On Plan
The plan included a renewal of spirits in an extremely over-bearish market environment and an associated bear market rally (BMR) in stocks. Since the gold stock sector had (logically) been going up during that negative environment, a rotation out of gold stocks and into broader stocks was anticipated.
Pardon the frequency of this chart being displayed, but to me it is too beautiful to set aside for long. That is because the gold stock sector is counter-cyclical and in 2025 it is acting counter-cyclical. As such, the sector is correcting while the broad stock market gets a heavy dose of relief.
Macro Updated
That is important because we are not here to follow the herds and their ill-conceived notions about why we should be bullish, in this case, on gold stocks. We are here to follow the proper macro-fundamentals. As gold rises vs. silver, commodities and stocks, the proper backdrop is implied. Gold/SPX and Gold/Global stocks have already corrected to their daily chart intermediate trends at the 50 day averages.
If the correction is to be more severe than an intermediate one, take note that the 200 day moving average of the Gold/SPX ratio is far lower.
I do not believe in making predictions and I don’t favor the ratio dropping that far, but I do believe in being prepared for things that are possible, which such a decline would be.
Here is the longer-term weekly view for a better look at the deeper downside supports. Notice how the daily SMA 200 above is rising. It would in time meet the implied support area in the .50 to .53 range shown on this weekly chart. So both charts show the potential for a deeper pullback in Gold relative to SPX within an ongoing bullish bigger picture backdrop.
Here we recall the 40% gold stock correction within the 2001-2004 cycle that saw an overall 350% rise. In other words, volatility is a thing. Especially in the precious metals. I am not looking for a 40% correction at this time, but whatever depth it finds (routine or deep), there are options for its implication on other markets.
- Such an event could coincide with a stronger BMR (never underestimate the herd’s emotions, to the upside or down) that tests the February 19th high in SPX or negates the bear market scenario altogether. Is a “new bull market” favored? Not at all. Can the highs be tested within a bear market that doesn’t know it is a bear market yet? Yes.
- Alternatively, if the precious metals complex corrects hard it could also be a sign that the broad market will soon follow and resume the bear. Gold is often an early leader.
Given the intact inverse relationship between GDX and SPY shown above, I am going to lean toward option 1. In this case, out ahead we’d look for buying opportunities in gold stocks and selling/shorting opportunities in broad cyclical stocks.
Meanwhile, let’s flip it over to show cyclical markets’ performance in gold terms. Everything is trending down, as we likely enter the counter-cyclical macro. Some items, notably the Teflon Don, SPX, can bounce hard. But the macro has changed and changing it back to positive will require much more than just a strong rally in hope.
UDN/Gold is a way of measuring global currencies as a whole vs. gold. RINF/Gold (more in the Precious Metals segment) is a way of measuring a disinflationary/deflationary macro fundamentally preferred by the gold mining sector.
Much will depend on how far hope runs. If the premise of this X post is correct, hope will start running out soon. It is interesting that Friday’s upward surprise in employment kept the relief party going, but that was April employment, and the premise of this gentleman’s post was that no tariff-driven effects would even show up until May 10, at the earliest.
The White House has put itself and the country in a bad situation but doesn’t realize it yet.
Around April 10th China to USA trade shut down.
It takes ~30 days for containers to go from China to LA.
45 to Houston by sea, 45 to Chicago by train.
55 to New York by sea.
That means that there are no economic effects of what was done on April 10th until about May 10th.
The author goes further and projects that even if everybody reverses course and makes nicey nice, there will be temporary negative effects.
Either way, it plays well with our plan that the rally in broad stocks is a BMR and the correction in gold stocks will be a buying opportunity. Could this view be wrong? Sure it could. Is it logical? Yes, until I see evidence beyond a much needed sentiment reset that the bear phase and counter-cyclical signaling are behind us.
This chart is bearish for stocks relative to gold. This would have to be another head fake, as per 2020, for that to be reversed. Either way, it was a rotation/trading opportunity in stocks vs. gold. My expectation is that it will fail into a larger macro disaster in due time.
