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FOMC, Op/Ex & the Current View

On Friday we had a twofer, a combo of typical FOMC week “machines gone wild” behavior and options expiration. So, regarding the precious metals and other markets that got clubbed on Friday, I tuned out the negativity and just sat on my hands, especially since technical status was not broken by Friday’s downer.

That said, I remain on alert for coming tops in the precious metals, stocks and yes, commodities too. As to the latter I am expecting a significant trade in commodities. But as noted most recently on Wednesday, the big trade could be in play now OR come into play after a summer dip (correction).

Bunching all of these markets together (including the counter-cyclical gold stock sector) the question is ending rallies now, or after a summer cool down? I am leaning toward ending rallies now, and toward it being led by gold stocks. Also, to be clear, I am in no way talking about an end to the gold or gold stock bull market. I am talking about the potential for a significant correction after this bull market leg wraps up.

Precious Metals

But first the short-term pullback/correction will play out. Reference Friday’s NFTRH+ update on gold stocks (GDX) for some simple short-term correction targets. It presents as a routine correction at this point.

As to the above, neither of the favored targets represent any sort of major correction. At this time I am favoring that it is a short pause to refresh before a new leg up, potentially to our longer-held target of 500 (+/-) on the HUI Gold Bugs index.

I also think that gold stocks would not necessarily need gold to do too much, but rather, silver and the TSX-V would be the drivers as inflation-bugs buy gold stocks, silver stocks, copper stocks and the whole raft of “Silver/Gold ratio trades” (SGR trades). That is the gist of the SGR trades; inflationistas buying up commodities/resources and lumping gold stocks in with it.

TSX-V’s ratio to TSX is on message and the SGR got clubbed on Op/Ex Friday, but continues to refuel for another potential upside run. But for safety’s sake, let’s keep in mind that in order to keep the “SGR trades” going, we are depending on a downtrending ratio. So no inflationist bravado here, just cold calculation and evaluation.

With the understanding that the situation remains frothy (and thus, bullish) per the BPGDM chart in the linked update above, other gold stock sector internals are also bullish. The HUI/Gold ratio is turning down right where is should have turned down and the pattern of higher highs/lows is intact (Captain Obvious).

The HUI/SPX ratio is still functional, riding the 50 day moving average. The SMA 200 (not available on this chart) is also trending up but resides way down at .058, at the lower bound of the support zone. Bugs will not want to see that tested again any time soon. Note that HUI/SPX busted above and successfully tested the SMA 200 in February.

Gold is stair-stepping higher after breaking out of its bull flag, perhaps earlier than would have been technically favored. Filed under reporting what I see, I see men and a goat staring at a clear negative divergence by RSI and a very weak MACD. It is a sign of weakening momentum.

On the plus side for the bulls, many TAs call a “triple top” something negative. But it’s been my experience that the more times a market tests resistance, the weaker that resistance becomes. So the weak but reset RSI could be a refueling stop before punching the gold price through to a new high.

But at this time, MOMO is fading, including in relation to other markets. That has been anticipated in a regime of a rising Silver/Gold ratio. If it continues, it would be expected that gold will lag, while the SGR trades continue apace.

Silver got clubbed on Friday and may test support in the 34.50 area. It had started to get a little too peppy and to this point the pullback completely normal. Preferred, from the POV of a continuing rally to target at the 40 area.

As you may have observed over the last few years, I have been like a bug to a lamp about this monthly chart of HUI. Now I think that Huey is like a bug to the light shining at 500 (+/-).

I’ll repeat the plan historically. The 2016 low was the bear market low. From that a 5 wave bull market unfolds. Here I emphasize that I am no EW. It’s just that bull markets tend to unfold in 5 waves. This #5 is conveniently at clear resistance from the 2008-2010 highs and the 2010-2011 lows. The chart also asks if 5 will be another August high, as 1 & 3 were. That is a very minor of consideration.

Assuming HUI makes it to target, it will then be up to the macro to decide what comes next. My gut calls for a market liquidation event of some kind that takes the miners down with it, but (and this is important) as per the Q4, 2008 and Q1, 2020 market liquidations, rockets the macro-fundamentals higher. The best buying opportunities are during a combination of price destruction and macro-funda resurgence (again, Captain Obvious, but it’s amazing the legions of people who do not prepare for this due to being inflation bugs, lumping gold and gold stocks with all the other “resources”).

