Q4
As usual, the markets are pushing the limits of a forward view I had set much earlier. For example, the HUI Gold Bugs Index has blasted through the target of 500 and kept on going. For another example, gold previously pulverized the 3000+ target. Both of these targets were in view for years. At one time they were just pipe dreams. Then they got smashed.
Now, with respect to our late Q3/Q4 time target for a potential top in the broad markets, we are looking at Q4 just around the corner with no sign of a market top. It’s the way markets work. They always seem to push and very often break the targets you’d set long before. That is why we need to be adaptable, considering new information as it unfolds.
So that is what we will do. Right now, there is no reason to change the view. Back in the spring the plan for the broad market was to first “play” a sentiment recovery rally from the April depths. Then it extended into the summer. At that time we began to anticipate new highs and a late Q3, Q4 time target. With a slowly decelerating economy (commercial real estate, housing, manufacturing, employment, etc.) the plan has been for a top to be reached amid joy of a Fed softening policy to dovish.
New Macro, New Rules
Cheering a dovish Fed has in the past been a trap, at least in the modern era I’ll define as 2001-today. But the “Continuum” chart (long-term view of the 30yr Treasury yield) has written on it “new macro, new rules” for a reason. That reason is to expect the unexpected; expect occurrences from the previous phase not to be as readily extrapolated to the future.
The chart below shows a monster ongoing divergence of the 2yr yield to the 3mo T-bill yield, dwarfing those that preceded bear markets 2000 and 2007.
Do we have the rules of the post-2022 phase fully defined? Hell no. Are we going to remain open-minded so as to not robotically “quant” signals from a past phase forward? Yes. But are we going to be cautious when a chart like this carries such a profoundly bearish message at face value? Well yes, I am. I won’t tell others how to feel about it. I just present my interpretation of the facts of the analysis that I see.
The play is ongoing. It calls for a market top coming in and around the time (+/- months) the Fed flips dovish and starts cutting interest rates in earnest, due to a failing economy (not due to a badgering, autocratic president). A classic contrarian bearish setup.
If you recall, this view goes back at least a year ago when the Biden admin was doing all it could to fiscally pump the economy. Our view then was that if Trump wins the election he’d be left with a pile of inflated dung and a massive contrarian negative, just as America starts celebrating being “great again” due to a pro-business “businessman” taking over.
Well, the market cratered in the spring. The question now is whether that cleared the pipes. The pro-business businessman is still in office and he has rammed pro-business policy through congress. He is breaking things, putting things back together and is basically a one man wrecking and building crew. Well, along with Scott Bessent and a soon to be Fed chief suck-up (FCSU).
However, I agree with this statement by the likely next FCSU. Tariff “effects” are not inflation. They are prices rising in response to executive orders along with protectionism creating uneven playing fields, both positive and negative, depending on specific factors, throughout the economy.
I don’t necessarily agree that the current moderated inflation backdrop and slowly easing economy are reasons to cut rates aggressively. That will depend on how quickly the economy kicks in or fails to kick in to the aims of business friendly fiscal policy.
These are formidable forces against the bear. It is a new macro with new rules and this dictator (easy folks, he is dictating daily, let’s be real) is as unpredictable as they come. Let me rephrase that. He is highly predictable in that you just know he will be dogmatic in continuing forward the same way he has been to this point.
Can some newsletter guy’s gruesomely bearish indicator chart (2yr/T-bill above) stand up to that? We’ll find out soon enough, likely in Q4. Will said newsletter guy respect the “new rules”, whatever they may be? Oh yes.
Let’s leave the segment with a chart showing the path of SPX with respect to rate cuts that come after a pause. This comes by way of Callum Thomas of Topdown Charts (Substack).
Importantly, this chart’s data history spans from 1975 to 2003. Not as a continuous measure, but it harvests those occasions when the Fed cut, paused and cut again. Like now.
Hence, if it really is different this time (from the 2001-2022 phase) and rate cuts will not signal an oncoming bear, and if we truly are in a “new macro, new rules” regime, maybe the new rules are actually very old rules based on longer-term history.
