An informal presentation of technical analysis, market ratio analysis, psychology and macro fundamental opinion... along with whatever else is required to stay on the right side of the markets. The premium NFTRH service takes all of these and more to the next level.
A theme in NFTRH172 was that simple pictures can clear the mind of all the egg head intellectualizing (exhibit A: Prechter video below) and provide a view to a simple path. Gold stocks are on a simple path to out performing broad stocks in 2012. That's what this simple picture continues to tell this simple_ton.
It seems everyone's coming along to NFTRH's "Inflationary 2012" theme now, post-FOMC and indeed I continue writing things each week that are not in favor of the deflationists' position in much the same way I had to write similar things contrary the inflation herd last spring.
All the more reason for a dose of Prechter now. He was one of my teachers and I still love listening to him. This is not a commission thing and requires absolutely no EWI sign up if you decide to watch the full video after this short intro video. Do with it as you will, but I'd watch it. In fact I am watching it.
Gold sector bellwether Royal Gold was reviewed last year with a weekly chart and damned if it did not hit the upside target and then some. Now it is in an Ascending Triangle, probably with a lot of work to do before it breaks out. One can think about a target - probably many months from now - above 100.
I do not give stock trading advice because I think that is a silly endeavor generally put forth by silly people. But if I were to give advice on Royal Gold it would be BUY THE GAP if you are hot and bothered for RGLD and aching to buy for fundamental reasons. That is an area of visual support, the EMA 50 and of course, a gap fill. BTW, I do not currently own RGLD.
TYX has failed the little breakout (surprised?) and the deflationists could get a little excited. But the activity appears normal in a little uptrend as a gap fills. MACD is positive and taking a routine breather. It still says here that 2012 is not going to be what deflationists hope for.
A gentleman I have long enjoyed reading, Bill Bonner, just wrote an excellent article that gets to the heart of what another influence of mine, Kurt Richebächer called "Degenerate Capitalism". It is easy to agree with Greenspan now that he is no longer obfuscating for the Federal Reserve.
"The 'greed' that preoccupies Occupy Wall Street
demonstrators is not a feature of capitalism, Greenspan points out.
It's a feature of human nature. He might have pointed out that
socialists are just as greedy as capitalists. They are just more
corrupt. Rather than get their gains by honest deception, they get it
by brute force — by using the police power of government to take it
The point I would make is that it is not capitalism against socialism, it is corruption within a capitalist system against a system that is itself, corrupt and morally bankrupt. I would also say that socialism is more inherently honest than the "honest deception" employed in a failing capitalist structure. It is honest in its brutality toward productive people, unlike the insidious nature of the grift and thievery that has gone on 'legally' within our heretofore capitalist system.
The problem is that in a late stage, hubris addled capitalist construct we see people - presided over by none other than the likes of Greenspan - living in opulence (Million dollar gold waste baskets?) at the expense of others.
I think the question is, can capitalism be fixed or must it end in a socialist reckoning and redistribution as punishment for its own excesses?
Hey look, targets are just targets. This one (1340-1360) was measured off of the bottoming pattern and activated when SPX broke and held above 1260 (which is what the market did in response to well known gurus' calls for a crash. Now amazingly, the market has already come off of over bought RSI readings and is indeed threatening to lose the first level of RSI support.
The first support zone is noted in green, but there is thick support built up all the way down to... yup, 1260, which is and has been a very important area.
I want to get shorter for a correction (am only bearish via the VIX and an actively managed bear fund), but the two items I hold are probably enough until further signs come in. Like a failure at 1260 for instance? Current view holds this is not going to be a bearish year for the market, though I have no interest whatsoever in being long US stocks in general.
Last week's crosscurrents abate and a rising tide comes in. Is it as easy as that? No, it never is. But the analysis has some firm footing now and the chances are pretty good that we are at the leading edge of some pretty big changes. That is what NFTRH does you know; it tries to catch the intermediate inflection points over the years and along the Continuum. I don't care for day trader mentality.
As I started doing some research for NFTRH172, I came upon our dear leader speaking post-FOMC. The tone of Mr. B's voice sounds like he is manufacturing his words rather than letting them come forth as a result of sincere thought. Small wonder, since he is running the inflation machinery and spinning it to a bamboozled public with fancy talk about inflation targeting and growth. Inflate or die Ben... inflate or we die.
Aufwärts tendierend... En hausse... En alza... as measured in the common currency. If gold should clear the current resistance, it is going much higher in euros.
This analysis, if proven out, paints the hysterics in the precious metals sector after the upside panic of last summer as nothing but a winnowing out of the weaklings; the people that bought out of fear and panic and no long term sense of value.
