Summary
US Stock Market: Major trends up, leadership rotating more defensive, short-term potential for more pullback, but still open to a new broad rally surge, given the uptrends.
US Market Sentiment: Structurally over-bullish, Dumb money retracted a bit and Smart money ate some stocks. On balance the view is over-bullish, but not extremely so and short-term jitters in the market could renew a new rally leg in the coming weeks. NOTE: The SPX seasonal goes negative in mid-February before recovering again into spring.
Global Stock Markets [last 2 weeks]: Still generally trending down vs. US market, as the headwind USD is still in breakout mode. If USD fails its support test (see below), Global can play some catch-up. Keeping an eye on China/Asia/EM, and Canada’s TSX-V in that regard. This week: Asia/China/EM look constructive and TSX-V is breaking bullish. Global could yet put in a bottom vs. the US before long.
Precious Metals [last week]: Gold technically targets 3000+ after the breakout of the Symmetrical Triangle and resistance. Silver is on the verge of targeting 42 after holding the SMA 50 and 200, and the wedge/handle/flat breakout. This week: Miners made a definitive move as well and though short-term volatility is to be expected, we are looking for new cycle highs above HUI 375. See segment video.
Commodities: Commodities continue to lag with some items popping and some dropping. Would be a prime area, however, if USD and Gold/Silver ratio weaken.
Bonds: No Bond market commentary this week, but long-term yields continue in pullback mode despite Friday’s Payrolls bounce. Weakening yields would probably indicate a weakening fundamental support for USD.
US Dollar Index: USD is suspect but still intact to support. A failure would greatly increase the odds of some bullish commodity, resource and global market activity. A hold or strengthening by USD and >>>
Indicators:
- >>> Gold/Silver ratio remaining firm, would indicate a cautious macro view, which I still maintain.
- Yield curves are pulling back within their un-inverted steepening trends. A little bond market pressure relief for the Goldilocks crowd, should it choose to accept it.
- Fed liquidity draining, while stonks continue upward. Bad combination…
- …unless somehow the fiscal side (Trump/government) manage to shove enough stimulus through. That job would clearly be more difficult if Treasury yields remain highly elevated.
- A dangerous correlation to 2007 remains in play in the bond market, as inflation jitters pressure the Fed to not go further dovish. A similar dynamic occurred in 2007 prior to Armageddon ’08, or what the media called the “Great Recession”.
- Fed monetary indicators see the Fed remaining tight. But this is only one aspect of policy-making. The other is fiscal and folks, I am not trying to keep up with Trump, Musk and company. They are in the fiscal workings like nothing I’ve ever seen before. Hence, I have to be careful about guessing the outcomes, and also about letting my bias about their actions interfere. But for now, we should assume its Fed tight, Government loosey goosey.
- VIX: asleep. High Yield spreads: asleep. Other non-forward looking indicators: asleep. One day, it’ll be “wakey wakey little indicators”… but not today. Not yet.
Payrolls Were Not Healthy
It is not just the weaker than expected overall number for January that was a less than positive sign. It was the internal mix of job gains and losses. As usual over the last year, one segment of the work force did the heavy lifting. That was the “Services” segments, and within that the Health & Education services sub-segment. Then? Government.
January Payrolls Report: +143,000; Hazel Does Heavy Lifting, But Does She?
Notably, Leisure & Hospitality dropped into the ‘job loss’ category along with Professional & Business services. Mining and Manufacturing were very weak, as usual, as there is a slow manufacturing contraction already in place. On the face of it, it looks like we are decelerating into the counter-cyclical view I’ve been forecasting for a long while now.
However… Trump claims that he is going to make America great again (I refuse to get distracted by him this term as I did his previous term. My job is to manage markets using unbiased indications that will allow me to avoid being subject to the noise as a professional, if not as a human). If he achieves some of his economic goals we cannot rule out an internal rotation within the economy and by extension, hiring.
Trump (economically speaking): Pro-Manufacturing. Pro Energy extraction. Pro-Mining. Anti regulation.
Regardless of whether or not the economic/employment situation continues to degrade toward a recession, we should watch the internals of the economy, for a shift toward the areas long forsaken in favor of financialized areas like Finance and of course, the massive regime of a consumerist culture, where other less affluent global citizens did the dirty work while the mighty owner of the world’s reserve currency simply used its bond market to gerrymander ever more debt into the appearance of sound and strong economic activity.
So here is one editorial aside I’ll betray before going back to financial analyst mode. Trump, Musk and the clown show coming through the door they’ve kicked open are of great concern to me. But I’ve been concerned in a broader sense for a solid 25 years now. This is just a new and bizarre presentation of it.
Taking the human out of the equation, there does stand to be an improvement in areas that originally contributed to my concern. Namely, our outsourcing of manufacturing and other “real” aspects of the economy in favor of a debt-propped financial economy and the utter greed and social/economic disparity that came with it (and in my opinion, contributed greatly to the fact that there even IS a Trump).
