Ending Dynamics or Just the Beginning?
“It’s a bull market, you know.”
Our target for HUI has been 500 (+/-) for what seems like an eternity. Well, eternity is about to find its expiration date. A year ago we gold bugs would have been jumping for joy about HUI in the 470s. But today our job is to understand the technical and fundamental dynamics in play and also to understand ourselves. Who are we? Trader? Investor? Something in between?
I’ll repeat what I usually do when one of our targets is being approached. It’s a target, not necessarily a stop sign. I lay out objectives along the way of a bull phase and it appears that HUI is about to reach a major objective. It is going to do so at clear resistance with gathering enthusiasm among the buggish community and I would imagine, some gathering FOMO among mainstream investors.
HUI (monthly) ended the week right up against the trend line. I do not put as much weight on trend lines as some TAs do (all trend lines are broken sooner or later). But on a risk/reward basis HUI is at very high risk… if 500 (+/-) is indeed a stop sign.
There is the potential for a 3rd August high as well. But will the market so conveniently offer that up? This is the spanners and monkey wrenches market after all, with the wrench thrower in chief still at it every week. Trump cannot seem to stay out of the market. Maybe it’s a made for (reality) TV situation.
But much like I think silver will finally take out 50 this time, HUI could be looking for a higher high if the macro remains favorable. But a pause first would be completely normal. As an example, check out the string of monthly up candles in 2002 and the bullish and roughly year-long consolidation that followed, prior to the next up-leg. A pause and multi-month consolidation/correction would be normal and healthy from whatever point HUI puts in its next red candle. So again, trader or long-term holder?
BPGDM is again quite frothy. This is not sentiment, it is momentum which, I suppose, is a product of sentiment. What is happening here is what happens in real bull markets. So a gold stock bull who remains positioned needs to accept this for what it is, a sign of a sector that is no longer hiding in the weeds, no longer a contrarian’s destination, and most definitely on the bull.
The longer view of BPGDM shows the 20 month exponential moving average, which we use to smooth out the jagged ups and downs and see the trend. Over a year ago this chart alerted us to a change from a bear trend to a bull trend as the EMA 20 bottomed at a slight higher low and turned back up.
Old Turkey (Reminiscences Of A Stock Operator): “It’s a bull market, you know.”
The log scale version of the HUI monthly chart shows upside headroom to the mid-500s. I don’t use log charts as often, but many TAs do, especially when plotting trend lines/channels.
Personal Strategy: Favoring Gold Stocks, Being Selective Overall
I am holding and have added a few more gold stock positions. I also increased “basket” items, those more speculative little fellers often inhabiting the TSX-V index. Gold stocks are favored, and the following charts support that.
HUI/Gold ratio broke out last week and HUI/SPX remains constructively in its base. Nice.
Indeed, HUI/SPX appears to be following the bullish plan first displayed by gold miners vs. copper miners.
As for silver miners, so robustly cheered by their supporters, this chart gives me little reason to favor them over gold stocks. There is no confirmed bottom in the SIL/GDX ratio. There is, however, a potential Reverse Symmetrical Triangle in formation and that could be a very minor hint of a trend reversal to come one day.
But I am not a single minded gold bug. Normally, I tune out the news of the day, but using Rare Earth Elements as an example, I tuned in the news back in 2023. That news was of China’s stranglehold on the REE market. It was logical to have interest in a U.S. company that not only mined the stuff, but had plans to develop capacity to process it too. Voila, MP Materials, 2025.
REE tag-alongs IDR (U.S.) and LYSDY (Aussie) are also held. The U.S. companies have gone vertical. IDR being much more speculative, I took the profit, plotted a buy back much lower and ended up re-buying much lower than sold but higher than planned (got to be flexible in a market like this). As for LYSDY, I like that it is a diversification outside the U.S. and I like its more moderate, but still strong, advance.
I added copper on the amazing tank job when Trump’s jawbone did not say what the market thought it was going to say (tariffs will be on products that use the metal, not the metal itself). FCX was also brought back. Here I’ll interject that more traditional commodities are held with the TSX-V/TSX and Silver/Gold ratios still intact to their uptrends. If those two lose their uptrends we’ll have a caution signal for the whole “SGR trades” ball of wax, in my opinion.
Gold Still Preeminent
We see who the real leader is. Yes, silver has put on a little bounce vs. gold and that has okayed some commodity items for rallies. But we are looking at silver to 40 (+/-), which is nearby. Gold is flying in blue sky and none of its followers are in that state.
Indeed, the CRB index is wallowing in its consolidation and the TSX-V is approaching clear resistance. So let’s keep expectations moderated in the near-term on a new commodity super cycle. My view continues to be for an interim liquidity problem or deflation scare before talk of a new inflation cycle.
Gold’s monthly chart went vertical and is overbought. We bulls just have to deal with that.