The old GYX chart was getting messy. Here's a new one viewed from a different angle that shows resistance and support. This, and the copper chart below it hint that the rally is getting long in the tooth as it hits its 'copper roof'. What comes after a correction (of whatever degree) will go a long way in defining future events.
Monthly HUI-SPX ratio chart shows that the 'bullish gold stocks vs. broad market' stance is still a good one. Too bad so many casino patrons insist on feeling good and buying what everyone else is buying instead of thinking about risk vs. reward on an ongoing basis. Even better news is that the smaller miners and explorers are out performing the seniors as represented by the HUI.
One long, confused sounding (really, just doing the mental work needed to sort things out) email update NFTRH subscribers had to digest one day last week pre US market open.
A lot of this update's questions are well on the way to being answered in the more obscure indicators we review with discipline on an ongoing basis. And no, I am not bullish the US stock market, regardless of what prices do. Much better places for cash in 2012.
In rising toward the equivalent of SPX 1340/1360, the stock market is
merely doing what we had projected it to do in the heretofore most
favored scenario. Yet the gold stock sector is not doing what I had
projected, at least not yet. It has not even made a serious threat to
HUI 550, let alone act as a leader. And I am still waiting on the likes
of Almaden, Sabina and Keegan to kick in to a would-be 'January Effect'
Meanwhile items positively correlated to the global economy are
rising, with the industrial metals (GYX) finally having turned up to a
decent degree and even uranium looking interesting. China (FXI), Hong
Kong (HSI) and the Emerging Markets (EEM) have broken upward out of the
triangle consolidations and the European markets continue to look good.
This is all in line with current analysis.
Back in December as the SPX declined to and temporarily through
support in the face of end of the world style bear calls (and a string
of concerned 'MF Global' type emails I received), it was easy to write
about a rally that could potentially be strong enough to get up to
target and reset sentiment from over bearish to over bullish. Check.
But I am susceptible to the bull case because a) I am naturally a
doer and a builder, not a doom sayer or fear monger, and more
importantly b) because an investment theme of NFTRH is and has been the
emerging world in ascension vs. the old debt choked world which is
descending. In other words, the "global leveling of the playing field" is a future investment theme.
Now, where does that phrase come from? Well, many readers know it
comes from my friend Jonathan, whose unique specialty brokerage not only
resides on the top floor of a building in Manhattan, but all over the
emerging and frontier world in the form of boots on the ground;
specifically Jon's boots on the ground. So while this reputable
brokerage has to this point put out bearish technical analysis (on US
and global markets) by the smart gentleman (I have met him and read him
regularly) sitting a few terminals away from Jon, the big fundamental
theme remained unchanged. Imagine that, a brokerage firm putting out
forthright analysis that for an extended period was CONTRARY to its main
investment theme and bread and butter. That's what makes them special
and what has given me hope, whereas before I believed a lot of the
cartoon commentary about 'Wall Street' being rotten to the core.
Anyway, on point... the analysis is apparently changing (per a
report I received yesterday) at Jon's shop with the idea that Brazil
currently looks the most bullish, with "bullish implications for
resources, energy and of course, EM."
There is my problem. I am susceptible to one of NFTRH's sub themes
as I am more portfolio manager and less trader. I do not want to miss a
major theme if this is indeed the start of the new up cycle we have
been looking for in NFTRH. Now, nothing is going on in the EM's that we
have not been charting all along (broken triangles/bottoming patterns)
but I have to this point been giving a lot of respect to the 'interim
renewed deflation scare and broad market correction' scenario.
The analysis coming out of this brokerage in a way upsets me because
it is now stacked with a growing list of things that are forcing me to
reevaluate. The primary one being the wildly over bullish state of US dollar sentiment and the corresponding over bearish state of the euro.
There is also the election year theme, the potential bottom in the
Silver-Gold ratio and various economic numbers (cooked or not) that
refuse to support the bears' claims that the world as we know it is
about to end.
Back to the gold sector... recall that a theme that crept into NFTRH
over the last few weeks is one where the gold stocks would lose their
status (in my view at least) as a 'unique' investment. In performing
like $#!& over the last few weeks, could they be telling us this
very thing? Have we already hit the inflationary upside phase where the
gold stocks would have been leaders (when did they lead anything? I
must've missed it) prior to the whole asset spectrum kicking into gear
for an ultimately bullish 2012 featuring rising costs in precious
commodities, resources and markets of productive economies?
Okay, slow down. Again, the broad market is not doing anything we did not expect.