I believe there are aspects of Trump that could be quite positive. However, an overall positive view would have to include much of the scary social and global political agenda being more ghost stories than reality. At this time, I am not at all convinced it’s all ghost stories.
And now, we continue forward. There is a dynamic 2025 coming up and markets to be managed.
Admin Note
Well folks, it (probably) had to happen sooner or later. I will be having the first surgical procedure of my life at the end of the month, so I want to give you a heads up that there will be a few days that I will be out of contact, and a couple weeks after that when the NFTRH service will probably be a bit more abbreviated than normal.
I expect to be fully back on track after mid-March with business as usual.
US & Global Stock Markets
I got mostly positive input on last week’s videos, so this week let’s do it again. One person did request the weekly format remain in written form, and some readers have over the years expressed that they WANT to do the work of reading and re-reading the full report (which I respect and actually encourage). So I will be careful not to compromise the overall written report’s details.
Let’s pop in the video and then discuss a bit in written form as well.
As noted at the trade log on Friday, I took some volatility insurance over the weekend. The charts reviewed in the video (headline indexes and some key ETFs) indicate vulnerability in some areas and relative constructiveness in others. The flavor seems to be shifting to less cyclical and more defensive.
But globally, copper, the ultimate cyclical metal, has broken bullish. This looks like a surge with conviction to reestablish the uptrend. So how do we square that with a broad bearish view for 2025? The answer is, maybe we don’t.
The implication has a positive vibe for China, Asia and other parts of the EM sphere. I added Asia (ex-Japan) last week (AAXJ). If the uptrend from September is to remain intact, then the recent long downward consolidation will have been a buying opportunity. I am keeping copper in mind as an accompaniment to my China/Asia views.
But I also added the Copper ETF, COPX, which must hold noted support in order to continue being held. I like a clear technical parameter like that.
Finally in the global sphere, let’s take a look at the TSX-V, which is a very important market for indications on the smaller, more speculative (among the outright scams) ends of the commodity/resource stock constellation.
We have often reviewed the daily chart situation, in a pattern aiming to break through resistance, as per this X post last week…
TSX-V finished the week in breakout mode. Reverting to a weekly chart, the target of 680 is now loaded. If this is more than a quick rally due to internal rotations within the macro (toward mining and other Trump trades) we can watch for the dynamic resistance target of 835. However, I am not prepared to give that much consideration because I am operating to the initial target of 680, as often noted over the last several weeks.
With all the open daily chart gaps on the ‘V’, I am not writing off the potential for a final market rotation and suck-in before the whole enchilada unwraps into a wider bear market. But I do see copper and I do see AAXJ and in them I do see bullish. So I’ve got an open mind, which is why we will manage one target at a time rather than diving into any given bias, orthodoxy or worse, promotion.
Finally, a low priority indicator but a potentially useful one nonetheless. The seasonal picture for the stock market degrades noticeably in mid-February. Better to have that info than not, I’d say.
Market Sentiment
The little downside on Friday took a little off the top of dumb money sentiment indicators and gave a little uptick to smart ones. Sentiment is structurally over-bullish and unhealthy. Structurally is not short-term and in that shorter-term, anything can and probably will happen.
Gold’s risk rating is what it is (high) and is likely to remain that way for the remainder of this bull market leg (our operating target is 3000+). Gold has been a card carrying member of the broad rally and so it will not be surprising to see the precious metals get hammered if/when the broad market does. I am not encouraging fear ahead of time. I am encouraging a balanced view because at some point near the top, sentiment is likely to be pretty unbalanced to the bullish side. We don’t wanna be those guys.
NAAIM (investment managers) had sprung back to life on February 5th at 85% bullish from the previous depressed 68%. So of course the market then dropped to close the week.
Investors Intelligence (newsletters) stubborn in their retrenched sentiment at a Bull/Bear ratio of 1.61 on January 28. There was no survey last week, so this is a bit dated. As it stood on that date, the indication was contrary constructive for markets.
AAII (individual investors) continued to pull back sentiment last week, declining from the previous week’s 1.2 Bull/Bear to .78 on February 6. Ma & Pa’s nerves are contrary positive.
Interestingly, from their front porch Ma & Pa have a healthy level of caution about the market’s valuations. They also have a view of internal rotations, which is interesting and in my opinion, a feather in Pa’s cap and a credit to Ma’s good down home sense. Individuals are not subject to the pressures of money managers, for example, to keep up with the investment Joneses like NAAIM. It’s their money after all, not other peoples’ money.
Precious Metals
Once again, back to video for the TA before moving on to other aspects of the sector.
I neglected to note WDOFF (WDO.TO) in the video, but it has one of the best charts of my holdings. The daily chart is in a bullish pattern. Not an Inverted H&S because it formed during an uptrend. But a likely continuation pattern. If it does continue the measurement is around 13.
