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Summary

US Stock Market: Small topping pattern in SPX. If it plays out it only projects to a healthy test of the uptrending 200 day moving average. However, many indicators are flashing Code Red and we are entering a time window for the bull’s expiration. Technically speaking, however, all we can say is “healthy correction in progress”.

US Market Sentiment: The structurally over-bullish situation continued to be addressed last week, to the point where risk indications have reset to a degree that could spring a bounce attempt in markets. The most risky asset per Sentimentrader’s data? Gold. As a long-term holder, it is actually the least risky asset.

Global Stock Markets: Still generally under-performing the US. Japan, UK relatively intact. World (ex-US) index on a technical breakdown, Europe looking toppy and China/Asia/EM getting clobbered within remaining vestiges of uptrends thanks (largely) to the strong USD.

Precious Metals: Sector has bounced with gold looking best, in the nose of a symmetrical triangle. Silver and gold stocks (HUI, GDX, etc.) are at decision points about whether to break out of the correction or fail. Bigger picture bull market view still intact and macro fundamentals getting a boost with the crack in stock markets, with short-term head wind due to renewed inflation fears in the bond market.

Commodities (per last week): Against a combo of the strong USD and firm Gold/Silver ratio, commodities appear to be bullish and bearish as the hedgies rove across the landscape, playing the sector’s various components and then dumping them, Whack-a-Mole style. It’s tradition in the commodity patch, and a more consistent bullish situation would be dependent on the USD and GSR easing/declining. This week: See segment for more detail on individual commodities.

Bonds (per last week): 30yr Treasury yield closed 2024 in bull flag breakout mode. Why is the market not overly concerned? Does it think coming tax cuts will offset the negatives? Regardless, the yield curve steepeners continue apace and are very negative economic signals. With nominal long-term yields in flag breakout mode, the indication is an inflationary steepener right now. This can and probably will tag team markets with alternating inflationary and deflationary steepeners going forward. This week: Well, the market is concerned now, after the strong * US jobs report. Sometimes it takes a bit.

* It’s strong if you don’t value manufacturing, which is in contraction, and do value services like leisure & hospitality and if you value government. Then the print was plenty strong. You catch my sarcasm here, don’t you?

Currencies (per last week): Right now, our main concern is USD, which is still the reserve currency, despite magical thinking by Team De-Dollarization. USD is in base breakout mode, and…

Indicators (per last week): …if the Gold/Silver ratio also rises, pressure would be indicated on wide areas of the markets, especially commodities, resources and likely, precious metals. If USD and GSR decline, those same areas should out-perform. Yield curves, as noted above, are negative for the economic cycle. VIX is still on the floor, sleeping fairly soundly (but still on a negative divergence for the stock market). High yield spreads are still sleepy as well, but have recently begun a modest lift off the extreme lows (highs in complacency and speculative froth). On balance, the message from indicator land continues to be clear and present caution signals in play while more real-time risk signalers like the VIX and HY Spreads remain relatively calm. This week: VIX woke up as the stock market pulled back. Interestingly, High Yield Spreads ended the week sound asleep. That may be a lagging situation or a hint that the bulls may regain their frothy spirits. Let it play out.

US Economy & Bond Market

Another Payrolls report (December), another late-stage picture of an economy heavily skewed to services and government hiring, while the manufacturing sector continues to contract. Since part of making America great again is to revitalize its manufacturing base through re-shoring much of the work from cheaper global alternatives, it’s not a good sign.

Where manufacturing is concerned, America is not going in a “great” direction. It is going in a bad direction, as marginalized or not, manufacturing does tend to lead. It is not just manufacturing employment that is suffering. ISM reported a continued slow deceleration in manufacturing PMI as a whole in December.

Meanwhile, as Trump prepares to take office and impose tariffs and punitive measures on global trade partners, the bond market is getting wigged out. The 10yr Treasury bond yield poked a new high to the previous (April) high (as did the 30yr yield).