Sentiment is swinging to bullish, just as expected. As I was writing a
blog post yesterday on the QQQ's target, I riffed along about my
general confusion, but also noted in an edit the state of Tim Knight - a
cool guy that I think gets too married to a black and white bearish
view - who is near throwing in the towel to the triumphant bulls. http://www.biiwii.blogspot.com/2012/01/qqq-on-its-way-to-target.html
But we had all of this bull activity on radar, and indeed it has
been the favored short term plan. Maybe the fact that I am confused and
writing this update is further confirmation of some very bearish
interim things that will visit within the next few weeks. I cannot
abandon the analysis just because I have got a case of the bullish
yips. But I will be damned if I am going to miss my own themes, which
are 'inflationary 2012' and again hat tip to Jon, 'a global leveling of
the playing field'.
So at the very least, I think it is time to back off the near
exclusionary focus on the gold stock sector by capping NFTRH exposure at
current levels. This does not mean I am going to jump whole hog into
the 'inflation trade' today, but it does mean I am going to selectively
pluck some things from around the emerging and resource world. In fact,
dividend payer Enerplus (ERF) was added yesterday as it tanked to long
term support (on share diluting financing news).
The perma-bulls may or may not end up getting the last laugh. The
perma-bears are sure becoming dispirited, once again apparently
snatching defeat from the jaws of victory. But the current analysis was
created for a reason, and that reason was to be aware that a strong rally to reset sentiment was likely.
Sentiment is getting reset, including potentially that of your
writer. Part of my confusion is that I am not sure whether to get
contrary myself or stay in line with me. What I do know is that I am
not short or bearish anything at the moment even as I hold a bunch of
under performing precious metals stocks. That gives me strength and
helps me retain an unbiased view. I believe the gold stocks, per the
monthly chart shown here http://www.biiwii.blogspot.com/2012/01/gold-stocks-vs-s-500.html
are set up to out perform the broad SPX going forward. Sentiment in
the precious metals sucks, as opposed to what it is doing in the broads.
So, the way I read things currently is to hold at least a core of
precious metals stocks (incl. silver stocks) selectively pluck a few
things out of the resources and emerging world as opportunity presents,
but BE READY for the heretofore current analysis - calling for an interim hard correction - to visit within the next month or so. If things look to go that way, I would manage risk by selling hard or by initiating bear hedging or positioning. But if 'inflationary up cycle 2012' is already starting, I will try to understand this as soon as possible,
retain positions and scout new macro opportunities. I would look
forward to not burning commissions left and right and just set it and
forget it (to the degree I ever forget anything, which is not a great
degree :-)) for a while.
I hope that by expressing my confusion or mixed feelings it helps other people start an inner dialogue as well. To
summarize, the preferred plan of generally SPX to 1340/1360 --> hard
correction --> triggering 'inflationary 2012' is on watch for
modification to 'inflationary 2012 in process'. The primary
reason being the sentiment state of the anti-market, the USD and of
course the state of long term US treasury bonds, in which the huddled
herds cling to perceived safety from a deflationary depression. In other words, a contrary setup (for the 'inflation trade' and against deflationists) is already in place.
Email update just sent out with parameters and a changing outlook on HUI beyond the short term. Also, per subscriber request NFTRH172 will look more closely at the exploration and junior mining sectors, probably by charting several NFTRH holdings along with the GDXJ.
Canadian Venture has been rising since the waning days of 'tax loss selling' season in mid December. Is this just a predictable and temporary recovery or an early manifestation of the coming of widespread effects of an 'Inflationary 2012'?
Get on the right side of this while you still have time. You are well schooled, intellectual and even in some cases genius in the dogmatic way you follow your breadcrumbs. You got it all worked out my friend.
You will probably even get a stock market correction - that is your obsession, no? - but you are once again going to spend a year or so being on the wrong side when it doesn't crash, you are short gold and/or silver, short gold miners, short commodities and short broad global stocks wondering yet again why and how it all went wrong.
That is because you are lazy and cannot get over your own ego. Or something like that. Maybe it's just a blind spot. I don't know. You have been warned, just like the silly inflationists were last Spring.
"Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable."
Stop falling for the commonly accepted garbage that passes itself off as economic and financial commentary. The sentence above reflects what the FOMC needed in order to maintain and continue the ongoing inflation regime. A lack of inflation is not the moderated commodity and precious metals prices of recent months, it is simply a resetting of expectations.
I hope that anyone short the precious metals sector in service to deflation has just gotten their ass shredded for their own naivete, greed and stupidity.
