Shooting Fish in a Barrel
With the benefit of hindsight, that is what last week was like. Standing over an open barrel and shooting fish packed so tight they could not avoid the carnage (if they were short). The point was proven. That at any moment Trump could open his orifice and move the markets.
Markets that we had noted were like a tinder box ready for a match to begin with. The match came as Trump, whether compelled by the tanking bond market or otherwise, opened wide. To be fair, before that he had asked people to keep calm while markets were tanking. Had they listened, or taken that hint, they’d have made money by shooting a few aquatic finned creatures themselves.
Now comes the important question: Bear market rally (BMR) or completed A-B-C correction in an ongoing bull market?
Personally, I am sticking with the BMR scenario. But I am an indicator nerd going by his nerdy indicators. Steepening yield curves guiding the Fed to cut the Funds rate (let’s recall that the Fed tends to start cutting into bear markets), the 2yr Treasury yield’s ongoing divergence to T-bill yields and the Fed Funds rate, not to mention many other “straight” indications of economic deceleration hitting the wires.
Also, there is the surge upward in high yield spreads, which indicate a jerk to bear market behavior with the impulsive takeout of 4%. So I will stick with the original plan of a bear market and down-cycling economy. Although the 2022 example shows how the spread can rise, pull back, and rise again. We may have just completed the first impulse of a coming bear phase, and a pullback in indicators like this could work well with a strong BMR.
The long-term picture shows that the last three recessions included elevated to impulsively elevated spreads. 2008 was a larger impulse due to the surprising discovery (which should not have been a surprise at all) of a systemic “near death” experience, and 2020’s impulse was due to the pandemic and reactionary economic shutdowns. In 1998 to 2000 the spread gave a long and grinding warning about the bear market and recession to come.
This time it can work either way. But I suspect with all the pent up bearish emotion of late, the bear will be held off for a while yet. Here is the epic over-bearish (dumb money) sentiment profile included in Friday’s Daily Notes. Smart money has been eating itself some stock market.
With the idea that with either a BMR (leg 4 up, favored) or A-B-C (‘C’ completed) bull market extension the rally would be tradable, I added SPY fortuitously only minutes before the orifice opened and the thing sprang upward like an inflated ball held under water then released. Pure luck. The next day I added the pullback. I also added a few other stonks, which you will see below and in the portfolios.
The reason is oversold markets and deplorably over-bearish sentiment. A tinder box and a match.
Sad Trader/Happy Trader
As the stock market finds some sentiment relief, let’s take a moment for some unbelievably funny comic relief (at least for me, a guy who really enjoys the psych side of markets). Compliments of cnbc.com, comes this fellow, who you just know is going to live on in the lexicon of NFTRH and its reliance on imagery, nicknames and all sorts of other colorful aspects of this dismal science.
This may be the damn funniest thing I have ever seen. That is because the mainstream financial media is one of the most consistently funny things I have ever seen. But it’s also instructive of what the public is being fed. Reinforced negative on a bad market day and positive on a good one. I love the red numbers looming over Sad Trader and the green ones behind Happy Trader.
LO freaking L, CNBC. Thank you.
As an aside, if you have a funny idea about what I can name him, I’ll consider it. He’s my new pet.
S&P 500
SPX broke through a resistance level and has turned it to support. If this holds SPX is looking upward at the next resistance at around 5700 and above that at the converged moving averages in the 5760 to 5780 range.
Of course, when the media touts the Death Cross of those moving averages, which will come next week, we will realize that the play in such situations is to be thinking the other way. In this case, up. The way it usually works is that a move in the opposite direction of that implied by a “Death” or “Golden” cross to screw over those who take the bait precedes any bearish or bullish move to come as implied by the cross.
That would fit very well with our view that, even if it is a BMR, it could be a dynamic one to the upside, setting people up to get bullish again and have their hearts broken again when the bear resumes weeks or months down the road. It’s just a mental sketch right now folks. But it is viable. Quite so.
Dialing out, let’s note that while SPX has filled its two most nagging upper gaps, it has plenty more of them well below. Again, supportive of our BMR scenario. A real bear market would easily get down there (or lower) for a gap fill expedition.