Bottom Line

• Watching for silver to start rallying vs. gold again.
• This would continue the “SGR trades” in the miners along with many other commodity areas.
• After that would play out we’d look for the macro markets to weaken for a correction, liquidity event or bear market. That would represent the next buying opportunity in the miners, not to mention silver and gold.
• Meanwhile, we have been on the HUI 500 Express for years now. That remains the case unless it is disproven by loss of technical parameters.
• Having taken some profits and being partially hedged, I am interested in buying this pullback.

US Stock Market (daily charts)

I have taken the liberty of turning the US market leadership chain all green. Meaning that SOX is still on its intermediate rally vs. its two followers, and NDX is still aloft in relation to SPX. On a related note, the NDX/SPX sideways structure sure does look a lot like my IRA before it busted upward. No apparent correlation, obviously, but man stares at charts, after all.

The short-term technical picture is not good on SPX. Another negative divergence is forming on RSI and MACD looks suspect at best. We have had the expected rally after the SMA 50 “death crossed” below the SMA 200 in April.

Might it take a “golden cross” back above the SMA 200 to stop the market? Sure could. Imagine the media trumpeting a “GOLDEN CROSS” at such time. Something like that might be a worthwhile psychological shorting opportunity. On a related matter, see NDX below, which is about to make a golden cross.

Meanwhile, technical setups (in this case suspect to bearish) have been broken before by Trump’s jawbone and those of various Fed orifices. The recovery trend is intact, though tiring.

As a side note, let’s recall that when the markets were tanking in the spring we noted two significant considerations:

1) the sentiment profile was unsustainably over-bearish, indicating a rally to come and…

2) the lower low to the 2024 lows was likely a sentinel or a scout for a future bear market.

Frankly, the look of the index and that bear sentinel make me want to short right now. But I perceive I’d be fighting jawbones that just can’t keep their mouths shut, if I short. Resolute bearishness against powerful figures who do not want me bearish is not a strong suit of mine. But I am evaluating on the fly. At some point I think this mess is going to roll over, jawbones or not.

Last week Fed jawbone Waller sooth-said the market about a rate cut coming in July. It is no coincidence that Waller was installed at the Fed by Trump (1.0). I would not be surprised if this jawboning sycophant rises to the position of next Fed chief. They say that’s the way politics work, eh? And Trump simply loves himself some ass kissers.

At least for now 90% of CME traders aren’t buying it, instead seeing another rate hold. Maybe Waller is simply currying future favor by throwing his jawbone into the ring.

Aside from this political angle we also have bombs, death and destruction ongoing in the Middle East. This is a financial service report, so I will stick to that. But the combined noise of Trump, Fed and geopolitical mayhem is quite a wild card. So let’s consider the markets’ technicals, but realize that even within an ending structure, anything can happen any give day, week, month.

NDX also looks technically suspect with momentum rolling. On Friday it merely held the first support level. I am not going to start talking bear market until it loses support at 20246 and the converging moving averages. That convergence may get the media trumpeting “GOLDEN CROSS!”, and that could start the clock ticking on the end of the recovery rally.

The leader, at least in the intermediate-term, has been the Semi sector as shown at the top of the segment. Nothing happened on Friday to break its rally. One objective we are considering would be a break through resistance, gap fill and a test of the highs while SPX and NDX make new highs. A perhaps final display of greed and desperation before a real correction (taking markets below the April lows) gets going.

Bottom Line

• Semiconductor sector has retaken leadership, on an interim basis as the broader recovery rally goes on.
• Technicals in the indexes are suspect, at best.
• Noise is heavy in the macro.
• I see little reason to alter the plan of a high risk recovery rally that will finish up sooner (like, already) or later, after new highs in SPX and NDX.
• It may sound comical, but the golden crosses coming on NDX and SPX could be meaningful from the bear side of the equation. You may have seen me document such cases repeatedly over the years.

US Market Sentiment

Smart/Dumb indications eased a bit with last week’s lack of momentum. The market is capable of continuing to rally from a sentiment standpoint because the rally got started after quite extreme contrary bullish readings. However, recent over-bullish readings could represent a top. Though that is not yet the favored view.

The Fear/Greed index also states that bullish excess was not at critical levels (68) before easing to neutral last week. The “Greed” reading may have killed the rally, but that is not yet the favored view.

NAAIM (investment managers’ survey) was out of character with the two indications above as NAAIM respondents were eating stonks like there is no tomorrow as of June 18th. Interesting and a contrary negative indication.

AAII are still wallowing in their mushy middle ground and may not be of much use as a contrary indicator until they jerk one way or the other.

