yield Curve continues to be on a steepening trend and is current de-inverted. In other words, the indication is that the journey to the next economic bust is in progress. With Treasury bonds currently in rally mode, the indication for the backdrop is disinflationary and Goldilocks. This is interim, not long-term in my strong opinion.
For a visual, I suppose you could still say the VIX is capable of playing out a negative divergence for the stock market, but the complacent bull brigade sure has put the indicator to the test lately. Party time, and all.
The general situation is unchanged: High risk, but with risk not yet actively realized.
US Stock Market
Another week, another positive price outcome (with a small gap higher by SPX). The economy is slowly decelerating, but market liquidity is obviously still in effect (the Biden/Yellen/Powell power trio had the pedal to the metal all year, after all) and Payrolls are keeping up appearances for another month, into the Santa seasonal. Also, the “buy in November” implication of the “sell in May and go away” theory is in effect.
Bottom Line
We are (I am, at least) playing this phase as if in a casino, which in real life I would never willingly step foot in. I am hearing it from friends and family on a weekly basis now; asking “why” does it keep going up? Most people seem to believe that the economy is on suspect footing, but also that the market keeps going up. They know about AI, the Crypto resurgence and now, the Trump play making “America great again”.
So the essence of the bottom line is that for 2024 we have had a plan that is still on plan.
- Government in power inflicts its debt spending (fiscal) traditions in service of staying in power, by keeping the stock market and economy liquid to the degree that it appears at least stable.
- Government in power has a (monetary) connection as well, with former Fed chief Yellen heading Treasury and surely having the ear of Fed chief Powell. Dovish monetary policy was finally kicked off at what appeared a strategic moment, pre-election.
- The projection was “to or through the election” for the bull market.
- Now “through” the election with Trump the victor, we transition to the “America great again” aspect, that sees MOMOs/FOMOs enter the markets because Trump will deregulate, cut corporate taxes, and businessman that he is, run America like a business. Oh, and the post-October/Santa seasonal is a thing.
- The current view is refined to a coming top to a highly speculative, over-valued, over-played mess that has been and still is rotating its way along to whenever it will end. Most recently in these rotations, we observed and (personally) took advantage of the “catch-up” move in the Cloud/Software stuff. This brought Cathie Wood back from the dead and was a rotation from the AI plays. Hype is in motion, roving from one play to the next, with the machines currently loving themselves some Goldilocks (disinflation) stuff.
- Technology has been our main theme for a bullish stock market, but depending on the USD and its partner, the Gold/Silver ratio, better participation from the Commodity/Resources and EM/Asia markets could get rotated in. But only if the currently bullish USD and currently neutral GSR drop.
- The USD has weakened below its higher high breakout point. That is not surprising, as it was overbought. The Gold/Silver ratio also eased last week. If these two continue to pull back, we’d watch for rotation into commodity/resources (Canada’s TSX-V index, the speculative end of the commodity/resources trades, continues to be technically constructive).
- If the above comes about (it’s still theoretical), our plan would be for a year-end (into 2025) party that fans out to include these other areas.
- But the “higher high” in USD could be very telling. Think of it as a sentinel, sent to scout the future. One version of the near future (we are targeting the January 20th inauguration +/-) could be that the speculative upside in the stock and asset markets finally blows out in a possibly epic contrarian bear opportunity. That would be attended by both USD and the GSR bottoming and rising hard in a liquidity crisis of some kind (conveniently, after the lame duck Biden admin’s beneficial market liquidity operations seize up and stop functioning).
Sound like a plan? Both of the 2 Horsemen of the Liquidity Apocalypse are going sideways over a 2 year span. Weakness in both would work well with a broadening bull atmosphere, with better commodity-related and global participation. Upside in both would likely punish most everything, eventually.
So, with the understanding that the risk profile is and has been grossly weighted toward risk (by definition of so many internal indicators, valuations, insider net sales, and the very fact of the intense speculative bullish momentum in play), our plan continues to be bullish… into a termination point that could see a major top.
US Market Sentiment
Why, it’s over-bullish and what else is new?
NAAIM: Investment managers were over-bullish at 85.5% as of 12.4.24
Investors Intelligence: Over-bullish at a Bull/Bear ratio that got quite excited, at 3.91 on 12.3.24 from its previous tick below 2. Newsletters are aggressively over-bullish.