The weekly chart shows that the pullback registered a 50% Fib retrace before recovering. RSI positive and MACD up-triggered. The target noted above would be a test of the 2022 high. Not bad, WDO. Go for it.
Let’s take a look at the big picture of HUI and its relationship to Fed policy. The key here is that healthy gold stock bull markets and bull phases tend to take place against a backdrop of weak monetary policy.
Since gold stocks leverage the performance or lack thereof of gold in relation to risk assets like stocks, base metals and other cyclical items, and gold out-performs those items when economic contraction and weak monetary policies are in play, you can see why we continually harp on gold stocks as counter-cyclical and NOT good vehicles for phases of cyclical inflation.
Not to beat a dead horse, but for those who have not read me for long, here is an article I wrote in May, 2016 explaining how gold’s fundamentals were eroding amid the cyclical burst that featured the gold stock bull market’s ill-fated initial leg up (noted in orange on the chart). Sure enough, there followed nearly 3 years in the wilderness of the bull’s first extended correction. Monetary policy just happened to have been firming at that time. So it all made sense (except to the perma-pompoms, who just kept on cheering).
The reason I harp on this 9 years later is because lessons learned are valuable. Also because when I am projecting bullish for what I believe are solid reasons, you can back check to make sure I was cautious when appropriate. Otherwise, it’s just another bull voice amid the vast promotional machinery.
Not only do we have the technicals stating “next leg up”, we also have the macro picture above showing much room for the Fed to weaken. The cherry on top is that gold’s “real” price is trending up vs. important items like WTI Oil, Copper, the balance of global stock markets and maybe even soon, the S&P 500.
The Gold/Silver ratio is a different animal and indeed, it could well weaken during a significant precious metals sector rally. But as it stands now, it is bull-biased. We are watching for a potential bottom in Silver/Gold and top in USD, which turn the GSR down and that is fine for the gold stocks, assuming we don’t get a big 2016-like burst in cyclical and inflation-sensitive markets.
Here is the weekly view showing longer trends. Copper’s recent strength and relative strength to gold can continue and still not break gold’s uptrend in copper terms. Global stock market players should be very aware of gold and at some point I think so too will be US market players.
Regarding a would-be 2016-like burst in cyclical/inflation markets, well, “Disinflationary” says the Gold/RINF ratio. It is an important indicator for gold stocks and it is just fine.
Wrapping up the precious metals, let’s just note that yes, there is excitement brewing and gold’s risk rating is high. But what’s good for the stock market goose can be good for the golden gander once in a while, eh? Extreme optimism is a feature of a raving bull market. Let’s manage 3000+ before getting overly concerned. If the technicals break before that, we will adjust. Otherwise, I don’t see why we should abandon a target we have had in play since 2020.
Further, the macro appears to be developing into one that the miners can leverage to positive effect, just as 2016 and 2020 were ones they ultimately leveraged to negative effect, due to inflation. I think inflation will be back, but it it may not be cyclical (i.e. may not work positively for the economy) and it may be subject to an interim deflation event.
Commodities
We have been noting lately that CRB is above it previous high while GNX and DBC are below theirs. This is owing to the respective mixes of commodities held as the broad segment gets the Whack-a-Mole treatment (various commodities popping and dropping amid not great macro fundamentals).
I am going to give the segment the short end of the stick as we’ve already had some discussion of it in segments above and due to the macro that is more conducive to counter-cyclical gold mining than cyclical commodities. Not much has changed from recent weekly reports, after all.
USD & Gold/Silver Ratio
The duo of market liquidity destruction, the US dollar and Gold/Silver ratio, continue to hang in there, even as the USD looks more vulnerable to a sizable correction. USD is wobbling around above support and the GSR is still biased bullish. As such, we should not become over-confident just yet in items like the TSX-V, commodities and other anti-USD cyclical markets.
If USD fails and the GSR remains muted (at best), we can call Wayne and Garth and get the party going.
Portfolio
Gold is long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
In order of position size, account is heavily in cash and holding a few diverse favored positions. Again, I remind you that these portfolios are right for conservative Gary. Your situation is different. You may choose to have less or even more cash weighting, more risk or less risk. NFTRH is not a “stock pick” rag.
Trading Account
No positions.
Roth IRA (non-taxable, no contributions)
The IRA’s chart shows a breakout of the recent consolidation but of course, it’s right up at the resistance of the previous high. A breakout here could lever me a bit more toward party mode. A failure, not so much.
Cash/Equiv. is 81%, so the IRA crept a little more into the market from last week’s 84%. But I am rebalancing on the fly as macro indications advise (e.g. copper miner exposure as Cu broke bullish). I am ready to reduce cash further if we get the macro high sign, especially from the USD/GSR and the bond market. I am also ready to go the other way.
Status
Short-term open to continued broad rally, but still waiting for more positive indications. Longer-term bearish.
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.