It should all be taken with a grain of salt. My 2001-2022 phase indications, this very selective view of “cut, pause, cut” and any other historical data. It simply quants history and tells of a possibility, just like my 2yr-Tbill chart does. This does inform and reinforce what is working for me; a week-to-week mode of operation with an eye on sensitive short-term potential triggers like junk bonds, VIX (see segment below) and any others we may dredge up.
Ah, but it is not that simple! The VIX spikes and drops often. Junk spreads do too, to a lesser degree. Other factors we use at such times of potential caution would be shorter-term technical trends/considerations (e.g. daily EMA 20, SMA 50, support, etc.) for the indexes and of course sentiment (see segment below, indicating rising sentiment risk).
Bottom Line
Bearish indications have gathered. The issue being that they’ve been gathering for months, even years now. The macro has changed and it is our task to interpret those changes and the coming effects as best we can without bias. For example, I want the bloated pig known as the S&P 500 to get the bear market it deserves. I want gold to go to 10,000/oz. because I think that would start to approach an honest view of the macro and all that toxic policy injected over previous decades.
But the market and its reactions may have other ideas. It is as important as ever now to remain unbiased and to watch the spin on the ball, not our wished for fat pitch down the middle of the plate.
Week-to-week, watching the spin.
U.S. Stock Market
First a look at some indications. We have been noting lately the calm state of junk bond credit spreads. “Calm” is an understatement. This indicator is downright comatose. That could all change tomorrow (hey, wasn’t Friday Op/Ex?), but as it stands now, players are sound asleep and confident in their bullish orientations. It’s just a fact.
The companion I often use with the chart above is the VIX, which as we know is also sound asleep. These are classic indications of risk, but importantly, not of risk REALIZED. In other words, these two charts are very sensitive indicators, reacting to negative events in much closer to real time than my lumbering 2yr/T-bill chart above. Think of these as a “trigger” rather than a macro indication.
Now, we have used positive VIX divergences (green) to project risk of corrections in SPX in the past. Sometimes with significant time lag, they eventually played out in market corrections. This time, there is no divergence in the VIX to the bullish stock market. We’ve got to call it what it is, a still-positive indication for stocks.
Moving on to another indicator that was a reliable tradition of the previous phase, when yield curves steepened, the implication was an oncoming economic bust (economic booms ran with curve flattening and inversion). Another chart asking “was spring 2025 it, was that all there was to the bear?” and another question, “new macro, new rules?”
The curves are still in steepening trends. Per the bear markets of 2000 and 2007 that is an indication of a coming bust. However, the upper right corner of the chart above begs to differ. I am going to give it Q4, 2025 to prove that a bearish resolution will play out. Because at some point the guy is going to have his own stooge in the Fed and he’s already rammed home a bill that includes corporate welfare among other things.
We will keep this shorter-term view of the steepening curves front and center for their ongoing negative implications. However, a reversal to flattening could come about or the steepeners could simply fail to resolve bearish in the new macro (with new rules). It’s all on the table, folks. IMO.
But as of now, much like the 2yr/T-bill, the indications are quite negative, at face value.
I am long a bunch of stocks. Some sexy, some defensive, some value oriented. I also established a short position (SPXS) last week as a bit of a drag on the bull proceedings. No undo hopes for success there.
Aside from advising the risks of that ‘C’ lower low in April (future downside marker) and all those open downside gaps (blue), the daily chart of SPX also asks us “if the A-B-C correction and its recovery pattern resolved to its measured target in 2024 [you may recall that it did, before the big 2025 A-B-C correction], why can’t the 2025 version do the same?”
It can. It can also fail to play out. The operating plan is that it will fail to play out because it seems improbable that such an upside target could be reached in Q4, 2025, the time target. Or can it? It is open questions like these that have informed my operating plan, which as you know has for a long while now been “week to week”.
Best not to impose our will on the market, but instead let it tell us what’s up… or down. The trends say that not much is down to this point. But the ‘C’ lower low in April says that a bear market scout was put in place.