The options for SPX as I see them (given the sentiment profile) are resistance at 5500 (which I think it will take out), the gap at 5572 just below where the ‘4’ label sits, the moving average convergence at 5760-5780 or anywhere below the all-time high of 6147.
To complicate matters, the market would also be capable of making a marginal new high before failure into a bear market. But that would also open the gateway to a resumed bull with the A-B-C bull market correction scenario having won out.
What to do? Not get caught guessing. Right now the view is bullish. More data points will come in along the way to either strengthen or degrade our BMR view. Why not play the market we have as opposed to imprinting our bias on it? Eh?
Stonks
Natural Gas play AR was highlighted in an NFTRH+ update on Friday, for its chart, the Gas chart and seasonal and the contrary positive hedgers positions in Gas. Let’s look at a few others.
You’ve heard me mention ALAB. It is a favored play on AI. Everybody knows AI was played to the hilt, but we are talking about bombed out items and a market where FOMO could eventually develop. I am not investing right now. Holding SPY and some individual stocks, I am trading what I think will be a strong BMR.
With caveats that these are bottom feeds, which can take forever to get off the ground if they are to get off the ground at all (trends down), let’s check a couple out using daily charts. ALAB declined a long way and retraced nearly all of its rally and filled two nagging gaps, to boot. RSI and MACD sport positive divergence and look constructive for upside.
The stock is dealing with resistance now. The next level to watch is the Death-Crossing moving average convergence. After that, clear resistance at 85. If a broad rally really extends, how about a gap fill up around 115? Could happen. Of course, I could also be wrong to be bullish the markets right now. Especially if it is the bear market I think it is. We should stay balanced and open minded.
RDDT was added on Friday after it dive bombed support and filled a gap. As with the above, I like RSI and MACD, as a bottom feed spec. It is dealing with the first resistance area at the SMA 200 now. A large broad rally could see RDDT try for the SMA 50 or even the clear lateral resistance above it at 156.
I added CVNA after having a wonderful and effortless experience selling a car that my NYC dwelling daughter had no use for. From quote, to mid-transaction communication to the wonderfully friendly and helpful young man who came to pick up the car (and pay me on the spot), I was surprised at how seamless and effortless the experience was. Especially from a publicly traded company.
Side note: I am sure the price we received was somewhat lower than what I could have gotten had I done the sale myself. But call it a convenience charge, and man was it convenient. They do exactly what they say they’ll do every step of the way. Okay relax, it’s just a stonk.
The chart never got bombed like others, but I saw that as a sign of relative operational strength and company internals. We shall see. I’ll hold it pending the support below the SMA 200.
A few more positions are shown in the Portfolios at the end of the report. If the BMR proceeds to plan, I expect to add more items, with a watch list at the ready across various sectors.
Precious Metals: “It’s a bull market, you know”
But the real action, you ask?
It’s “hold onto your hats!” as gold just keeps going up, extremely overbought on a monthly chart and showing no sign of stopping. Technically, the risk is and has been very high. But this is a clear example of why we should not try to guess our way out of a bull market. At some point the reaction is going to come. The only thing approximating that so far was the April 4th-7th drop to nearly test the daily SMA 50. That was mild, to say the least.
Inside the gold market’s internals we have an interesting dynamic playing out in the Commitments of Traders (CoT). The little guy (blue) is rabidly bullish, which is a concerning sign from a contrary standpoint. However, the large Specs (green) have been routinely fading gold the higher it goes, while Commercial traders (red) do what they always do and take the other side of the trade, reducing net shorts. All in all, it looks like the market is climbing a wall of worry among the heavy hitters while the little guy happily keeps on stackin’.
Silver is still bullish on its big picture monthly chart, as we noted in an NFTRH+ update on Thursday. Recall that the target of 42 implied by the daily chart’s Cup pattern, about which I was flat out wrong, is off the table. However, also recall that we had previously used this monthly chart to provide an alternate way of measuring to 42, which is not off the table. In having so far held support at 30, silver monthly continues to eyeball 42 based on a measurement from that support down to the 2022 low.
