The End of the Beginning
We have long had 3000+ as our next target objective for gold. It hit 3500.
We have long had 375+ as the next target for HUI. It hit 415.
Silver’s target is 42, and it is still open as the metal never got through the previous target of 35.
As to gold, we also noted that a reaction was likely in one of our primary counter-cyclical indicators, the Gold/SPX ratio. The ratio has spiked nearly to the level of the 2020 Pandemic/economic shutdown era, even though today’s economic troubles are not yet even in the same ballpark. It was going to pull back, and it has started to do just that.
You might look at this and say that it’s been a severe overreaction in Gold vs. SPX, because the economy is actually fine (though late stage and at increasing risk of recession). But consider that the effects of the global trade/tariff war are not felt immediately. Also consider that even if Trump chickens out, the interim damage – to some degree- will already have been done. Here is a well thought out piece on the subject.
Finally, consider that our counter-cycle/recession/bust indicators were in play back in 2024 as the Biden admin shoveled shit against the tide to keep up economic appearances into the election. These included steepening yield curves and the divergence between the 2yr Treasury yield and the 3mo T-bill yield, both conditions that preceded or coincided with the last two major bear markets.
Party On
As of last week’s close? You tell ’em boys!
SPX has already partied on. Right to and a bit through resistance. The ultimate proving ground is above the 200 day average at point 2/B. Make a higher high there and you’re potentially on to new highs, SPX. Hold below it and the favored bear market rally (BMR) view holds sway. Meanwhile, there’s a nearby gap above and a nearby gap below. Either or both of those could fill before SPX resolves bearish or bullish.
Let’s blow up the picture to look at some options.
- The red 1-2-3-4-[5] would be the BMR scenario, with a failure back into a bear market coming somewhere below point 2/B.
- The black A-B-C is the bull market correction scenario, implying new all-time highs to come in an ongoing bull market.
- The orange A-B-C could be the first counter-trend rally within a new bear market with a failure ahead at 4/C.
- Red 1-2-3-4-[5] and orange A-B-C actually go together, as that A-B-C could actually be the bull’s last gasp before a more widely known bear market takes over.
My view is and has been “bear market”. However, the chart’s view is still in question. It certainly allows for the bear, and in my opinion, favors it. Add in the Spanner and Monkey wrenches thrown into the spokes of the economy and the counter-cyclical “bust” pressures that were already building, and we are squarely in the bear camp.
Is the bear view fool proof? No, active bear trading is never fool proof in a system that has been rigged to promote asset prices. Is that view favored? Yup, especially now that the macro has changed (e.g. prime example, the 30yr yield Continuum’s upward break from a long-term downtrend).
NDX is coming up on a meeting with its Death-Crossed moving averages after leaving a gap. *
RSI is rising to meet its downtrend line (minor consideration) and the key level bears should not let it exceed is 20,292 (March 25 high).
* As you can see, the bounce is refuting the cross, as is usually the case. This is to punish anyone dumb enough to trade based on TA lure (and media fodder) that is eyeball grabbing bullshit. Negative implications, if they play out at all, come later.
Meanwhile, the XLV/SPY ratio (defensive Healthcare vs. Broad) is doing what it should be doing on market relief. It has room to decline further.
But by the same token, let’s also realize that the bullish US market leadership chain (SOX > NDX > SPX) is trending down and is another indication of the favored bear market view and counter-cyclical macro.
VIX is hard down, also in line with the utterly predictable relief and joy (or at least MOMO & FOMO) suddenly entering markets. While a bear market rally could end at any time “It’s a bear market after all”… I think that VIX can be driven down to its (orange) 200 day average eventually, as FOMO intensifies. Why again did I take a quick profit on UVXY? Oh, yes…
US Stock Market Sentiment
Deplorably over-bearish sentiment was the engine that got the whole thing (BMR) off the ground. Now the Dummies are FOMO’ing the BMR. Interesting how gold’s short-term risk reading is now lower than stocks.
And they’re off! Off of the CNN “extreme fear” reading they were pinned to for weeks.
NAAIM are still fearful. But this reading came before the market jumped higher to end the week. Investment managers ate some stock market at the end of the week, no doubt.
AAII sentiment was barely changed from last week’s over-bearish reading. Let’s instead view a special question asked of Ma & Pa:
Sentiment Bottom Line
The process of resetting epic over-bearish sentiment has begun. But viewing the market through the sentiment/psychology lens, there is implied to plenty of room for bulls to run. If it is the bear market I think it is, sentiment need not reset all the way to briskly over-bullish. But it is not standing in the way of further BMR activity.
As a side note, some Sentimentrader “quant” analysis shows that historically the odds are that the rally has further upside, based on historical data from similar situations.
Precious Metals
It is so clearly a bull market in gold stocks. And not just because some nominal chart says so. We’ve been saying so since HUI made the higher low in 2019 and now it is backed by the macro-fundamentals.