Bottom Line
Our plan is for a bear to manifest by sometime in Q4. There are formidable forces working against that plan. They range from the politicians in power to my own indicators like the VIX and Junk bond spreads. Also, a big upside target on SPX.
Yet the bearish stuff (like the 2yr yield divergence to the T-bill and yield curves) is still lumbering along and flashing bearish and SPX has that lower low from April as a future objective to be broken to the downside.
My personal way to deal with this is and has been “week to week”, trying to gain new clues each week. The process continues. The first signals would come from indicators like VIX and Junk bonds. Another factor to add to the mix will be sentiment, and it is creeping back toward dangerous.
Market Sentiment
CNN’s Fear/Greed index has unsurprisingly ticked back to greed as the party continues, post-FOMC.
However, the Junk bond spreads component is shown as indicating fear, which puts a drag on the over-bullish reading above. This is very short-term, as the main trend is down (calm, as per the High Yield spread shown above). But this view is ultra sensitive and just a flicker in the bearish direction. This flicker would have to continue and bust the downtrend before it would be taken too seriously. Hence, in my opinion the drag that this “FEAR” indication puts on the overall reading implies an even more greedy situation.
Smart/Dumb money indicators are still moderately over-bullish. But the risk indications Sentimentrader uses show short-term risk for stocks. As they do for gold, which has been at perma-risk (all year at least) if you believe this recipe for defining risk. Personally, I see gold’s sentiment as reflective of a bull market and the new macro phase. But any of this stuff – and stocks especially, in my opinion – can take a corrective hit at any time given these type readings.
On 9/17/25 NAAIM (investment managers) remained moderately over-bullish. That was of course FOMC day, when stock took a hard pullback. They are likely more briskly over-bullish now.
On that same day AAII (individual investors) had made a strong tick up from 28% bullish to 42% bullish. That is a notable move, and it was likely furthered by week’s end with a continued risk in stock index prices. Recall that we are waiting for AAII to make a big jerk INTO the market as a sign of a potential coming top. Well, that might have begun as of last Wednesday, before the market rose again and finished on a bullish note. A warning here from Ma & Pa.
Bottom Line
The slushy, lazily over-bullish sentiment backdrop jerked further toward a contrarian bearish situation. Frankly, this aligns with our view of a market top by or sometime within Q4. Especially notable is AAII, which should be watched for a hard jerk into the market because when Ma & Pa can’t take it anymore, they tend to capitulate to the bull.
All along our view has been that the average investor will sing “HAPPY DAYS ARE HERE AGAIN!” when the Fed flips dovish. Well? That may be starting to happen.
Precious Metals
One of my song lyrics goes “all been said, but I want to hear of another way to make it clear”. But I have made it clear to the best of my abilities in several different ways; it is a new macro, and in that new macro gold is destined to assume preeminence.
The old macro featured remote and mostly positive management of asset markets by policy. It also blew bubbles of extreme nature. It enriched the rich and impaired everyone else to varying degrees. The wealthy simply sat on their assets and dumbed into further wealth. Savers and paycheck-to-paycheckers? Screw you.
The new macro has impaired that ability to pump paper assets (financial assets) through monetary policy, and cover up the utility of gold as a long-term value instrument. The new macro has now impaired the ability of policymakers to do their deeds under cover of the bond market’s license (indicated by its former but now-broken disinflationary signaling). Something, as they say, is rotten in Denmark. In the rest of the developed world, too. It’s been that way for decades, but now finally, the bond market is stating the obvious.
As for current strategy, I have sold or taken partial profit on high flying large miners and other positions that grew too big relative to others. Those funds have been going to “me too!” plays in intermediate/junior miners and even the speculative exploration “basket” stuff. Although some of the basket stuff jumped so hard it too had to be trimmed back into balance.
One way I am defining risk is the simple way, those items that have gone vertical to overbought, technically. There is risk aplenty. Risk if you outright short the sector and it rips your face off. Risk if you hold positions without any profit-taking because (cue Old Turkey) “it’s a bull market, you know”. There is never risk in taking a profit. Just the perceived risk of FOMO.
