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Huey, Dewey & Louie

I’ve been trying to make heads or tales out of the near-term US stock market situation, looking at the still vulnerable NDX (QQQ), the has been vulnerable SPX (SPY) and the bullish SOX (SMH).

Tech duck Huey is technically vulnerable below clear resistance and the 50 day average (blue). Broad market (SPX) duck Dewey has looked vulnerable, jigsawing his way below and above the SMA 50. Semi duck Louie is flat out bullish, even attempting to nullify the small double top scenario noted last week.

All three ducks have negative RSI divergences to varying degrees, for whatever that is worth.

As we had been noting previously, the SOX > NDX > SPX internal market leadership chain was sending mixed messages, with Semi leading firmly, but the #2 duck, NDX, failing. I think we have our answer to that, which is the growing concern that many software companies are going to be commoditized due to a lack of layers to their businesses and a lack of an overall moat that keeps them differentiated.

So for now, I think the utility of this chart as an internal market indicator is diminished. That is because one significant aspect of Tech (NDX) is getting a discrete hammering for a discrete reason; death by AI.

Many Semiconductor companies benefit from the AI build-out, and those that don’t are not having their business cannibalized by robots as is happening to one-trick software companies. Software companies with better moats and that effectively integrate AI agents into their workflows should benefit.

From MacroMicro:

The market has shifted from an indiscriminate growth phase to a “monetization scrutiny phase.” Software companies with shallow workflows or low switching costs are losing pricing power as AI models make their features interchangeable. Conversely, platforms that serve as the control layer for AI agents (i.e. Satya Nadella’s “Agents are the new Apps”) will capture the value. We are essentially seeing a rewiring of the value chain where the winners are those who can monetize deeply integrated workflows.

Basically, the theme is be integrated into the functioning of AI agents or be dead.

So this has been a bit of a monkey wrench in my market view, trying to understand what is in play in the US market. SPX looks like it wants to roll over, yet SOX is full bull. NDX is vulnerable, but an important aspect of Tech is the primary culprit. That is the broad SaaS/Cloud software segment, on Friday making a move to break downward from its Diamond consolidation (my hunch was an upside break).

I would not buy CLOU, but the negative hysteria launched by AI is croaking all sorts of companies that probably don’t deserve it. Shoot first, ask questions and figure out who best incorporates AI agents later, I guess. I have a few specs in the portfolios below. Babies thrown out with the dirty bathwater?

So it is a discrete area of Tech that is getting hammered. Software. Even Microsoft got slammed. The AI “hyperscalers” are getting slammed. It feels like opportunity as it plays out.

Yet the VIX divergence is ongoing with a bearish implication. So you can see why I have mixed feelings. It’s because I am getting mixed messages from the markets.

Monetary/Fiscal Backdrop & Economy

We know that the Trump administration is going to do all it can to blow an inflationary gasket trying to pump the economy, or more precisely, the stock market, into the mid-term elections. It was no coincidence that AG Bondi was babbling about the Dow over 50,000 at a hearing that had NOTHING to do with the stock market. I believe Scott Bessent is hard at work trying to engineer policy of both government and Fed in order to see to a nice economic backdrop into Q4.

Politicians. These may be absurdly different ones. But politicians be politicians and they do politician things, like hoodwink the public through fiscal chicanery every election cycle.

They’ve got the Fed at least partially under their thumb, they’ve got pro-business policies kicking in and this view is well in line with our primary macro view, which is an inflationary operation after the current disinflationary Goldilocks or something more painfully deflationary passes. The operation is expected to be perceived as beneficial at first, into year-end. Later? Not beneficial. Quite destructive.

To this point the condition, at least from the vantage point of the public, has been a steady “disinflation” from the spike levels, post-2020. What this says is that inflation is still increasing, but at a much slower rate of 2.5% compared to the hysterical 8%+ of 2022. This could be as good as it gets before the negative effects of the next inflation problem cooked up by Fed and government become apparent to Joe Sixpack.

So sure, the next inflation problem will probably start out being perceived as beneficial, as most of them do. But my expectation is that much like after the 2020 bailout, it will not be too long before the benefits fade away and inflationary angst erupts far and wide.

I expect a virulent Stagflation to be the end result of a government and Fed trying to layer inflation on top of inflation (as opposed to an inflationary bailout of a deflationary liquidation). This is what I believe they are cooking up as the Fed resumes QE behind the scenes, but is expected to hold rates steady until the June meeting, during and after which the rate cut cycle is expected to resume in earnest (ref. CME projections).