I need to continually view this picture to keep my emotions in check. If gold is overbought on the big picture, what on earth is the stock market?
As a side note to the above, I have a few broad stock market “bull stock positions”, but even though the end of week bounce went a bit higher than I’d wanted, I also held my short positions on SPX, NDX, SOX & Small Caps. It’s tentative, but I did not want to get shaken out so easily.
With respect to the monthly linear gold chart above, the log scale chart shows a bull market doing what a bull market is supposed to do; pushing limits. But are they really limits? While a significant correction can come at any time, especially with the type of aggressive news cycle we have currently, the sky is also the limit for gold on the big picture.
Silver’s monthly linear chart shows previous overbought conditions vs. today’s “not overbought” condition. Silver is in a cyclical bull market that began out of the 2020 crash and reversal.
An even longer-term chart asks “why not silver?” after two previous halts at around the 50 mark. Aside from being more inflation sensitive than gold, it also has much more industrial utility. Add to that its part precious metal character and there are the fundamental elements in play for big silver upside. The best backdrop – subject to any interim disinflation/deflation scare – would be a global inflationary situation that also sees trade wars continuing.
It is entirely possible that the implication of the Continuum and its message of a new inflationary macro could one day favor silver over gold. I know I kill you with this picture, but that is how profound I find it (right along with the log-term Gold/SPX ratio above).
Meanwhile, in the interim we gauge the prospect that TYX might double top and decline for a test of the new macro trend. That would theoretically come in tandem with a market liquidity problem and possible deflation “scare” (not actual deflation).
Speaking of gold ratios, let’s flip them over to view the ongoing downtrends of all these items in relation to the monetary stability asset. The “real” prices of all these items are declining as the “real” price of gold increases.
Side notes: UDN is a proxy for global currencies. RINF/Gold is an ongoing positive trend for gold mining, which does not fundamentally prefer a cyclical inflationary backdrop.
Another chart oft-viewed, HUI and the 3mo. T-bill (Fed Funds rate proxy). If you, like 89% (.25% cut Sept) and 57% (another .25% in Oct) of CME traders think the Funds rate is coming down, this chart lays good odds of further upside in HUI. Again, that is assuming HUI is not already front-running the Funds rate to a major degree.
U.S. Stock Market
What is there to say? The economy is decelerating, Trump is wrench throwing and the market expects rate cuts to come. Yay! Happy days are here again!
Tap the breaks on that. With IRX above possibly starting to tick down ahead of the Fed Funds rate, let’s also note that both SPX and HUI headed down as yields declined in 2008. But that was after a bubble in gold stocks had seen them rising for 4 years amid degrading fundamentals (cyclical inflationary macro).
This time it is different. The macro funda are trending up. That was also the case in 2001-2003 when HUI rose but stocks declined along with the Funds rate.
The 2020 Covid crash was its own discrete situation and while gold stocks tanked initially, they recovered quickly and led the market upward (HUI/SPX ratio rose). My view is that at best for the stock market, it will not go into a bear but it will under-perform. At worst it will take a severe correction or bear market.
This due to a counter-cyclical macro with inflation signals easing. Much like 2001.
If you’ve known me long enough, you know that I tend to get a little shall we say emotional when I am short the pig known as the bloated, over-valued stock market. See? That statement right there is emotion.
So quite coldly, I am going to follow the market’s internals and party like it’s 2025 (or at least not fight it) if that is the way it goes. The Semiconductor sector has not quite lost leadership of the recovery rally that began in April, but it is floundering. Tech, however, may be doing what my IRA’s nominal chart did a while back, and breaking upward from a long consolidation in relation to the broader SPX. If that is real, it is a positive internal signal and I will not fight it.
Meanwhile, in the very short-term (hours or days) I’ll see if this was a bear flag or not on SPX (daily).
NDX ticked a new high and SOX is consolidating above support and its SMA 50. So I don’t hold out hope for a market top just yet.
Indeed, this chart continues to instruct that the market – assuming it is going to top – will not top until after the Fed actually starts cutting for real (per the 2008 example). My tin foil hat instructs that the 2024 rate cut was a strategic pro-Biden double cut, pre-election and is not overly valid to the analysis.
Whether it’s a Fed lag or a Fed lead, the stock market has not tended to top until within a few months of a rate cut.
USD/Global Stock Markets
Of course, the great stock market bull is in tandem with the mighty US of A pulling the oldest trick in the book, devaluing its currency.
DXY failed at the second of three objectives (99, 100 and 102). But it remains in a technical setup to, improbably enough, continue to rally: two higher highs and a higher low, with the price closing last week safely at a higher low. If it does resume rallying it will be a continuation off of a positive RSI/MACD divergence to the price low on July 1st.