I have a sneaking feeling that silver could make a catch-up move to its big bro. Just a hunch, as this weekly chart of the Silver/Gold ratio (SGR) proves there is little technical basis for it other than sometimes violent moves in one direction (in this case, down) are followed by violent moves in the other direction.
The SGR is thus far getting drubbed in its ongoing weekly chart downtrend. For an example refer to 2020. That tank job was an event driven situation, much like today’s is an event driven situation of a different stripe. If silver were to take leadership in the near-term, I would see it as a relatively short “trade”, not a long phase if the liquidity constrained, deflationary macro view is to play out. If silver were to wait an extended period, such a phase could follow a deflation scare and central bank policy flip to dovish.
It’s worth considering at least, and as you know, I am no raving silver bug. I did initiate PSLV per the update linked above and added a bit more as I contemplated the potential noted just above. If silver were to outperform soon, I’d see it as a trade. If it were to do so after a deflation scare, it could be more structural in line with an inflating macro as central banks and governments do all they can to bring on Inflation/Stagflation.
Silver’s CoT is not bad. Certainly not any sort of show stopper as moderately bullish large Specs pulled back, Commercials reduced shorts and the little guy recoiled on the big plunge that seemed served up especially for the #silversqueezers.
GDX made a sharp pullback, but never did get to the the support coinciding with the uptrending SMA 200, which would have been a hard buy. As it was, the SMA 50 was a point to do some buying, which was noted and which I did. This is what bull markets do. Even some of the most ardent believers (ref. gold’s large Spec wall of worry) get faked out of their shoes.
I learned the hard way in the 2001-2008 period that you can trade out of positions that never stop to let you back in. That is why I have hedged at times, rather than sold. With some upgrades to Newmont last week, the big houses are paying attention and the big money is taking notice.
This was a key element of our bullish thesis; that at some point the big fish are going to enter. Well, they are entering. And as noted last week in #857, reporting season is right around the corner and it has bullish fuel theoretically hard wired in due to gold’s preeminence upon the macro over other assets, including mining cost drivers. Will they sell the news? Could be. But a lot of things could be. Remember Old Turkey from Reminiscences Of A Stock Operator:
“It’s a bull market, you know.”
Daily HUI/Gold ratio (constructive) and HUI/SPX ratio (bullish): “It’s a bull market, you know.”
HUI/SPX ratio weekly: “It’s a bull market, you know.”
It’s a… anyone? Beuller?
I am not trying to hype you up. I am just reporting what I see. Some indications of high risk that have been in play for months (BPGDM is back toward frothy as well) and a bull market (you know). But the graphical view of gold miner fundamentals is a thing of beauty right now, just like the charts that it represents.
So when I present this chart once again, I am not trying to hype you. But if I see bullish, I report bullish. Just as I do the opposite when needed. HUI is rising right in line with gold miner fundamentals as a counter-cyclical sector. Look how far the Fed Funds rate could still drop.
What Could Go Wrong?
What could derail this beautiful picture (chart above)? Well, Trump could actually be a genius and fix the US economy and mend global tariff fears sooner than expected. Or tariff-born inflation anxieties could persist and keep the Fed elevated. But if the enchilada unwraps into a recession and counter-cycle, gold stocks could be looking at new all-time highs (big picture).
Our view is and has been for an interim liquidation/deflationary event and I don’t think this little market mini-crash was it. I think the odds are better than even that tariff-induced inflationary pressure will bring on the opposite condition to that which the public expects. As shown all along the way, the economy was already trying to fold, but was propped under Biden by fiscal stimulative measures up to the election. So it’s not just the tariff uproar. That will be blamed, but this mess was trying to unwind well before Trump took office.
A subscriber notes and asks:
My assumption is that the Fed will lower rates because that is the way that the economy has been pointing, with inflation decelerating as expected and economic weakness slowly spreading, also as expected.
The Tariff war is a Spanner in the works, but while it could create interim bursts of inflation expectations and spiking Treasury yields, potentially impairing precious metals (unless silver has taken upside leadership and gold stocks wrongly get an “inflation trade” pump as per the 2004-2008 cycle), I think it will ultimately aid in wrecking the economy.