Hmm, what significant event happens in between the April and June meetings? Lemme think. Ah yes, the hand picked Mr. Warsh takes over the Fed in May. Pretty handy, eh?

A literal look at the Fed’s balance sheet shows a gentle bottoming and hint of Quantitative Easing after a long trend of Quant Tightening. That, along with their stated intent to buy Treasury bonds (but not MBS) is enough to know that this is a future inflation creator, even as it has not really kicked in yet. You can see that the change from a year ago is now trending up. QT is over, and QE (of some kind) is ahead.

Mid-terms, here we come.

Last week GDP came in surprisingly lame (1.4% vs. 2.5% forecast). Just the excuse those itching to inflate might need. It is likely due mainly to the government shutdown in Q4. Regardless, this is a lagging indicator.

But not so fast. Manufacturing, a leading economic component, boomed in January. As if out of nowhere.

Broad PMI hit 52.6%, the first growth reading since 50.9% in January, 2025 and before that 51% in September, 2022.

The percent change exploded out of nowhere.

As for the PMI’s more important components, they were as follows:

• New Orders: 57.1%
• Employment: 48.1% (contracting)
• Inventories: 47.6% (contracting, a positive for future orders)
• Customer Inventories: 38.7% (contracting, a positive for future orders)
• Prices: 59% (so much for waning effects of inflation)

There is no denying the fact that US manufacturing had a boom reading in January. Could this have been a one-shot wonder? Sure, with all the unnatural economic inputs mainlined into the system over the last year, anything is possible.

But if we are going to play it straight (I am), we are going to allow for the theory that regardless of any market correction that may manifest in the near-term, things are setting up nicely for the economy and stock markets to get gunned into the elections and year-end. ISM may be the first shot across that bow.

Strategy

Bullish. I’d prefer a significant, sentiment-clearing decline in the likes of SPX and NDX, but within NDX we’ve already had some hard corrections. The above-noted software sector, for example. Many commodities have been knocked off their perch as well. Especially the critical minerals that were so sexy in 2025. It’s important to remember that commodities are cyclical building blocks of well functioning economies.

Now, of course the next phase would be when inflation once again turns nasty and likely goes Stag. But that may be a 2027 issue. If the gentle hints toward pro-liquidity policy gather into what I think they will, I think we can have a very nice year “playing” Trump’s drive to the mid-terms. Remember how in 2024 we talked so often about Biden’s inflationary drive to the presidential election? Well, Bueller…

But again, my preference is a correction for a real buy opportunity. But it may not come about. It’s nearly March, the administration is getting hammered from all sides, and they need some wins. I think they are engineering just that behind the scenes with a Federal Reserve that will play ball as well.

Precious Metals & Commodities

Gold, then the miners, then silver did the heavy lifting in 2025 as the market leaders. I think it is more than viable that they can under-perform in 2026 if the above scenarios, where government and Fed combine to liquefy the markets and boost the economy, plays out.

“But that is inflation and inflation is good for the precious metals, especially silver!” may respond the gold bugs. Let’s add some context to that. When inflation is working to benefit the economy and risk-on markets, as it usually does in its earlier stages, the precious metals can be vulnerable.

Now, with silver having already taken a hammering yet still residing on the US list of critical minerals, I would not go overboard in a negative precious metals view. However, the gold mining industry, with its deep undervaluation long since corrected, could be vulnerable if oil/energy and materials (gold mining cost inputs) and stocks (a macro issue) start to out-perform gold in a cyclical inflationary environment.

Here is a game plan, subject to tweaks or revisions that will surely come:

• As we enter the 6 month pre-election window this spring, market liquidity would flow into stocks and certain, if not most, commodities. Let’s remember that the AI data center build-out, along with EV/Solar and other industries (not to mention rebuilding war-torn regions) will consume many commodities, including copper, natural gas, uranium, nickel, rare earths, lithium and yes, good old silver.
• The above is the honeymoon phase of the coming inflation problem. The good stuff. The bad stuff would be when this projected latest round of inflationary policies come home to roost in the worst inflation problem yet, a Stagflationary, anti-economic mess.
• Why does it have to be “bad” inflation? Because the system is saturated with inflation that has been promoted and deployed for decades. Refer for the 1000th time to the Continuum chart below.
• This 2026 under-performance by the precious metals (esp. gold/gold stocks) is an interim thing. Interim to the next rancid inflation phase in 2027 and beyond. Stagflation, where economies are again feeling the ravaging effects of previous inflationary operations.
• The long-term is expected to favor gold over stocks for the foreseeable future, maybe until we bury the current system and develop a new one. See chart below.