Bottom Line

• Over-bullishness eased to a more moderate level last week after not necessarily hitting “bull killer” readings.
• It is possible that recent O/B readings might have ended the recovery rally already.
• But the ease in sentiment (except for NAAIM) is also consistent with a refueling stop before a new leg higher.
• In other words, the pullback in sentiment could be the re-start of the bear, but could also fuel a final drive higher.
• Pardon the waffling, but that’s the way it is right now.

Global Stock Markets (daily charts)

Global (ex-US) looks like it wants to decline to test the 50 day average and/or support below it (gap at 56.38). As with US indexes, I see that stab below the 2024 low as a potential bear market harbinger.

The ratio to the US market is getting interesting. ACWX/SPY rolled over last week but clung to a higher low to the May 16 low. Take that out and we could have a phase of “America great again” or “America less bad” than the balance of the world from a stock market technical perspective.

It would be logical for the US dollar to play a role here. While some markets, including gold, are sporting negative RSI divergence, old Uncle Buck made a positive one at the recent low of 97.60. May be nothing. May be a global market rally ending (or interrupting) something.

Given the view that the herds have been generally over-bullish on markets, and the close proximity of these markets to upside targets, we should watch the USD divergence and any signs of strength in the buck.

However, Canada’s TSX-V is another indication we are following and it is merely rolling over in a normal pullback. If Momentum on TSX-V’s speculative components is going to continue short-term the index should hold the 704 area or take a quick flash down to 680 (our old upside target, now support). Fill some gaps and refuel.

If I don’t see momentum resume at/above the 704 area I will probably release a few more items. I took profits on a couple .V listed things last week and tried to trim AMEGF (AE.V), but its bid dropped out from under me just as I was preparing to do so. The profits were just too good not to take some. Emphasis on “were”.

Commodities

Da ‘V’ above will continue to play into tailwinds or headwinds for the broader commodity trades. There are exceptions like oil and geopolitics. Indeed, there is lots of that stuff in the commodity markets and forward supply/demand views due to the idea of countries looking to “commodity grab”, especially in specialty areas like Rare Earths (REE), Platinum Group metals (PGM) and maybe to a lesser extent now, Uranium (u3o8).

Frankly, I blew MP, a US based REE producer, taking profits too soon before it got pumped higher by some investment house. This after having felt like the first person on the planet to identify its value a few years ago. That’s show biz. I’ll keep it on watch, but not chase now. I’ll hold the loosely related IDR (pending its chart) and keep a firm eye on Aussie REE producer LYSDY for buy-back.

I have traded the PGMs a couple times and am watching Pd and Pt pull back. I’d like to re-position soon, near-term macro willing.

I took a profit on little ARREF (ARG.TO) but still hold the Copper mining ETF, COPX and miner SCCO.

As for Energy, the crude oil fund (USO, highlighted with multiple “buy” rationale in this June 4 NFTRH+ update) was sold because it shot up above the target and because… hype. Now the Energy dorks are out there pimping “oil to da moon” again. Thank you, but no thank you.

I did add back AR, which had a chart I liked and because NatGas made a move that looked like it was putting in a low.

Portfolio

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

Taxable Account

In order of position size. I may be over-staying my welcome with DUST, if Friday’s Op/Ex was the last down thrust. But I’ll see how the markets open this week and take it day by day, if not hour by hour. Again, I see myself adding more gold/silver stocks in anticipation of a drive to target, pending this pullback.

I also have several broader holdings and those would depend the “SGR trades” and the broad indexes not rolling over just yet.

Meanwhile, I am looking for more bottom feeds/catch-up plays like CRSP, for example. This, as long as the bull wears on.

The taxable account carries very high cash levels as long as cash and equivalents are paying out. This is considered a savings account of sorts, rather than a speculation or even investment vehicle. The goal is to speculate around the periphery of that. In another market phase (e.g. post-crash), the account may get much more in the game.

Trading Account

No positions. This is where I’d like to nimbly short individual equities when I start to feel the broad rally is concluding.

Roth IRA (non-taxable, no contributions)

The chart hooked down a bit on Op/Ex. Friday was my first tough day in what seemed like weeks. That’s not normal. So a little downside is to be expected. However, I am one risk managing mofo. At all times. Trying to balance the greed for more gains with the need for keeping paper gains and turning them real.

Cash is 78% and will be reduced if we are correct about a view of HUI to target (500) and a continuation of the Silver/Gold ratio trades.

Meanwhile, the IRA holds its gold stocks after full profit taking on a couple and partial profit taking on a couple. I wan to add more items or increase existing items (e.g. GLGDF) on this pullback.

More SGR trades will be added if the market goes that way. REE, PGMs, u3o8, maybe more copper. Maybe more Energy.

Cash & income-generating 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.