The miners have started reporting results, and they are positive (e.g. NEM, AEM) as expected. However, there could be some selling of the news with players selling what was working in favor of what has not been working, but which has been bouncing.
As if on cue, our projection that the miners could get dinged if the stock market gets some relief has played out perfectly, short-term. Since the correlation has been positive in the past, I would not rule out the possibility that the miners could regather a bullish orientation even if stonks continue the “hope” rally. But this initial reaction was dead-on and as expected.
The HUI/SPX ratio is turning down where it should turn down. We should see a decline in the ratio to at least the first implied support area.
Interestingly, the HUI/Gold ratio has held up nicely during the gold knock-down and sector pullback. This is exactly what we’d want to see on this correction; gold stocks hanging tough in relation to the metal, as opposed to leading it down.
The Silver/Gold ratio, on the other hand, has no played out our theory that this plunge could precede an upside surprise, much like the 2020 plunge did. Of course, there could be more downside to go first as the sector is in a pullback. But silver was conspicuously bullish last week as it tries to battle it out with gold.
Speaking of bullish, the Canadian TSX-V argues for silver to lead gold because it carries stocks, legit and scams alike, that would benefit from the implications (speculation, possible elevating inflation fears) of a rising Silver/Gold ratio. In ticking a slight new high, da ‘V’ has its sights on the next target of 680.
We plotted some GDX pullback possibilities in this April 23 NFTRH+ update. The minimum level was hit and bounced from. Then the price dropped again on Friday. Technically, the gold stock correction is not over. We noted 46 as the next level (current price: 48.81) and then a harder correction could take it to the 42-44 range.
As per the Daily Notes on Friday, I covered my shorts because I am bullish on gold stocks beyond this pullback/correction, because I am learning to take profits from the bear side lest I lose them, and because I am not sold on the idea of gold stocks making much more than a routine correction here (ref. the HUI/Gold ratio above).
Finally, given the recently negative correlation between gold stocks and broad stocks, bull stock positions are making up for any damage taken by gold stock holdings. In other words, long Tech is actually acting as a very indirect hedge to gold stocks to this point of the correction.
Of course, it helps to have a stock like OGNRF (OGN.V) take off like a bat outta hell as it gets a buyout bid. I am holding it for the Spinco to come and tipping my cap to Rich K, a man who did a lot of long-term due diligence on this one. The drudgery of holding some of these ‘.V’ items can be interminable. But when one finally goes off after years of holding (hello Great Bear, now absorbed into KGC and its royalty into RGLD) it is, well, satisfying.
Interlude: I don’t make fundamental stock recos because I am not a fundamental stock analyst, and don’t pretend to be. I am the macro top-down guy who gets the macro/sector work right and then bores down to individual equities. Doing it the other (top-up) way makes it harder to find stock picking success, even if your micro-funda is good. It’s tough to fight a sector’s wider orientation. This is why I tend to limit holdings of smaller speculative stuff and rely on the less exciting quality stuff for main positioning. OGN actually grew into its position size, was trimmed, and it grew back again. That was due to DD I trusted, done by another.
Also, and given the state of the TSX-V above and its implications on smaller, more speculative and less developed gold stocks, look what NG did during a corrective week.
I actually had it on my watch list along with SA, a stock I lump in the same general category of a large project (KSM in British Columbia) that will need heavy financing or a takeover by a major. I had to waive bye bye to NG, but added SA as a bottom feed (pending the 50 day average).
Not a reco of course. It’s speculative. But the type of stock that I think could finally get bid if/as gold and copper remain aloft and markets have a speculative sentiment surge, as would be implied by silver leading gold and the TSX-V busting bullish. “Would be”, not “will be”. There are things to prove yet.
The rest of the gold stocks held are in the portfolios and I am comfortable holding them, looking to add to them and also looking for other opportunities on this pullback/correction. I may hedge again, may not. But thus far everything is playing out to plan, and that includes the bulling stock market.
Commodities
Over in the Commodity space we find the Copper Miners ETF making a clear move back above former resistance. As you know, we’ve been discussing copper lately, especially from the standpoint of Trump trying to make nice with China.
Weekly Charts (for a wider angle view)
The trend here is sideways/down, but the longer-term weekly chart shows how important that support was to reclaim. It has been my contention that the copper miners have been waiting for one thing above all others (aside from Trump making nicey nice with China), and that is for silver to lead gold. Still on watch for that.
The same (a rising Ag/Au ratio) would work for most commodities, including the floor-floundering Palladium…
…and the sideways-going Platinum.
We already tracked the base breaking process in Potash play IPI, which ended last week in exactly that condition. NTR and MOS are also in potential bottoming situations.