In relation to the 2yr Treasury yield, the rising 10yr is also driving the 10-2 yield curve upward. While not shown, the 10yr-3mo is also ticking new steepening highs in confirmation of the 10-2. To this point the stock market seems to think that the current steepener (now under inflationary pressure with nominal yields rising) will turn out like the steepener that began in 2019. But there is a fundamental difference:

2020 was an inflationary rescue job by the Fed and government. They went balls out to increase money supplies and liquidity. Today? See below.

Today the Fed is reducing its balance sheet, not ramping it up as in 2020:

And Fed-driven liquidity is easing as opposed to the epic ramp job in 2020.

So the conclusion is that the current situation is much more like the yield curve steepeners that occurred in 2000-2003 and 2007-2010 than it is the post-2020 steepener. As we noted at the time that inflation was manufactured (Q1, 2020), the aim was to cheapen money in service to raising asset prices (and creating inflation). The situation was ripe for a bullish resolution. Today, the ripeness has gone rotten.

So, unless somehow they’ve gotten under the hood and somehow rigged the mechanics of the financial system to new and magical degrees, the current yield curve steepener should eventually resolve into a bear market in equities and a swing to the “bust” side of the boom/bust cycle. This is what economies run on debt leverage endure; due to excessive meddling by Fed and government, the extremes to the upside and downside are much more volatile than in Grandpa’s day.

12 days into the new year the 30yr Treasury yield “Continuum” continues in flag breakout mode. When Trump starts publicly berating Jerome Powell to drop interest rates again, as he did at inopportune times during his first term, remember that it is the bond market making the decision and the Fed is basically doing as instructed.

I show this chart often. Maybe too often. But it shows the concept noted just above, so well. It begs to be front and center, along with the other bond market related charts/indicators. Currently, as our chart is “predicting” a similar situation to 2007, when the 2yr yield had negatively diverged the T-bill yield, thus flying in the face of the Fed’s then ‘pause’ campaign, raising inflation expectations. It was probably due to inflationary effects in commodities like copper/industrial metals and materials (which were still very elevated), while crude oil was starting a mega rally.

Then the whole enchilada unraveled as an inflation-stoked economy will. Today the instigation is the fear of inflationary effects from Trump’s tariffs and let’s also throw in a side order of his stated intention to increase US public debt in order to fund his agendas. None of that is positive for the bond market *, and it is reflecting that by driving up yields and yup, pressuring the Fed as the Fed confirmed through its own orifice, after the last FOMC meeting.

* But do you know what is positive for the bond market? A liquidity-driven bust like what began in 2007 after heightened inflation expectations led to inflation completely falling apart.

The economy is in trouble. It just doesn’t know it yet. Either that or I am flat out wrong and not seeing some sort of grand manipulative loophole that authorities will use to change the rules and forestall the coming bust. Picture Lucy pulling the football out from Charlie Brown’s attempted kick.

We had a look at the SPX daily technicals in a public post on Friday. I am going to short shrift the US Stock Market segment this week by simply noting that I increased my shorts on SPY and QQQ, and hold volatility hedge VIXY, while also still holding some longs in a portfolio that is overwhelmingly long interest bearing cash and short-term Treasury bond equivalents (i.e. managing risk and accepting income).

I am prepared for a market downturn (pending short-term bounce potentials due to bearish sentiment), whether only to a healthy test of the uptrending SPX 200 day moving average, or a kickoff to a bear market, which I ultimately expect in 2025. Again, reference the link just above. Meanwhile, let’s get to the Precious Metals, which held up pretty well on Friday’s down market day.

Precious Metals

Man stares at the chart of silver and man is simply not prepared to go bullish quite yet. However, if Friday’s upside in gold and silver, and firmness in the miners was a hint about a disconnect from the broad markets, so be it. However… Commodity indexes ramped as Oil and Gas got ramped after Uranium had popped and dropped again, Whack-a-Mole style.

So the precious metals are still not unique. Silver, especially, is not unique. Break the wedge that is the would-be bullish Cup’s Handle, and we can talk bullish. Meanwhile the would-be bearish H&S pattern might have other ideas.