Other than that I have no real strong opinions on the matter. :-))))))
You play in the modern stock markets? The super dynamic markets we have enjoyed since Alan Greenspan began his most intense phase of trying to control outcomes; trying to manage markets in a Zen-like 'wax on, wax off' manner through monetary policy? Poor Ben Bernanke inherited a race car that is perpetually trying to spin out on hair pin turns. Just look at the upward and downward spikes in the formerly calm TYX-IRX yield curve.
A down spike like the one we are currently on represents a time when a deflationary backdrop is in force as the curve would have us believe that monetary policy is not particularly accommodating. I believe what is actually happening however, is that expectations are simply getting back in line from last spring's inflationary hysterics (see the April spike below).
As for asset markets, look at the ride the silver bugs have been on. Just last spring silver blew off to 50 amid the inflationary hysteria noted in the previous post. Things were so bullish and the public so convinced of an inflation problem that emotions were running very high in those directions. As NFTRH noted last summer in the wake of the silver blow off and during the $300 rise in gold that resulted from the European debt panic, this was all unhealthy activity that longer term precious metals bulls needed to protect themselves against (through risk management).
The current near term state of Ag is unclear by my read. We had a downside target of 'just under 30', which was close to a no brainer after the mania blew out. The next targets were 'low to mid 20's' (check) and 20, which is long term support, not fully illustrated by this daily chart. It is still open, but...
If you take in the theme of the previous post, you may come away with a question that asks 'is inflationary 2012 coming now or after a decline to the bottom line of the huge macro channel (on the 'continuum') and one more deflationary dunk?' With silver you could ask 'has it turned up for real now or will it take one more severe decline to the massive support that resides at around 20?'
The same can be asked of many other asset markets and commodities.
You know I am not often a raving bull about silver, but the chart above is very bullish. It just depends on which support target the bullishness is projected from. Sentiment in the precious metals flat out stinks and that is of course, a bullish indicator.
The Wizard meets with his henchmen and women today and I am sure there will be some sort of expectations management in their statement. Given how (predictably) strong the broad market has been of late, I would not be so sure what comes out of the macro manipulators' PR is going to sound overly dovish. In light of a potential bottom in long term T bond yields, I wonder how today's FOMC PR is going to play? Will it enable, contradict or disable the current theme?
There are a lot of moving parts in motion right now. You have got to love the markets. Do you love the markets?
Regardless of what happens in the short-term (i.e. interim market correction of routine or severe degree upon completion of this sentiment-induced broad market rally), the analysis being brought forward in NFTRH over the last few weeks is painting a picture of a 2012 that could by year end, feature heightened inflation concerns as opposed to the deflationary ones that so predictably came about after the spring of 2011.
The 'continuum' (AKA the monthly view of the TYX or 30 year Treasury yield) predicted last spring that Bill Gross of PIMCO stood to be very wrong in his highly publicized Treasury bond short play. Another way to put it is that PIMCO was heavily 'long' rising interest rates at a technical point that had limited every rise in long-term rates over a span of decades. Was he going to suddenly make THE call and be right on this? Unlikely.
Enter one US congressional debt debate and one European sovereign debt meltdown and the US Treasury market was suddenly all the rage, as long-term interest rates plummeted. Enter the 'deflationists' that always come center stage at such times.
Whereas Mr. Gross was taking a big risk in being short the bond (long rising rates) near the 100 month exponential moving average (solid red line), the people buying the deflation story hook line and sinker, clinging to the US government's most long-term debt paper for safety, are now sitting squarely in the line of fire with respect to upside inflation risks as the TYX decides whether it is going to insert another green arrow at current levels.
Here is a closer look at the TYX in the form of a weekly view.
Let's just say that this looks like a bottom in the making for 30 year yields. Dialing in closer, the daily view below shows a move above resistance. While it is too soon to confirm this as a breakout, we can certainly see some risks to the 'declining interest rates' and deflation scenarios going forward.
Now, it is not as easy as just watching nominal interest rates and calling 'inflation' or 'deflation'. There are other indicators to use to look at this from as many angles as possible, including the various yield curves between long and short term Treasury rates. NFTRH171 took a look at the most extreme curve, the TYX-IRX (30 year yield to T bill 'yield'), for example. Its message was one of deflationary wrangling amid upward and downward spikes and massive volatility in 2011, while remaining in an upward trend over the long term.
This is a picture of accommodative policy making, the likes of which tends to bring on obvious inflation problems in the form of rising asset prices later on.
Then of course there is the hugely bullish sentiment toward the currency that denominates US Treasury bonds. Here is the latest view of the Rydex Strengthening Dollar Assets (compliments of sentimentrader.com), which is of course, bearish on a contrarian basis. 2011's refugees, many of whom were likely too long the 'inflation trade' last spring as inflationary fears maxed out are sitting comfortably in US dollars, convinced of coming declines in asset markets.