As economies start to melt down we’ll see how long the Trade Warriors, including Trump, stick to their guns. Right now, I view Trump’s tariff war as an accelerant to a coming recession. However, and it’s a significant “however”… Trump has a rather large orifice, he loves being front and center (IMO basks in it) and may bull horn all kinds of things, depending on how he wants markets, media and Ma & Pa to react.
It’s Trump’s world and we all get to live in it. But the bottom line is that insofar as tariffs are economically destructive, I expect the outcome – after several inflationary twists and turns – to be deflationary, and counter-cyclical for economies. Hence, a continued focus on the counter-cyclical gold mining sector.
As a side note, another wild card is longer-term Treasury yields, which have been spiking lately. China, Japan, Europe dumping T-bonds? Likely, to some degree. The subscriber also wonders whether hedge funds may be unwinding carry trades in bonds. Also likely, to some degree. Spiking yields can be interpreted as spiking inflation fears.
However…
Despite a big spike last week, “inflation expectations” gauge RINF is rolling over. This is something we’d want to see happen for a purist fundamental view on the gold miners to persist. Here it is important to remember that if a real deflationary situation were to develop, the miners would likely get sold (to a buying opportunity) as part of a wide ranging market liquidation, as this counter-cyclical sector often gets sold by its inflationist proponents at the exact time its fundamentals scream higher (ref. Q4, 2008 & Q1, 2020 for historical facts).
And of course, we want to see gold continuing to rise in relation to RINF, which means that gold and its counter-cyclical risk-off utility are rising in relation to inflation anxieties. Inflation is not, yet at least, the most clear and present danger. A deflationary liquidity trap is.
Gold stocks have spiked to catch up with the ratio, but are not exceeding it. This is as it should be, fundamentally, for the gold stock sector.
However, this market has amazed me by its ability to NOT foresee what it sees right in front of it. For example, it saw the coming of the Trade War from a mile away, and yet it made its dramatic reactions on the day that the Tariffs were actually implemented. Then it reacted when Trump bowed to the bond market and softened.
Is the market still reacting in real time, waiting for tariffs to start to hit the economy before it drives up inflation signals just as it waited for tariffs to actually hit despite knowing they were coming? I am not going to try to outguess this dysfunctional mess. Anything can happen in the short-term in a hyper-noisy news cycle.
The indications have been growing positive for counter-cyclical gold stocks for well over a year now. I’m sticking with that and prepared for any volatility to come. We are entering a counter-cyclical macro, broad bear market rally (BMR) or not.
Back on the Miners
We have been targeting HUI 375+. Huey closed the week at 390. Boink.
HUI weekly made a big and bullish engulfing candle last week as it put in the target. Neither chart is hideously overbought yet. Although they are overbought to degrees that have preceded previous reactions. But we just had a reaction a couple weeks ago. This could also be a continuing launch.
HUI monthly is also getting overbought. Referring back to the 2001-2004 analog phase, note how a “real” bull market (for the right fundamental reasons) can get more overbought before reactions take place. One of those reactions back then was a 40% pullback, as we noted last week. But that was within a 350% rise in HUI as we also noted.
The point being that I am not prepared to start guessing about an eventual near-term top, let alone an ultimate top. Over the last few weeks we have pulled in the operating target of 500 as a more realistic objective on a nearer-term time frame than originally anticipated.
But the bottom line is that we are at the next target. Traders should do whatever they do when they have profits. Longer-term holders should do whatever they do. Violent pullbacks will come, but “it’s a bull market, you know.”
Commodities
If the theory expressed above – that silver can play catch up and have a phase of leadership vs. gold – plays out, the indication for commodity and resource stocks would be very positive. Thing is, that theory has not played out and remains just that, a theory. But as I am watch for silver vs. gold, I am on watch for commodities as well. The question, as noted above in the PM segment, is whether silver takes over in the short-term for an inflation trade, or the longer-term after a deflation scare in markets. So for now, I am moderate and patient on commodities.
CRB index, GNX index & DBC ETF: These items got killed during those few days when most everything else did. But USD also got killed. There are a lot of wild cards in play and I think some commodities can have strong bounce backs, although most remain in bearish downtrends.