US Stock Market
Here we are, folks. Point 4/C. This is either the end of an A-B-C upward bear market correction (orange) or the gateway to a larger BMR or ongoing bull market (black A-B-C).
Note that in either case, a pullback from the (orange) SMA 200 is likely in the micro-term, especially since SPX (daily) left a little gap up on Thursday.
Insofar as I want to be bullish stocks, I favor Tech over broad in a global macro snagged in a tariff war. Too many spanners and monkeys (aka unknowns) in play across too many sectors.
NDX has bounced to its daily SMA 200. A viable rally termination point. Textbook actually, considering the lower high (by a teeny) to the March 25th high. The problem I have with a “textbook” interpretation is that it is all too obvious to any jockey with a chart. They all read the textbook.
The rally could already be done and like SPX, at least one gap may fill before we find out whether it is done or not. Generally, if NDX breaks through the SMA 200 and noted resistance the plan would shift a bit, with a significant BMR to an epic one, potentially testing that 3/25 high (such a test could make a lower high or a marginal new one).
A Few US Market “Internals”
This chart of Growth stocks vs. Value stocks supports the view favoring Tech in this environment. IWO/IWM has formed a pattern and held its gentle uptrend.
The SOX > NDX > SPX leadership chain shows that the highly cyclical (and highly entangled by global geopolitics) Semiconductor sector has abdicated leadership, continuing to trend down in relation to NDX and SPX. Tech has, however, ground its way to functional leadership. I interpret this as being in line with a significant BMR, but not resumed bull market signaling.
However, when discussing a significant BMR, that view is aided by the SPX Advance/Decline line, which is positively diverging SPX by a whopping margin.
Finally, High Yield Spreads are calming down lately, in accordance with the BMR. As long as this is the case, hope can continue to grow. When the spread turns up again hope will be in for a rude surprise.
US Stock Market Bottom Line
The favored plan is and has been for a potentially strong bear market rally. That is already playing out. The less favored plan is for a test of the highs (whether a tick above or remaining below). It is less favored, but here we think about the bearish sentiment extremes reached at the early April lows in market prices. That was implied bull power personified.
Okay bull boy, easy now. If the scenario per the X post above (economic fallout from tariffs/trade war have not even hit yet) plays out all bets will be off, as by May 10th we could already have a decent reset from over-bearish sentiment in the books. Speaking of which…
US Market Sentiment
Smart & Dumb money are doing what they should do during a BMR, starting to fade the market and eating it in big gulps, respectively. Note the short-term risk reading in stocks. That could go well with the view that gaps can fill on SPX and NDX, per the charts above.
The Fear/Greed index is working its way into relief territory, having gone from an extreme of 18 to neutral 47 and closing at 43. BMR… doin’ its job.
AAII (individual investors) were still very concerned (read: fearful) as of April 30th. The market of course popped higher after that reading. AAII remain contrarian bullish.
NAAIM (investment managers) started to eat itself some stock market on April 30. They likely ate some more on the days that followed. NAAIM imply more room to rally from a contrary standpoint.
Sentiment Bottom Line
Working its way back to a reset, but with upside headroom, should the rally turn into something that really gets the FOMOs going.
Precious Metals
My interest is in this order:
- Gold, because it is a long-term asset of value and insurance.
- Gold mining, because the macro has aligned such that the elusive leverage to gold could manifest, possibly after this correction plays out.
- Silver, because it is a play that can be dynamic.
Again, gold, gold stocks… then silver. Just one guy’s priority. I don’t care if silver goes to $100 and I remain bullish on its price. It’s not gold. It is the speculative leader in the precious metals, not the constant that gold is.
That said, I still think it is very possible, if not likely, that when this tank job in the Silver/Gold ratio ends the snap back could be something to behold. Such an event would probably get more speculators and inflationistas aboard the precious metals (good in the short-term, not good in the long-term). We will hopefully sell to them one day.
It is conceivable that silver may chop around in the 29-30 support area during the correction in preparation for leadership on the next bull phase.