An example of what I chose to do is, using four stocks as examples, sell KGC and take a partial profit on AEM, each of which went up aggressively, and increase RIOFF (RIO.V) and initiate silver stock ABBRF (ABR.V) on pullbacks. The latter stages of PM rallies often include the smaller miners playing some catch up.
Which brings us back to the concept of risk. There are no smaller or more speculative items than the explorers. Several of mine have exploded higher over the last week or two. PGE.V and MMG.V come to mind. Yet longer-term they are not far from their base/breakout patterns. TLO.TO did its thing before them. I don’t know that the play is over yet, because the two amigos noted above have only recently gotten going (TLO started much earlier due to very real drill results).
But when the exploration guys start going off like bottle rockets, 10x, 20x, etc. it tends to signal the end of line, in a bigger picture way. In that context, we’ve only just begun. Ref. Tuesday’s public article on the explorers. But when they pop off as they have lately, they can also signal the coming of a normal and healthy correction. It’s a sign of a market getting frothy over shorter time frames.
Long story short, I added puts on GDXJ, got killed on them in a day, and then added more. In other words, I bought some insurance. I find it psychologically more beneficial knowing the finite amount of money I can lose on this insurance. It allows me to hold it better than previous occasions with DUST and JDST. It’s all psych, man.
Now, there is a narrative out there (including as put forth by your letter writer) that we are in the early innings. Of course, that has been stated by ill-fated perma-bull analysis time and time again in the wrong macro. But in my opinion, it really is different this time. You know I am loathe to write like that, to sound like anything even in a near neighborhood to Promoterville. But it is what I currently believe because it is what the work instructs me to believe.
Let’s move on:
Gold: Massively overbought on the big picture monthly view. In the new macro, this is also massively bullish, in my opinion. Again, without stepping a foot in Promoterville, I do think that 5000 is probably a shoe-in and 10,000 quite doable in the coming years of this phase. This dangerous looking overbought situation is a launch into the best part of the bull that technically began at the 1999 low.
The daily chart shows how an overbought situation can reset in the short-term for more upside. See the box I’ve drawn on RSI and also MACD seeing its lines starting to pinch closer together. A bull market does this. It can remain O/B on a monthly chart like the above while resetting per the below on any given short-term time window.
Silver: Motoring along in an unspectacular way, which is not its usual mode. Usually, it leads precious metals rally and corrections, and it does it in an intense manner. Starting with the daily chart, silver took out the next target of 42, and now 46 is in view.
Silver is somewhat overbought and as far above its SMA 50 as it has gotten over the course of this rally. It could correct here. Early warning would be the intact EMA 20 (orange dotted line). Silver could also finish this rally with the kind of upside burst it is known for. In other words, it’s been remarkably calm. “Calm” is not how silver usually rolls in a bull or a bear phase.
The big picture monthly chart corrects my assertion above that it has not been on a spectacular rally. It has, just not relative to gold. The interpretation of this overbought chart is that a correction can come at any time. The silver price has earned a correction.
However, silver is on a major leg up and those have historically (1980 & 2011) ended with much more extreme overbought signals. Hence, why I continue to consider that this precious metals phase could end in an upside laser show. It’s why I am hedging with vehicles that could go to zero but rebalancing, holding and adding items along the way.
This chart of silver advises what is technically possible. Again, no promo. Just calling what I see. The implication is new all-time highs, either sooner or later. I would not discount the possibility of the momentum across the precious metals complex resolving to the “sooner” option.
An early risk indication (much like Junk/VIX for the stock market) would be the combo of the TSX-V/TSX ratio and the Silver/Gold ratio. Right now, they are intact. Hence, no bear signal.
Gold Stocks: We are not in Kansas anymore. Kansas was really barren and frankly, boring. We are flying high and looking for blue sky. HUI wants new highs, much like silver. Animal spirits are in play, make no mistake.