AAII: See Ma & Pa bouncing around moderately over-bullish, at a 1.58 ratio off a previous tick below 1.
Sentiment is structurally over-bullish, as it has been for most of the year. It is not a timer, but it is a condition in place for a coming market top. No change here, so let’s not over analyze it.
Precious Metals
As for the precious metals, I think they are still part of the broader rally, but have been getting lumped with commodities and inflation trade stuff, that has been decidedly NOT like the favored Goldilocks/Tech stuff that the machines are currently in love with. If the 2 Horsemen weaken, I’d expect the PMs to rally hard, led by silver. It’s macro party time, after all. Why not be led by the party animal, silver, and its momo freak investor base?
The other side of that coin, however, is that if the PMs continue to rally/resume rallying as expected they will also very likely get shot out of the air with everything else, at least initially, if a market liquidity problem manifests as I think is likely. The bigger picture bull view on gold mining comes when the macro turns counter-cyclical and inflation becomes “uncomfortably low”. That would be when gold is rising relational to declining cyclical assets like stocks and commodities.
Commodities and global stock markets are seeing a counter-cyclical backdrop in ratio to gold. Silver is deciding whether to out-perform gold for a while (GSR shown here, would ease) and the holdout, the S&P 500, the signature index of “great again” America, is much like the Gold/Silver ratio. If that relationship holds, Gold/SPX and Gold/Silver would be the final participants to jump on the counter-cyclical bandwagon, joining commodities and global markets. That would see the end of the bubble phase.
This is not a good look for the gold price on the short-term. Take out the 50 day average and the look would improve quite a bit. But as it stands, gold is potentially forming the right shoulder of a pattern that we noted last week was not a shoulder. Well, with further development and its posture below the SMA 50, it is a viable one now.
However, the pattern’s neckline is not likely to fail, as it is at such a severe slope that it would only be tested at the viable downside target at the SMA 200 (2452 and rising). Taking the speculation out of it, as long as gold dwells in this pattern below the 50 day average, it is still technically vulnerable to a deeper and quite healthy correction.
And yet, here we have silver (daily) in the bullish Cup & Handle pattern we noted last week. What’s more, it made a move to break the Handle. On the negative side, silver is also below its SMA 50. So folks, let’s watch the 50 day averages on both metals!
For its part, HUI (daily) is still looking like a bit of a hot mess as it curled down from initial resistance.
We have questionable (at best) short-term technicals, an ongoing process of macro improvement for the sector and some internals that are still not good, with the exception of one that is quite good. Let’s start with the good news and note that the positive divergence by the Gold/RINF ratio is even more pronounced than last week. Let’s also note that the divergence persisted for several weeks before HUI finally blasted bullish in March. So, it’s a patience thing, but this ratio should be waiting there in support of the next rally when it arrives.
Sector froth is still somewhat elevated. The BPGDM does not need to decline to the 25-35 area, but it sure can. It is a picture of froth burning off, but perhaps not yet completely.
The HUI/Gold and HUI/SPX ratios may or may not begin to diverge preceding the next rally point. However, at this time the ratios are not constructive for the gold stock sector. Period. There is the potential of a double bottom/buy while indicators like Gold/RINF flash “buy”. Let’s watch for something like that.
Meanwhile, HUI’s monthly log chart shows clear support at 275. The black channel breakout and that 275 level could get taken out in a quick and likely final running of the bugs, before recovery. But the picture of the next leg up in the bull is still intact.
You will see some stock charts below, but not for gold stocks. You know my holdings, and what I favor. But these stocks do not act like others and I don’t want to chart them as if they do. In other words, let’s concentrate on the sector, per the above. If the sector stabilizes and bulls, quality gold stocks will bull.
My favored positions are (in no particular order) WPM, RGLD, NGD, AEM, AGI, SKE, KGC, KNTNF (KNT.TO), WDOFF (WDO.TO), OGNRF (OGN.V) and AE.V, along with old timers GOLD, NEM, HL and a couple watch items. I would plan to add to some of those before looking for new ones, especially if the sector continues to pull back in the near-term.
Global Markets & Commodities
This chart shows that the ratio of Global stocks to SPX bends to the pressure of the USD dollar. Inverse USD is shown here. If USD pulls back (Inverse USD rises), global markets could get some rotation. As things stand to this point, positioning in the US has worked better than positioning globally, on balance.