But let’s manage the present first. The correction in gold, gold stocks continues and silver is pulling back, now below the SMA 50. See Wednesday’s NFTRH+ update, as we viewed it in real time.
GDX is thus far normal in its correction. Indeed, it has not yet dropped to the minimum preferred level, which would test the uptrending 50 day average and support at 42-44.
A deeper shakeout could come with a test of the uptrending SMA 200, which is rising to the ‘4’ low. A higher low there would be ideal, and a significant buying opportunity.
Meanwhile, I am holding my best gold stocks, along with a hedge. Indeed, I added a second AGI position last week as it got hammered on earnings, as it had an operational blip that management says will be temporary. It seemed like an excuse for holders to sell and take profits that this leading miner has provided since 2022.
As per the Daily Notes on May 1:
If the correction turns out to be more of the maxi variety, AGI could visit its SMA 200. But I poked it here and will evaluate. I probably will not ride it down too far unless I increase hedging.
If I bought too early, a test of the uptrending SMA 200 would be a big time buy/add, assuming a still proper macro backdrop for the sector.
HUI monthly log scale shows an ongoing bull market, but also support surrounding the 325 area. A daily chart would show the SMA 200 rising right toward that area. This would roughly equate to a pullback to a higher low to point ‘4’ on the GDX chart above. That would be a healthy shakeout, if it comes about.
Gold did this. Let’s not forget how stretched its price became. While there is obviously fundamental reason for the gold price to have rallied hard, you can bet that the investor base is now loaded with FOMOs, speculators, survivalists, political animals, “end of the world” Jesus freaks, and good old fashioned MOMOs. Along with we rational types. :-)
Gold needed a correction and that correction could pull it back well below 3000 over time. However, this is just TA. An important consideration from a macro POV is that May 10th would-be economic time bomb.
That is not to say the gold price would rise if that economic bomb goes off. Ref. Q4, 2008 and Q1, 2020 when gold initially tanked along with broad markets before recovering first. We would watch for gold’s real price (as measured vs. stocks, commodities, etc.) to resume/maintain its upward journey. That tends to lead the miners and if past is prologue, commodities and stocks.
Nominally, gold and gold stocks may actually be leading now. They may be leading a future top in the broad stock market BMR. All rational possibilities are on the table in the near-term.
Gold Stock Sector Internals
A few internal views, to gauge the progress of the correction. As we had noted in advance, BPGDM was again frothy. Correction earned. We are in a bull market and thus we should not necessarily expect BPGDM to tank all the way below 30. But it has not yet had a healthy pullback.
HUI/SPX ratio (weekly chart) is pulling back hard, as expected. If the pullback halts here it will have been a mini correction vs. the stock market. However, the pullback may only be about 40% to 50% complete.
HUI/Gold and HUI/SPX ratios (daily) show a still intact situation. HUI/Gold did tick a lower low (red arrow) and that may or may not mean something about what is to come. But I would not discount it.
HUI/SPX dials in a closer look at the implied support to the correction relative to SPX. *
* As noted in the past, I do consider support/resistance to be valid on ratio charts because ratios are the product of two items that have support and resistance, nominally.
As gold pulls back in relation to inflation expectations, so too do the gold miners. Perfect. There will again come a time when we want this relationship to be intact to the upside. In previous cases of “frothy” excess, it was the miners that got ahead of the ratio. In the recent case, it was gold’s price that got ahead of pretty much everything else, with the miners keeping pace. The (up) trend in this indicator is fundamentally healthy beyond a corrective phase.
Precious Metals Bottom Line
“It’s a bull market, you know.”
And bull markets have corrections. Bull markets in the precious metals are renowned for their volatility. Recall the 40% correction during the 2001-2004 phase that ultimately saw HUI rise by 350%.
While the correction has already taken some froth off the top, I think it will ultimately cut deeper, perhaps over the coming weeks. The “anti” correlation to broad stocks may or may not persist, but as long as it does, and as long as broad stocks either enter or remain under threat of a bear market, that “anti” character will be a positive for a longer haul.