We have been fed so steadily a diet of the European debt crisis, the MF Global margin meltdown and unhealthy systems coming apart at the seams left and right. I do not want to minimize these threats, but if things go the way they have gone all along the 'continuum' at points when the majority were convinced of certain outcomes and eventualities, a set up is in place for something very different.
That would be the "Inflationary 2012" theme NFTRH is working on week by week. Risk has been managed rigidly throughout a challenging 2011 to the present time, and this year we look forward to the possibility of something very different, judging by this view of the US Treasury market, US currency and several indicators that are generally updated in NFTRH on an ongoing basis.
Meanwhile, Ag has had targets of 31 (resistance) and 34 (resistance & measurement off of bottoming pattern) open. Target 1? Check. Target 2 is still open. Important short term support is at the EMA 50 AKA yup, 31.
NFTRH has had the recovery target of 1650-1700 (or the 'nose' of the Triangle) loaded since our 1590 downside target was pierced and support in the low 1500's was registered. So gold is a candidate to terminate its bullish activity right now.
But resistance is there to be broken, and the picture is not so cut and dry. A correction of very minor or more serious degree was bound to happen right here. What comes next is less obvious. There are a lot of hints flying around outside the gold market, and I am trying to gather them, find meaning in them and correlate them. Short of that, it helps not to force anything. We cannot bend markets to our will.
Is today going to be any different than the previous string of pauses to refresh for our bloated piggy? I think I will let it breathe and see if we can't make a new move toward target before thinking about getting active against this thing.
I bought back MFN on the tankage below 10, but traded out too soon in favor of a miner I felt was a better company for my needs. So my okay profit did not turn out to be a great profit. Dat's show biz.
Meanwhile, Otto over at IKN will be quite happy because he identified MFN's value (confirmed by PAAS) in his newsletter and not only held on, but averaged down. This is what people do when they see value in contradiction to price activity. In fact, NFTRH171 went on about this concept this week in a more macro sense. VALUE, people... value.
Anyway, this is one of those acquisitions that reflects well on the entire precious metals sector. I am sure when the next bull cycle comes, the garbage will rise too. But over the long term, you can't go wrong buying up value when you see it. Especially when value is at odds with the prices the markets have assigned to a specific stock or sector.
171 has got its contrarian thinking cap on as more signs are uncovered that 2012 is not going to go the way that the trend followers and robotic thinkers believe. The majority of bulls and bears, inflationists and deflationists, are robots you know.
In reference to the previous post, here is what this rise in silver has done to the GSR. 'Party the $%*! on Garth' is the would-be message.
Have you looked at the poor senior gold miners? GSR rises, they go down. GSR goes down, they go down. This is what you signed up for when you got your gold bug membership card. The world hates you, and everybody makes coin except you. All the gold bug pumpers are charlatans and stocks and bonds are where it is at.
Yes, I am joking. Something has got to give, because we are not going to proceed with an everything bullish but gold stocks environment.
The 50 day moving average (shaded area) has been pretty important as a resistance and support zone for silver. Today SLV is boinking up above it on a frisky looking move. That has been expected as NFTRH targets have been 31 and potentially 34 for Ag. What comes next? Lots of things in motion. Everywhere.
Time to find out whether Fibonacci's reality is anywhere near its hype as a useful TA indicator. I have shown some gold stock winners. Here is one - no less favored by me - that has been struggling for months now. You would think a low volume decline to the 62% Fib within a Falling Wedge might be bullish. You would think... Actually, I am not thinking too much. Just holding.
So, have long-term interest rates bottomed? And if so, what is going to happen to the huddled herds clinging to them? I am not trying to be wise here because really, I am not sure. But two things for sure; the TYX is in a stance where it certainly can bottom and if it does, people clinging to the deflation scenario are likely to be very disappointed.
The market kept me at my post all day and thus no gym for me. Going to have a cocktail and dinner and then shutting what is left of my brain off to watch the Rangers/Penguins.
Today, subscribers' heads could be spinning just like mine, with the volume of information that was sent their way. A truly exciting and challenging day in the market. Posting was light here due to this priority. But we'll get back at it soon.
Here is the chart from that post, updated to this moment. The projected downside target was in essence, achieved back in October at the 'Bull Pivot' (Remember that one? It was predictable, due to sentiment at the time) low.
All annotations remain from the original chart, but I have added some additional notes as well. So, are we at the start of the next inflation cycle or is GYX merely rising to kiss its own ass goodbye? This is a valid question I think.