Copper & Industrial Metals: Copper got destroyed (see gold bugs, it’s not personal) and is thus far bouncing back hard. But unlike the metal they produce, copper miners are generally bouncing within a bearish breakdown from support. The miners need to “prove it”, at least in my book. Broader industrial metals (GYX index) and their producers are similar to their red leader. Let ’em all prove it by undoing breakdowns.
Uranium: I am wondering if perhaps it is time to re-take a couple positions. I just found this “index” of CCJ, DNN, NXE and URNM and notice that it slammed support. The price of u3o8 is currently at 64 and we have been watching support in the 58 area. The stocks could precede the commodity. I am going to keep the sector on watch.
Oil & Gas: We covered Gas in the update linked above in the Stonks segment. It is seasonally positive and has pulled back within its uptrend. I bought AR for those reasons, along with commercial hedger positioning.
Oil was impaired by the global strife already in play, but also a recent OPEC price manip action. This caused a clear breakdown in the long-term charts. However… keeping in mind the breakdown in silver vs. gold and the theory that it may have preceded a bounce back, let’s keep an open mind. No immediate interest, but oil is also seasonally positive (into October) and I’ll keep XLE and its components in mind and on watch. Meanwhile, Crude’s Commercial hedgers are aligned quite contrary bullish, having reduced net shorts about as much as they ever do:
Rare Earth plays MP (US) and LYSDY (Australia) are still on schedule. MP is dealing with the resistance area noted previously at 26 and trying to establish support in the 21 area. The uptrend from August is fully intact. LYSDY is dealing with resistance at 5 and has been curiously firm during the recent market tank jobs. It is not as far along as MP in breaking out of its bottom/base, however. I hold them both.
Palladium and Platinum are wallowing along in a base that has made no sign of impending upside (Pd) and Pt has been a more moderate version of the same thing. Nothing actionable, but if there is a future that involves the PGMs, these will are presenting opportunities for long-term investors. If I were interested, I’d probably buy the metals, but also consider SBSW.
Agricultural commodities have bested me in the past. I have no interest in them. Most are trending down, although Corn is making a hint about something that I’ll choose not to care about. The “fert” plays are IPI (constructive to bottom and turn up from its base), MOS (locked in a downtrend) and NTR (a sloppy middle ground between the conditions of the previous two). If you’re an Ag head, you might want to keep an eye on these three.
USD & Gold/Silver Ratio
The signal is that America is doing what it can to devalue its currency, which as the world’s reserve currency has put pressure on the US economy to consume more and produce less. So it is natural to expect a declining US dollar in an era where imports are being dissuaded and exports encouraged.
The Gold/Silver ratio has been going the other way, in a signal of constraining macro liquidity toward a deflationary situation. Until the GSR breaks down, forget about a silver-led inflation trade.
What could arrest Uncle Buck’s decline? A good old fashioned liquidity crisis (e.g. Q4, 2008, Q1, 2020). But that assumes the rules of the last 20 years. But…
…the above currently does inch our 2001-2004 analog theme further to the fore. Why again are we bullish on the gold mining industry? But also, why might we not see a failure in USD to be the global liquidity vacuum on this cycle? If the analog proves out, it could well include a firmly bearish USD.
Portfolio
Gold is long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
In order of position size. Cash and Treasury equivalents along with favored gold stocks, strategic MP and a few bull stocks along with SPY. I’ll increase positioning if/as the BMR (at least) view moves forward.
Trading Account
No positions. Profits made on the short side and were given right back on Trump’s orifice day.
Roth IRA (non-taxable, no contributions)
The chart hinted a breakdown and bounced right back. Frankly, I am looking for new highs if the BMR is what I think it is and if gold stocks continue leading it. The vertical blue line shows that I have done a lot of work in 2025 for very little gain. I want to end this consolidation one way or the other. It almost ended last week (downside), but now I am looking upward. If that’s a foolish tack, I will adjust.
Cash and equivalents are at 82% and while I’ve been adding/increasing some gold stock positions, a strong BMR could see quick gains in other areas. I’ve begun that process with ALAB, RDDT and CNVA in the sexy Cathie Wood type arena, and the likes of AR in the commodity/resources area. The two larges non-cash/bond positions are in silver and the S&P 500. They may also be increased.
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.