Meanwhile, what is happening now is what was anticipated. Relief in stocks while the only sector that had (logically) been working reliably during the economic/market angst gets kicked to the curb.
Commodities
Commodities are still not ready, on balance. Think about the Silver/Gold ratio (SGR) chart. When it is ready to reverse, commodities should be ready to get bid. But with the US dollar at support and the Gold/Silver ratio showing no sign yet of a top and reversal (SGR no sign of bottom and reversal) the situation is still precarious.
On the plus side, however, Canada’s TSX-V index is still in rally mode, targeting 680 next. This would be a tailwind for the broader commodity space, as it shows bidding for the most speculative commodity/resources related equities.
Also, some commodity areas are special, or unique, as we often note. It’s not one size fits all. The broad commodity complex includes precious metals, industrial metals, energy commodities and agricultural commodities, along with specialties like Rare Earth materials and Uranium. Considering that the sector is usually like a game of Whack-a-Mole (one pops another drops) even in a non-beneficial macro, there is no active “Commodity super-cycle” trade. Not yet.
I’ll prefer to continue evaluating each commodity area on its own merits, through global trade and supply/demand factors. Currently long Uranium (CCJ, NXE, UEC), REE (MP) and Gas (AR). IPI in the “ferts” for a bottom/base and upturn. It’s enough for now, personally. But boy, that TSX-V is pesky and bears watching.
Global Stock Markets
World (ex-US) stocks are laying a blueprint for US stocks. After ticking the lower low bear market signal, as did major US indexes, ACWX just doinked a new high on Friday.
US stocks were largely impaired as the US dollar declined. If it is to bounce from this little cluster at support (basis not visible on this daily chart) might we not expect rougher going in global stocks? At least from the standpoint of their 2025 leadership of the US.
As yet, that leadership is still intact and appears to be in a normal bull flag.
- Europe STOXX 600 has smashed upward from its lower low bear market signal and appears to want to test the highs.
- UK 100 took a horrible swan dive and has been taking an extreme spike back up to test the highs.
- Canada’s TSX is similar as it begins to test the highs of the bear pattern we noted just before the tank job.
- China/Asia/EM see Chinese large caps (FXI) still bull trending and still bullish but consolidating in relation to US large caps (SPY). Asia and EM are on hard bounces with the weak USD. The plays are generally going sideways, but USD’s next big move should move these items inversely.
- Aussie AORD made a deep and scary drop. It has now made a sharp and scary (for shorts) recovery. There is bull FOMO/MOMO panic developing the world over. Talk about resetting sentiment!
- Japanese Nikkei is also on a hard spike back to the gross pattern we originally ID’d as a shorting opportunity. Frankly, it looks like that opportunity could be developing again.
- India (BSE Sensex) looks like a technical buy, if you’re a fundamental India bull. SMA 200 could be used as a caution tolerance.
Portfolio
Gold is long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
In order of position size. Cash/equiv is quite high. Favored established gold stocks are held and a hedge oversees them. Then there are a few bull stocks and uranium. I am prepared to add broad market positions, whether in Tech, in commodities, what have you. The market’s internal rotations will decide.
Trading Account
No positions. This is where I’d like to nimbly short individual equities when I start to feel the BMR is concluding. If I can find enough time (or inclination) during the week I may try some day trading on the long side. Such trades will not be reported because I don’t want anyone considering what are pure gambles on my part. The NFTRH++ service will hopefully take shape for traders going forward.
Roth IRA (non-taxable, no contributions)
The chart held and even furthered its breakout last week. I like that, especially since the gold stock sector is in correction. My goal – often not attainable – is to not lose even on paper during corrections – and if all goes well and I’m reading the markets well, realize some gains. This is the product of hedging the sector that is in correction and “playing” the broads, which aren’t.
With cash and equivalents at 82% the situation is still quite guarded. But it is also enjoyable because cash and equivalents spit out income as usual, bull stocks are getting a little play, my currently beloved gold stock sector is getting a logical bull market correction and the forward potential for a buying opportunity is exciting. So risk is being managed, income is being had and the markets have to this point rotated as expected.
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.