The last sentence above is dangerous. However, Huey is simply doing what this chart has implied it should do with the Fed dropping the Funds Rate. So it appears “all systems go!”
A warning: should something crop up, like strong economic or inflation signals sooner than expected, the gold miners would be vulnerable like ya read about if Fed projections start to lean hawkish again. But Trump is going to install a sycophant dupe. So, you tell me.
For now, it’s (mostly) all good, fundamentally, and the miners’ relationships to gold and the S&P 500 are reflecting that. It’s called leverage. This chart will want to see Gold/SPX in the bottom panel not drop back but instead, further its recovery.
Bottom Line
Bullish. Leadership intact. Fundamentals good. Risk rising.
Commodities, USD & Global
With TSX-V/TSX and Silver/Gold intact to the intermediate rallies, commodities still have an implied tailwind, on balance. Within the segment, I favor the critical/strategic stuff, as you know. Past and present positions have been REE, u3o8 and Platinum/Palladium, Ni/battery material related.
Current holdings include UUUU, MP, SRUUF and SPPP (the latter two added back last week). I also have a copper miner here (FCX) and a fertilizer guy there (IPI added back for another trade). TLO.TO for speculative Ni, PGE.TO and MMG.TO for other spec critical materials.
As an example of something that was “buyable”, PGM holder SPPP has a weekly chart thus far holding its base breakout. As cyclical commodities, the PGMs seem to take cues from silver and its status vs. gold. With the Silver/Gold ratio intact to its intermediate rally, I’ll try to get something out of this chart for another trade, at least.
Commodities Bottom Line
It is as it has been for most of the year. The critical ones are favored because they are at the heart of rancorous geopolitics. You can include copper in there as well. I still do not see a reason to favor the dirty old fashioned stuff like Energy and base metals. But they also have a tailwind in place.
Should the likes of DBC (broad commodity ETF) and its daddies, the CRB and GNX indexes break their sideways consolidations to the upside, I would want to get more down and dirty into the traditional stuff. Maybe just buy DBC to avoid over-thinking the individual segments. But for now, little interest.
US Dollar
Of course, Uncle Buck may have plans of his own. But last week’s breakdown and little contrarian bounce at the end of the week was pretty normal. That little bounce in the face of ramping asset markets could be a flicker of a warning, or it could simply be some USD shorts getting covered.
Break resistance and the 50 day average (98.08) above it and things could get dicey because with dovish Fed policy, USD is “supposed” to go down. That is the path of least resistance. But we should keep an eye on USD, along with items like Junk, VIX, TSX-V/TSX and Silver/Gold as potential triggers.
Meanwhile, the USD trend is down and that is the governor, guv’na.
Global Stock Markets
On balance global should out-perform U.S. if USD fails, and under-perform if it succeeds. That is a trend from the old macro that has continued into the new one.
ACWX/SPY reacted negatively to USD’s little bounce. This too is normal, as the ratio dealt with resistance.
Meanwhile, on the surface of things, global is fine, technically. It is pausing where it was supposed to pause.
Bottom Line (entire report)
Trends are as they have been. Mostly bullish.
Long-term macro indications are and have been bearish. But it is a “new macro” and we are only in the process of defining what that means and its implications.
U.S. market sentiment is gathering toward a more briskly over-bullish condition and thus, contrary bearish.
Precious metals are full ‘GO’ and the major risks are the fierce momentum and a situation where the Fed improbably halts its “go dovish” orientation. That is quite a contrarian concept IMO, as Trump is just itching to put a rate cutting dupe in there.
Critical/strategic commodities are still favored over old fashioned “dirty” ones.
Portfolio
Gold is and has been viewed as long-term risk management & monetary value/stability in a balanced portfolio.
Taxable Account
In order of position size. Going week-to-week with partially hedged gold miners, partially hedged bull stocks and an open mind.
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.
Roth IRA (non-taxable, no contributions)
The chart keeps going up. That’s all I got for now.
Cash & Equiv are at around 70%, including the TIPs fund. Same notes as above for the taxable account.
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.
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