I am the US Treasury bond. I have broken out to the upside and yet the stock market does not care. Should I be concerned I am on a false breakout or should the broad market bulls be concerned about me? Seriously.
Maybe the rules are changing to 'if it's made (or printed) in the USA, buy it!'
An important email update was just sent. It contains not one chart, but a lot of words about the current plan - in so many ways still on track - and its potential revision.
It is written by a market player with a level of mixed feelings with respect to what comes next, with the sentiment state of the USD and a herd clinging to T bonds featured. On the other side of the coin is broad market sentiment as SPX comes toward target.
I have tried to bracket what I think are the most important themes. Comments, questions enthusiastically accepted.
SPX 1340 to 1360 has been on radar since it began flirting with 1260 resistance back in Q4, 2011. Now QQQ is steaming toward its target.
I don't want to sound like I have got it all knocked, because I have some definite confusion brewing as to the nature things; as in are we heading right to the inflationary 'recovery' now or pending one more liquidation. It does me no good to get the targets right if I then make incorrect conclusions from that point.
I have incoming info from my most respected source on the Emerging Markets that gives me pause with respect to the interim deflation scenario. This goes double when considering the deplorably over bullish sentiment toward the US dollar (bearish against the euro) that NFTRH has been tracking the last few weeks.
An email update is going out to subscribers tomorrow morning that will probably end up being more like a mini NFTRH. The broad market is doing what I wanted it to do, but as I look around the asset spectrum, I am not convinced that it is then going to go according to the currently favored plan.
Anyway, the QQQ post somehow morphed into a brain dump. See you in the morning dear subscribers. Lots to discuss.
Edit (6:07) After writing this post, I checked in on my virtual acquaintance over at Slope of Hope, and he is losing hope. Now, I don't want this to sound smarmy because Tim can trade circles around me (I am the intermediate cycle guy after all), but what he expresses in his post is something of a prerequisite to any coming bearish scenario.
Still, I am confused. I had the targets up higher, and I had the Emerging Markets breaking out of triangle consolidations. I have not got a single bear position and other than a one day trade last week in DUG, have not touched the short side due to the upside targets. But now I am questioning my own ability to short my conviction as the markets get up to targets. Like I said, lots to discuss. Much of it may have to wait for NFTRH171. But I hope to hit some major points tomorrow morning.
Because gold miners are not the only ones that like to issue shares... Wonder if I am going to put my money where my chart is? A dividend paying energy company at major support... hmmm. Ref. this post.
A commenter on the previous post noted how bad the gold stocks have been and there is no denying the frustration and the poor performance of late, but the major gold stocks are in an uptrend vs. the broad stock market, when adjusting the time frame out to a bigger picture. I realize that most people focus on the noise of any short or intermediate term phase but it is important to keep an ongoing view on the big pic macro backdrop at all times.
This is not boosting, it just is what it is. HUI is at a point that has been a 'buy' vs. the SPX. Could it fail this time? Well, yeh. But the fact is that HUI is at a major support point in relation to SPX. No ifs ands or buts. Monthly chart:
As for the short term pain, I do not want to come off like a genius stock picker because I have a few holdings that are beaten down and frankly, I cannot figure out why (given their management and assets). But there are quality stocks that go their own way based on their merits in a sector that also includes a lot of garbage. Daily charts of my 3 best performers:
A combination of assets and stellar management that does what it says it is going to do near 100% of the time appears to be the common theme. Some gold mining companies are run by forthright, hard working and in some case very bright people. Many gold mining companies however, are run by dullards or worse.
Just like in the general stock world, only I think there is a proud tradition of bad management and extreme hype in this sector that begs would-be investors to be careful. Everybody's out there pitching mines after all; third party promoters, websites, newsletters, supposed gold mining analysts and often the companies themselves (in conjunction with options issuance, opportunistic financing through share sales and other shenanigans).
If I did not have Otto, Metal AuGmentor, Mickey Fulp and my man on the ground (and at several mines), NFTRH subscriber Frederick on the job, I would feel insecure trying to manage this errr 'mine' field. I guess what I am saying is that gold and the gold mining sector is heavily promoted, and you are the promotional target. This is not a comment on the merits of gold and the best miners, it is just a fact of life in the sector, as it is in the stock and financial asset world in general. Everybody's pitching and you need a b/s detector.
The TSX dot V, AKA the playground where players trade the most speculative Canadian resource stocks, looks good for now. Trend line broken, price above EMA 50, MACD positive and daily AROON uptrend. The major downtrend would only be broken with a rise above the down-sloping EMA's 200 and 400, however.