What could prompt a rally in the downtrodden Uncle Buck? My guess, a market liquidity event. My other guess, Powell continuing not to bow before Trump (and his demands for rate cuts).
A resumed USD rally, if applicable, would be very unlikely to aid global stock markets in relation to the U.S. market. It is no coincidence that ACWX/SPY is bouncing as USD pulls back in the short-term. But ACWX/SPY aborted its series of higher highs/lows and is actually a potential tailwind indication for USD.
Nominally, the world stock market is doing just fine on balance, even as the U.S. Battering Ram in Chief bullies trading partners into agreements of questionable efficacy (on both sides).
I’ll continue to play mostly in the market I see best, here in the good ole’ US of A. Nobody does a bubble quite like us. But that doesn’t mean other parts of the world are investment worthy at this time, either. It’s speculation city, folks.
#875 Bottom Line
It pays to be selective inside the markets. For macro-fundamental and technical reasons, the gold stock sector is best, in my opinion. But it is also at technical risk, if not fundamental risk. Within the sector, it is advisable to either buy the ETF or make sure you have good fundamental understanding of any individual miner, developer, explorer or royalty. For me, these come in the form of my associations with several sharp individuals, including a couple geologists, and access to SeekingAlpha’s premium articles by stock analysts (precious metals or otherwise). I am mainly a macro and technical guy, after all.
Considering that we got a signal of a “new macro” with new rules in 2022 (ref. Continuum chart’s 30yr yield trend breakout) I want to be very careful about making assumptions like “HUI is at targeted resistance, time to take profits”. Well, it’s always a good time to take profits because the market sure will not give one hoot about you as it deals you losses. But I plan to continue week-to-week evaluation because I worked hard for my bull positions and I think the bull is far from over. So, maybe the more often than not unsatisfying act of hedging could come into play at some point. But, cue Old Turkey >>>
“It’s a bull market, you know.”
Then there are the Trump trades (on steroids). First and foremost, the Rare Earths. The DoD has taken a stake in MP. Apple has struck deals with the White House, Apple has committed to purchasing from MP. IDR is out there with a U.S. REE land package. Peace in Ukraine could have an effect, but for now I go by what I see. But it’s Trump’s world right now and we are just living in it. One flap of that jawbone can change anything at any time.
More traditional commodities will want to see the combo of the TSX-V/TSX ratio and the Silver/Gold ratio continue to rise. If they abort, the commodity play aborts, IMO. Meanwhile, the Trump jawbone did create an opportunity in copper, as you can see CPER (which I added) has crashed when the market realized it misunderstood Trump (“ruh roh!”). So there are trading opportunities along with opportunities to get annihilated if you guess wrong about what is going to emanate from that orange mouth.
Heretofore and current macro indications want the stock market to top. Steepening yield curves, weakening Fed Funds projections, bad employment numbers, decelerating commercial real estate (as we reviewed in a recent NFTRH edition), boots on the ground information from a subscriber/homebuilder about the internal troubles in the Homies… but remember that the stock market usually does not top and begin a real decline until some months before or after the Fed begins a rate cut cycle in earnest.
In line with the Homebuilders’ projected poor Q3 reporting season, which will begin in October, perhaps we see a top across many markets in Q4.
Meanwhile, week-to-week. I will continue cutting back or leaning in as the market winds blow. But with the foundational idea of a coming liquidity problem before the next macro inflationary phase. If the economy and markets get through Q4 and Q1, 2026 intact we may have a different animal on our hands (who, after all, can confidently quantify what the ultimate effects will be in the global trade war?). But the next several months are set up to dole out some rude awakenings for the broad markets, in my opinion.
Portfolio
Gold is long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
In order of position size. Gold stocks are featured. REE as well. Bull stock ALAB was trimmed and AAPL is held more firmly now. Lots of cash providing income, but since a bond matured recently I’ll probably want to add more short-term Treasury exposure for income if/as a Fed rate cut looms.
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
Short IWM.
Roth IRA (non-taxable, no contributions)
The chart shows that the latest sideways consolidation broke upward, took a successful downside test and ticked a new high. The term “animal spirits” goes through my mind. So too does the quote “it’s a bull market, you know.” ;-)
Cash & Equivalents are at 78%. Gold stocks (producer, developer, explorer, royalty) are again featured and core. REE as well. AI/Semi, etc. to lesser degrees. The “basket” items are led by Ni explorer TLOFF (TLO.TO) and its continually positive drill results as it tries to increase the size of its discovery. I want to be careful about adding too many other basket items too quickly because I am still not sure of the timing on when more of them may go off like bottle rockets, and there is always the chance that drilling will indicate “cow pasture” instead of discovery for any of these.
So much continues to revolve around the Silver/Gold and TSX-V/TSX ratios and the macro they indicate. Week-to-week, try not to be greedy. Try to be level headed (talking to myself there).
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