Over in Uranium, the trend has been a hard down and positions (UEC, NXE, CCJ) were added for no other reason than that, as this chart of a tracker of the combined CCJ – DNN – NXE – URNM showed us a tank job to support a couple weeks ago.
I just can’t take to this chart of XLE. If the rest of the cyclical world continues to bounce so too should XLE. But as a chart guy often I cannot buy a chart that looks ugly to me. It could bounce and turn all that red to green and the chart would be more bullish. Still sloppy, but more bullish.
Within Energy, NatGas has been dropping hard, but is seasonally positive. I still hold AR, which seems to think that Gas will soon be halting its decline.
While WTI Oil continues to dwell in breakdown mode. Considering the relative state of Gas and the look of XLE, I’ll stick with AR for now.
US based Rare Earths producer MP has trended up since last summer. I held and added a second position on last week’s pullback.
Aussie Rare Earth producer LYSDY pulled back after making its base breaking bull move. Holding this one for a more global take on the REE segment.
The price of Nickel is still floundering on the ocean floor after its long submarine dive to the depths of the economic shutdown crash in March of 2020. Through it all I have held TLOFF (TLO.TO), and recently added some more. This Ni (w/ Cu) prospect is taking forever and a day. But it has recently had some good exploration news, is a future American mine under a favorable political regime, and if the price of Ni ever gets off the ocean floor, a speculation that could work well.
To this point TLO has been a paper loss maker for me. But if/when cyclical winds start to blow it’s the kind of stock that could really move. It’s got the funda goods (funda hat tip, subscriber MC, a geologist and close observer of the Ni market), property-wise.
Global Stock Markets (weekly charts)
Global (ex-US) continues to rally vs. US.
For perspective, let’s realize that this trend in World/US is a fledgling thing in comparison to the long-term downtrend. Let’s also marvel at how perfectly the bounce came, right from “America Great Again” day on January 20th.
Nominal World (ex-US) is back into its uptrend channel. Note how ACWX did tick a lower low to the bear market decision point, much like US indexes did. It’s a moderate hint in favor of the “bear market” view, from a global perspective.
China large caps began doubting America would be great again last year when the FXI/SPY ratio made a higher low.
Long-term perspective here as well.
USD, GSR and the 2001-2004 Analog
If the relative trends shown just above are changing for real, the rotation trade out of the US could become a bigger trend. However, let’s remember that it is also a currency play, with a majority of the world’s ratios to US markets geared to a weak US dollar. Daily USD is and has been quite bearish.
Weekly USD has banged and hammered a support area. As a side note, recall that we have allowed for USD to eventually grind all the way down to the 93 area, where it would still remain in its post-2008 bull market. Technically however, it is at a viable bounce/rally point now.
The US dollar is being rejected globally. Everybody knows Trump is trying to devalue the dollar in favor of bananas (as in republic), but will Uncle Buck comply? The reserve currency could yet have one more liquidity event trick up its sleeve. If so, the still Elevated Gold/Silver ratio will have led the situation and the 2 Horsemen of the Liquidity Apocalypse could ride again and wreck the macro.
However, we have an ongoing theme tracking the analog to the 2001-2004 period. So I don’t currently expect USD to be a primary liquidity destroyer in the near-term. It could still happen for a phase, or the next global bear phase could be as per the analog, and see the Gold/Silver ratio resume upward with global currencies gaining the relative liquidity bid.
Either way, a rising Gold/Silver ratio will not be pleasant for most people. In this moment of relief, we are simply looking for a counter-punch jab by silver vs. gold. Not a new trend as per the average silver bug (“silver is SO undervalued compared to gold… see, the ratio says so!”). No sir, silver is not gold.
Portfolio
Gold is long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
In order of position size. Cash/equiv is of course very high. Portfolio has started creeping the “bull relief” rally play with a few bull stonks. Gold miners held are held firmly, given the macro. DUST hedge was added and released for good profit. Maybe I will get a taste for short side profits (including in the wider markets) and do it more often. I just need to remember “when you’ve got profits from the short side, TAKE ‘EM”, because that is often not how I’ve done it.
Trading Account
No positions. This is where I’d like to nimbly short individual equities whenever I start to feel the BMR is concluding.
Roth IRA (non-taxable, no contributions)
That’s more like it, Mr. IRA Chart. I will watch to see if this all-time highs breakout is real, or Memorex like the false breakdown was.
With cash and equivalents at 83%, I obviously have room to gear into more bull to press the upside breakout above. However, a good chunk of that came from a short on gold miners (DUST), a long on volatility (UVXY) and a junior royalty (OGN.V) getting bought out. So steady as she goes. I’ll stay in tune with the market on a weekly basis and stay mentally nimble.
IRA holds favored precious metals stocks and specs alike. I have PSLV/SLV on watch for re-buy. Bull stocks are RDDT, CVNA and DDOG. I’d be willing to look at a couple more, pending the BMR rally view.
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.