From Bloomberg on Friday [13th]: “Stocks fell, trimming a weekly gain, while the euro and commodities slid after reports that several European nations will have credit ratings cut by Standard & Poor’s. U.S. Treasuries rose…”
This is the news of one failing major currency benefiting the exchange rate of another, along with the Treasury bonds it denominates. Deflation is not global hot money hysterically running from one intrinsically worthless currency to another any more than the 2005-2008 “death of the US dollar cult” represented hyperinflation.
This is a global race to the bottom, headlined by two major debt-mangled currencies as waning confidence ping pongs from one to the other over years, decades and over the ‘continuum’ (our trusty chart is again reviewed below because well, there still may be one or two readers out there who have not fully taken in its message, which I have beaten you over the head with over these last three plus years).
You know that I am not shy about highlighting the folly of the manic ‘inflation bulls’ and their hyperinflation hysteria every time the ‘continuum’ is threatened by a rise in 30 year yields to the monthly EMA 100 (most recently in spring of 2011, featuring Bill Gross’ highly publicized and ill-fated Treasury bond short play), which has neatly framed and contained inflation expectations for decades.
Nor am I shy about highlighting the folly of those getting all wrapped up in deflation and the certainty that it is finally going to happen this time, as those cultists would have us believe. There is inflation and there is deflation, all along the continuum.
The long-term picture of the 30-year Treasury Bond yield is one of a deflationary backdrop as the TYX gently slopes downward (like America’s prospects for real productivity) over the decades. Against this downward slope are periodic inflationary impulses, which arise as a result of currency-compromising policy promoted as needed for an economy dependant on monetary inflation rather than productivity.
During the inflationary impulses, the majority gets greedy and hysterical about rising prices just before the whole mess reverses downward (red arrows, generally at the 100 month exponential moving average) and it generally becomes very hard for the Federal Reserve to justify manufacturing more currency by monetizing debt.
Then there are the deflationary impulses. Those would be the unpleasant downward spikes in ‘inflation concerns’, which could eventually morph into all out fears of a deflationary depression. This would be the hysterical opposite of what is going on at the red arrows.
There is no guarantee about the future, but we can state conclusively that each time a green arrow has appeared it has been an excellent time to cast off the deflationary hoopla and deploy as a contrary investor for an ‘inflation up’ cycle generally lasting a year or more. Similarly, the red arrows have generally provided excellent opportunities to preserve capital in anticipation of future asset buying opportunities.
So now, what do we have going on? If the chart above arrests its decline at the green dotted line, we are likely at the start of a new inflation cycle, which would target – you guessed it – the EMA 100 (red line).
Unfortunately, there are two channels with a newer, less downwardly biased one (dotted lines) targeting a bottom now, and the original EMA 100 and straight green channel line targeting something that would be truly painful in the near term, with asset price destruction potentially visiting markets far and wide. I would still debate whether this would be attended by actual deflation. But that is an argument we would leave for the appropriate time, because the answer would be dependant on the capacity at which policy makers are running the money factory.
We want to know whether the next inflation cycle is beginning now, or will begin after a final and terrifying downward spike in yields. We should have an answer when the current price cluster (yellow shaded area on the chart above) breaks one way or the other.
Flipping the market over from yields to bonds, above is the monthly chart of the 10-year US Treasury Note. A version of this chart was shown on the blog http://is.gd/fK4asB repeatedly last spring as Pimco shorted and inflationary hysterics were peaking.
As I recall, the analysis I derived from the chart (and other events going on at the time) as to short-term market activity was by no means perfect, but the main point was that inflation fears were getting over done precisely at a time when players should have been preparing for a swing to the other end of the spectrum. Lo and behold, what has transpired?
The yellow shaded area was the point in question as the financial media and blogosphere were telling us that this was the big one, the inflationary reckoning. Unfortunately, the 10-year had not relinquished its bullish stance so this simple chart guy went on the alert for a cycle change along the continuum.
Recall that ‘deflation’ was considered crazy talk as a new austerity movement was being lifted in the US, crude oil was rising into a post ’08 crash peak, silver was accelerating toward its blow off top and copper was above $4.20 per pound.
Since the long bond’s yield (TYX, top chart) has yielded no decision yet and since the 10-year Note (UST) remains in a bullish stance targeting higher levels, it would be wise for people not to make fun of premier ‘d Boy’ Robert Prechter just yet. The stock market is coming due for a significant correction (at our long-standing target of SPX 1340 to 1360?).
When a correction finally arrives, the state of long-term US Treasury Bonds will be one of the important components used in defining the nature of what comes next. If the continuum is to remain intact, what comes next will be a whopper of an inflation cycle.