Meanwhile, gold is getting sneaky here as it attempts to break out of the nose of a Symmetrical Triangle. Gold has tested and been repelled by resistance at 2720 twice now. If a 3rd attempt is in the offing, which looks quite possible, let’s recall that the more times a resistance area is tested the weaker it tends to become. Not a hard rule, but a tendency. If that were to happen, strap in for the next target, which is 3000+.

The miners (GDX), meanwhile, have invalidated the A-B-C correction thesis, unless ‘C’ (now labeled point ‘3’) was the low. If that was not the low, somebody better versed in Elliott Wave theory may want to weigh in on the 5 wave down situation. If I recall correctly, a 5 wave move down would imply that the dominant trend is now down.

However… the miners gapped up off of C/3, took back the black dotted breakout point and stalled at the moving average convergence. ‘C’ (3) may have been the low, obviously depending on what GDX does here at the moving averages. The reason I did not re-short (yet, anyway) despite the last sale in DUST having gone over 30 days old (preserving the positive tax implications of that loss) is that I am not nearly over-positioned and it feels like GDX may want to fill that gap at 37.18, which could happen while still holding below resistance and the ‘2’ high.

So for now I resist adding more positions after adding back positions in WDOFF (WDO.TO), KNTNF (KNT.TO), RGLD and RIOFF (RIO.V) over the last few weeks. The intermediate trend in GDX is down. In my opinion, it could easily fill the March gap at 30.61 if the current rally/bounce fails at/below ‘2’.

HUI weekly recovered back above the top line of the corrective channel and clear support. So there is the potential that the intermediate correction that began in October has ended. But that will not be confirmed until HUI and GDX successfully take out the equivalent of point ‘2’ above (December highs).

HUI monthly continues to spread the good word of a (very volatile) bull market that began in 2016. It will be important for Huey to take out point ‘3’, which was our 2020 target and logical correction point. A higher high to that high of 373.85 is needed to keep the bull going. It is a monthly chart and thus, slow moving. Patience.

BPGDM continues to do its work in resetting a previously overbought sector. We are looking for 30 or lower.

Despite the recent rise in macro inflationary signaling (e.g. Trump signaling), gold is holding its own vs. the ‘inflation expectations’ gauge, which continues to positively diverge the sold-down HUI index. It’s an internal positive, but may still be in development toward being even more positive.

However… let’s not get too beared up. The big picture situation is one that is positive for gold stocks. First, by this line chart HUI has broken out of its corrective consolidation. Second, a softening (dovish) Fed tends to go hand in hand with strong bull phases in gold stocks. However, in the short-term Trump-instigated inflation fears as expressed in the bond market (ref. opening segment) are a potential problem, as the Fed gets pressure to back away from a dovish stance.

Global Stock Markets, US Dollar & Gold/Silver Ratio

This is bad. As it stands now, the World (ex-US) is failing its uptrend channel after making a perfect failure at the converged moving averages.

The world is bending to the strength of Uncle Buck (as is the US market, currently). Okay, so this is a moment when we can think about all those “dedollarization” touts and realize they were full of shit. The world may yet dedollarize, but it has not yet dedollarized. USD is receiving the liquidity of man, woman and machine going risk-off.

While the Gold/Silver ratio continues to be two things: 1) biased in a way as to signal more incoming risk-off liquidity for USD and 2) not yet activated in that role.

Meanwhile, the Canadian TSX-V index, itself an indicator of liquidity and/or investor willingness to speculate in the commodity/resources areas, has held below resistance at 627. Recall that by a longer-term chart, if TSX-V were to take out this resistance the next target would be 680. As it is now, in the short-term da ‘V’ probably wants to see to that gap just below at 599.

China large caps are indicative of what is going on in Asia and Emerging Markets in general. They are clinging to their uptrends that began a year ago, but under much pressure.

Even the likes India, often bullish in the face of questionable or bearish global markets, is technically vulnerable. A would-be H&S would not activate unless the 76000 area is taken out.

Yet the UK 100 is fully intact and going against the global tide, as it often does, post-Brexit at least.