Within that, my interest continues to be China and Asia in general. While it appears the FXI/SPX (China Large Caps/US Large Caps) ratio may have completed a bottoming/base, the theoretical next leg up off the bottom has not yet started. Dollars to donuts, if the USD were to pull back appreciably, this ratio would take another rally. I have FXI and BABA to test this prospect.
Stonks
A few random stock charts of interest.
ZS was an adventure last week as I added a second position before earnings, it got whacked after earnings, and recovered. This is a “me too!” position to the likes of NET, SNOW and DDOG, which have been sold on the hysterical ramp up in Cloud/SaaS/Security names. I did not see much wrong with the report. It’s Zscaler’s valuation that is an issue. But it is no more richly valued to CRWD, NET, DDOG and others in its general Tech/Growth peer group. Less so, actually. I am holding as the pattern bent but did not break.
A “me too!” to the “me too!”, TENB is a lesser light in the security area. A slower grower with a lower valuation. Again, I am speculating right now, not investing. The market is fun and stock charting is fun. That’s it, man. It’s where I am at right now. TENB’s chart is not actionable, but it is somewhat constructive. Again, I am looking for laggards, much like SNOW was before it exploded. I am looking for “plays”, not so much investments right now.
Over in the Medical Devices patch, EW was brought in as another bottom feed/base play. It can fade to fill the gap or even test the SMA 50, but its valuation has been adjusted to a degree by the July tank job and it is a solid company retooling/focusing its strategy after selling its critical care business in favor of participating more actively in the structural heart market.
TWST was added 11% ago at 47.23 and has done well off of what looked like an attempt to break the consolidation at the uptrending moving averages. Buying stocks that grind their daily moving averages (e.g. SMA 50 & SMA 200) while those averages are still in uptrends gives a better chance of success than bottom feeding down-trenders or bottomers that have not turned up.
Globally, BABA was added and in the best case, could be making a small ‘w’ pattern here. In my perfect world, that would be the case and this value would one day be chased by the MOMOs and FOMOs currently working Bitcoin, Cloud software and other areas.
Commodity Related Stock Charts
I was a genius for a day as China REE hype launched MP. Then a day later my genius license was revoked. It’s a stock in an account that I am trying not to day trade. I believe in the story of domestic production and processing of REE, but will not ride that story forever. But since I think that the fundamental rationale is still more than intact, I have no problem watching the paper profit evaporate. Well, maybe just a little. I’m fine with this at/above the support coinciding with the 50 day average.
Uranium prospect and potential future acquisition candidate NXE is similarly held in the same account. The sector has done well lately, led by daddy CCJ. The NXE chart looks good and has more up volume than down volume. Just holding.
The Energy sector rolled over hard on a mission to fill a big gap. Ref. what was noted above with TWST:
Buying stocks that grind their daily moving averages (e.g. SMA 50 & SMA 200) while those averages are still in uptrends gives a better chance of success.
Well okay, let’s see if that proves out again. I am not selling XLE because this is a chart I would be buying had I not already owned it. It should generally hold the SMA 200 (w/ brief allowance for dips below) or the story changes.
Indeed, I am also watch AR (ref. Dec. 5 NFTRH+ update on NatGas), which is flagging down toward its uptrending moving averages. I am trying to be patient, perhaps for a test of the moving averages or a gap fill below it. But AR is on my watch list and would be the primary vehicle should my interest in NatGas continue. At last look, Antero does not hedge its Gas holdings. So, if Gas moves it should move… hard.
Portfolio
Gold is long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
In order of position size.
The intent here is to hold items longer and resist profit taking when possible (but embrace tax loss taking). Account is heavy cash and quality equivalents.
Roth IRA (non-taxable, no contributions)
Taking a look at the 3yr IRA chart, I have thus far accomplished what I set out to do, which was keep an orderly rise going. I am not in love with the current lower high and obviously want to see that taken out. But if the gold miners do take another leg down, that could take a while despite the hedging place.
Cash/equiv. is 78% and insofar as I want to speculate, I’d like to reserve future cash for potential market rotation adds, assuming the precious metals rotate back in and global/commodities get a bid. It’s been party time in speculative assets lately, most recently US growth stocks (Cloud software and really, much of the Cathie Wood spectrum, which prefers a Goldilocks backdrop). But I want to be careful not to overstay my welcome in any given area.
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.
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