The T Bond structure is among several reasons that NFTRH is moving to a view of an ultimately inflationary 2012, just as we were on guard for a deflationary 2011 per this chart (from last spring), and per the most recent red arrow on the monthly TYX. Yet until a reversal is clearly defined, caution is heavily in play. You see?
NFTRH170 then proceeds to an updated 'Current Outlook' and all the usual sentiment and technical tools in the toolbox used to keep us on the right side of macro markets, along with reviews of gold, silver, gold miners, commodities, stock markets and currencies...
As the screenshot intro implies, #170 continues on the road to defining what comes next in the long term struggle between inflation and deflation fears over the continuum. Then the work dials in to the usual nuts and bolts that will eventually give us a leg up on the coming changes.
Yesterday afternoon and this morning, support parameters were sent to subscribers on gold and silver. Here on the blog we will add those for the broad S&P 500. One down day does not a reversal make.
Short term support is noted at the current level of 1280. If that fails, super critical support is at 1260. This was formerly important resistance as you will recall.
What I like in firming this up as a critical level is the confluence of long term visual support, the thin blue uptrend line and the 38% Fib retrace of the entire leg of this most recent rally out of the December low.
Folks, if 1260 breaks, the market is probably cooked for a while. If it holds, we have the fuel to attain the 1340-1360 target zone. Simple.
It says here that it is better to set parameters and have discipline than to listen to grand guru predictions whether they be to the bull or the bear side.
Commenter Tom (blog reader and long time NFTRH subscriber) notes that I misrepresented Richard Russell's stance which is apparently now "please be out of all common stocks with the exception of mining shares" (as of Jan. 9), replacing "INSTRUCTIONS: Be out of ALL stocks including mining stocks if you've not done so already", which was published at 321.gold on Dec. 12.
If readers have detected that I have a 'thing' for Russell, you are very correct. That is because everything I believe in leads to the idea that a responsible writer does not tell people what to do as if they are unthinking sycophantic robots. At least that is not who I want to be writing to.
As for misrepresenting Richard Russell, Tom? Please, it is quite the opposite. I'll detail the problem for the blog so that maybe it will make a bit of sense as to why I get this way when RR does one of his high profile herd management routines and comes off like the god of all markets.
I wrote this on September 30, 2004. It was probably among the first 3 or 4 things I had ever written publicly about the financial markets. Just a newbie schmo writing for the sake of informing the public as opposed to any kind of commercial motive at that point (it was 4 years prior to NFTRH launch).
The prominent newsletter writer then reprinted the article (in or around the date noted above) in its entirety in his Dow Theory Letters. RR sub's can comb the archives from back then, if they are still on record and available. Hey, what a great thing; Richard Russell liked my article enough to reprint!
Problem being, he reprinted it with some of his own words along the lines of 'Dow Theory Letters has the smartest subscribers in the world and here's an example...' Richard Russell MISREPRESENTED my content to his subscribers, gave NO CREDIT to my website (the original source) or whatever re-publishing website he copied it from (without my permission). Also, I have never subscribed to his service.
He could have given a newbie writer a boost and a helping hand. Instead he took my content without permission and presented it to his flock as being from one of them. Are you kidding me? I was actually excited about this and contacted him to let him know that I was actually not a subscriber, but an independent writer at biiwii.com.
He never answered my mail and I have had this 'thing' for him ever since. It has been in my craw for seven years. Now we can move on, probably a few blog readers lighter.
The gold-silver ratio had been in a similar but larger bullish pattern to the one from August-October. It sneaked out of it and popped upward to resistance over the holidays. B/s or no b/s (as to holiday activity), it has qualified for having hit a target I guess. So the magnet of 60 is no longer a necessary force.
With important longer term EMA's turning up and GSR's residence above the 50 day moving average, it is still considered a negative divergence to the rally. But when looking at risk vs. reward over a bigger picture, things are changing.
Think about how many high profile analysts are flat out bearish. I read somebody the other day writing about David Rosenberg's great call on rising Treasuries in 2011, and calling for lower rates still in '12, Richard Russell "Instructions: be out of ALL stocks...", the "Clive Maund is uber bearish" emails I get. Then there is Prechter, scaring half the listeners to death on Goldseek's radio show and all over the media.
There is a time for all this stuff, and yes, I still lean toward the coming of an interim downside problem pending the completion of the rally. But what comes next, both in policy and in market response, later in 2012 is what I am most interested in. Many indicators like the GSR (or the view of SGR shown yesterday) are indicating that on a risk vs. reward basis at least, the doom and gloom crowd is getting itself extended.
I still think SPX 1340 has a decent chance of happening. Then it is evaluation time.