Japan’s Nikkei is another technical exception. Both NIKK and UK 100 above dropped to what would be technical buying opportunities (for those bullish on these markets) last week. It doesn’t mean they won’t break down. But as yet they have not done that.

The Europe STOXX 600 did what so many markets and stocks do after a dreaded Death Cross of the SMA 50 below the SMA 200. It bounced! Of course it did. However, often after a hard bounce the implication of a Death Cross can play out. STOXX 600 is in what looks like a potential topping pattern.

Canada’s senior index is in a nasty looking pattern. Indeed, it looks like a short.

While the Aussies may be painting a similar picture. Commodity/Resource based economies both.

Commodities

As noted last week, it’s a game of Commodity Whack-a-Mole as we periodically see the likes of Palladium, Uranium and last week, Oil & Gas, pop. The “whack” part comes in when the pop is soon followed by a drop of equal proportion. The broad commodity indexes were driven by Energy commodities last week.

Oil/Gas/Energy: Oil has rallied since mid-December, but remains in a gentle downtrend. Its seasonal average bottoms now and turns up into October.

Gas is out of whack with its seasonal average (no big surprise), which tops in December, drops into February and resumes bulling into June. But Gas has been downtrodden for so long I think we can forgive it for flipping the bird to its seasonal pattern. I am still holding AR in support of that, and also CVX and XOM in support of Energy in general.

Uranium Sector: Spiked big… and then WHACK! And folks, I admit I had concern that NXE was running away from me as I have zero Uranium positions. Here we can see the spike in URNM, which promptly failed at the SMA 50 and continues to work on establishing a new downtrend.

Copper/Industrial Metals: Not quite Doc. Doctor Copper put on a big spike of its own and has at least temporarily halted at the SMA 200 and clear resistance. A breakout above the SMA 200 at 4.36 could change the game. But for now, the game is neutral trend with a Death Cross followed by the inevitable post-cross bounce. Industrial Metals (GYX) are a weaker version of the good Doctor. The picture here is of a cyclical commodity undecided as to whether or not a global recession and counter-cycle is imminent.

Agricultural: Soybeans and Corn, which I previously gave up on, are still constructive to rally. Soybeans are still basing and Corn is actually on a rally. Wheat is in the dumps and related equities like NTR and MOS are trending down.

PGM, REE, Lithium: Palladium is still bobbing around the lows after its pop and drop. Platinum has been trending sideways since 2021. Favored REE play MP popped and much like with u3o8 play NXE, I feared it would go without me. MP has not retraced a majority of its pop, however. So I am watching it closely. It is not a stock I will want to see get away from me after these last few years of viewing it as a strategic US-based play on Rare Earth materials. Lithium prospect LAC was bought, it popped to a nice short-term profit and then dropped to a less nice paper profit. But it is one, like MP, that I want to be with over the long-term, assuming the cyclical world does not simply end and get sucked down the drain in a deflationary whirlpool.

Portfolio

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

Taxable Account

In order of position size. This account is barely in the market. Instead, it collects monthly income and bides its time.

Trading Account

This small taxable account is the little bro of the account above. It is short and profitable so far. But I am aware of the SPX and NDX uptrends and also the short-term lurch toward bearish sentiment, which could spring a bounce.

Short SPY and QQQ.

Roth IRA (non-taxable, no contributions)

The chart is still in its consolidation while clinging to the uptrend line. Not much to say other than I will not allow much damage to be inflicted here. Selling, hedging, shorting… are strategies too, along with buying, holding and feeling self-satisfied.

Cash/equiv. is 89%. Nice and comfy.

The plan is to increase or decrease precious metals… or hedge them, depending on what the miners and silver do at the decision points they ended last week at. The same goes for stocks, actually, as the market ticked bearish last week. But this is a movie we’ve seen before all too often. The stock market improbably rides hope, greed or a well placed news item back upward out of danger. I will not fight that. But I will plan to take or increase bear positions as indicated going forward as I continue to expect a bear market in the coming months. It’s not me hoping for that. It’s me reading the indicators and trying to stay honest about them.

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.