This chart can’t not signify change. It is all about change. My theory is and has been that while in the previous multi-decade downtrend of disinflationary signaling, the bond market allowed the system to promote, absorb and mop up official inflationary operations.

But the rebellion of 2022 ended that game as the bond market finally became saturated to a critical limit, and now any inflationary operations to come would be more virulent (economically corrosive Stagflation). *

* The projected 2026 inflationary operations and 2027 (and beyond) inflationary effects would be the first test of this theory.

“Interim” is a word I’ve been using a lot lately. That is because I expect a phase where gold will be less favored than risk-on stocks and certain commodities. But on the bigger picture an important bottoming base has been broken to the upside. Again, any further testing of the base breakout would be just that, in my opinion. Maybe just enough negativity to get paper pushers laughing at we stupid gold bugs again.

The men lampooning gold bugs in that recent X post are products of the former trend in the Continuum above. They are clueless that something major has changed. Leaving aside the cherry-picked 1980 top in gold and relative lows in stocks they used to paint their narrative for their herds, they will be proven very wrong.

However – and this is important for we who want to be smart bugs – they may continue to get a good laugh in the interim. Such a condition could greatly help signal the next conviction buy in gold, nominally or especially in relation to stocks.

Bottom Line

The “interim” play, discussed so often over the last few months, is likely approaching. That could see the precious metals resume their correction at worst, or under-perform at best. But the big picture macro is not what it was when paper jockeys were able to disparage the lowly gold bug for years upon years (e.g. 2012-2019). I believe 2026 may be an opportunity for those who missed a rotation into the precious metals from stocks and bonds, to get another shot at it.

But the way human herds function, most will not because they will be busy feeling vindication in their cemented views of the previous macro phase. The jockeys on the Gold/SPX chart above will laugh, the herds will be the herds and opportunity will be missed.

Strategically, I am preparing to shape shift and summon my inner paper jockey. This is anticipated either promptly or after a market correction. I’ve been anticipating a correction, but much of the analysis in the early segments of this report indicate a correction may have been avoided in favor of market rotations.

For example, Tech has been heavily rotated out of with the disruptions to the software industry to come at the hands of AI agents. Personally, I am all for a Tech rebound both nominally and relatively in 2026 if the interim bullish view is correct.

But I think diversity is important. So I’ll plan to continue holding significant Healthcare (BioPharma & Medical Device), commodity related (especially critical minerals) and since I don’t want to exit a real bull market, favored precious metals stocks (with or without hedging, which can be quite unsatisfying). I am open to other areas as well, if/as they align with the internal market view at any given time.

With what I think is developing in 2026, I don’t see why speculative mineral exploration should not be part of the package as well. The home of many of those specs, Canada’s TSX-V index, has already made a decent pullback from resistance to a support level.

The play in the critical minerals exploration space is that new resources ain’t growin’ on trees. They’re being drilled for in the ground in an ever more divisive and contentious world, trade-wise. That means the materials of economic and even social progress are ever more, well, “critical”.

As you know, I also hold bonds. Mainly the short-term Treasury variety (1-3yr with a little 3-10yr exposure). While I may hold 0-3yr Treasury in the future, bonds in general are an interim thing since the implications of the upward break in the long bond’s yield (Continuum) implies a resumed bond bear market out ahead, perhaps in 2027 and beyond.

Portfolios

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

Taxable “Savings” Account

Savings account beefed up equity a bit. It also continues to slowly rotate funds from Treasury MM to short-term Treasury bonds due to anticipated 2026 dovish Fed actions. In order of position size:

The taxable account carries 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. In another market phase (e.g. post-correction/bear/crash), the account may get more in the game.

Roth IRA (non-taxable, no contributions)

Well, I have to face the fact that I am in a moderate correction. I tried to keep this chart purely uptrending, but could not. Now I’ll look to hold a support level and each week continue to validate or even disqualify my favored view of a 2026 bullish stock market into/through the mid-term elections. It’s much like the 2024 Biden/Harris reelection thing. Politicians do all they can to give the people what they think they want when it serves their purposes.

Cash is 34%, short-term Treasury bonds are 39% and equity is 27%. That last one will be increased if I get better confidence that a) the bullish 2026 plan is correct and b) it is engaging. I am remaining aware that a near-term correction is not off the table before any party gets started.

Cash & income-generating Treasury bonds 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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