It appears that two anti-USD market participants have dropped out of the running since we last checked in. So now it is shaping up like SPY, Euro and commodities against Uncle Buck. Emerging Markets could be thrown in there too. Gold and silver? Palookaville. This can’t make the ‘Dollar Collapse’ cult very happy.
The ‘all one market’ vs. the US dollar scenario is breaking up a bit. Commodities and the Euro are doing well. Gold is hanging around and the US stock market? Not liking the weak dollar so much. The precious metals want to see silver get off the floor, but it’s got a heavy open interest sitting on it. This is a tough market, folks.
Do you remember them? Of course you do. There was/is a whole cult with a central precept that the US dollar is doomed, as if other garbage currencies were any better. People need to understand this is a casino. Prices do all kinds of things in defiance of what people think they should do.
Is this just the rant of some crank blogger or is the buttoned down, oh so respectable US Federal Reserve not trying to stimulate casino mentality (which it is pretending to want to tamp down at this moment)?
I like almost nothing about this market other than the opportunity it is going to present when the distortions start to get shaken out and things become a little more linear or readily understandable. But it is no surprise whatsoever that the USD is rising. In fact, in my best scenario it should rise.
I will be the first to admit that beyond the rising dollar – which makes sense as it is the world’s reserve currency, with claims to it wired in – there are a lot of messed up signals. A version of the above US dollar chart was put in NFTRH 230 nearly 9 weeks ago because it made a bullish signal (EMA 10 crossed over the EMA 35) that has proven reliable in the past. Well what do we know? It was indeed a precursor to a strengthening rally.
Yet in the bottom panel is the gold silver ratio and this touches on the fact that some of my indicators have pretty much stopped working, in the short term at least. The GSR has gone with the USD and broken out but has not yet indicated draining liquidity. The precious metals sector and commodities have predictably gotten croaked by this signal, but not yet the broad stock market.
It’s a tough market and much like with the gold chart shown this morning, we should be aware that anything is possible in the realm of price. Risk should be managed accordingly. I think we are going to get a stock market top in here soon, but this guy running expectations over at the Federal Reserve has done a masterful job of keeping so many seemingly illogical balls in the air all at once.
Hence, cash – for a US player, as represented by the rising USD – remains good until things clear up. Hey look, cash is appreciating.
Everywhere an H&S. An inverted one in the euro that is actualized and targeting higher to 142 or so. A downright mammoth potential one on the HUI. A potentially forming one on the NDX. Not to be left out, here is the updated view of Uncle Buck’s potential H&S.
Interesting times indeed, when considering all the H&S bedfellows. Strange bedfellows in some cases.
USD is technically bearish, and the FOMC just announced something fundamentally bearish ($85 billion in unsantitized printing and monetization). So of course Uncle Buck gets a contrary jolt this morning. There is always the Fiscal Cliff after all.
I am never afraid to point out bullish looking technicals on USD. But this morning I cannot do such a thing, USD bounce or not. USD is bearish below 80.60 or so. Weekly charts by the way, continue to look ‘not good’ as well.
If USD surprises everybody against the odds, good for Uncle Buck. But the chart as currently constructed, sucks.
With all the weird ratios and indicators I use, sometimes just a simple look at a disgusting picture like USD’s weekly chart is needed; in this case to reaffirm the bullish market stance for an intermediate swing.
You know, charts do not get much uglier than this.
Admittedly, the H&S is just theoretical at this point, but the Bear Flag up to resistance and MACD look flat out lousy. This chart reaffirms as well that the d Boys (that’s deflationists) have probably had their day for a while.
Meanwhile, we endure these clowns in Washington and their Fiscal Cliff ™ drama and the mainstream media that fan the flames.
In an extensive NFTRH update this morning – a mini NFTRH actually – we discussed a few macro indicators looking bad like junk bonds, emerging bonds and T bond strength, and several indicators that diverged from the bear case like the gold-silver ratio, LIBOR, TED and good old Uncle Buck, which resides below a thick cap of resistance and failed to get hysterical yesterday.
Here is USD fund UUP in the top panel and Euro fund FXE in the lower. Draw your conclusions. I feel like a stalker, just watching all these things fall down in what I think is a hysterical liquidation by people and entities who should have been making Fiscal Cliff (TM) preparations long ago.
This remains a market that is dangerous for people moving forward based on assumptions and perhaps the bias that these assumptions are born of. Parameters are being broken in commodities and are approaching in precious metals and broad markets. What say we let the market declare before playing hero, eh? What say we get through the election before making grand pronouncements?
This letter was supposed to be clear and concise, and I think it actually was. It is just that it took an unexpected 27 pages to make its points across precious metals, US and global markets and commodities.
NFTRH 211 out now.
The run up and aftermath to the FOMC’s QE announcement last month brought a surge of bullish optimism to market players – especially those in the over bought precious metals – that was unsustainable.
Enter the predictable October fright fest that has seen big-name US earnings reports routinely punished and sentiment knocked down across the broad markets. It should be clear to all by now that the US economy is decelerating.
Of course, one look at the Copper-Gold ratio tells that story well enough and has been telling that story since the spring time. Gold is a counter-cyclical asset that benefits when policy makers are pressured to attempt to compromise their currencies in service to economic growth. Copper is a cyclical commodity that goes in line with economic growth.
The economy and markets got a little bump last year in Q4 amid all sorts of bearish calls by the most visible market callers. People were terrified and for their fear were served up a heaping helping of bull after what we called the ‘October Pivot’ a year ago.
That was then; what about this year? Well this time our work has been following a decelerating economy and the inflationary policy used to battle it. Inflation is not a good thing even though it’s promotion can help manufacture temporary bullish environments. Also, within an inflationary regime some assets will respond better than others. Hence the initial ramp in the precious metals that is now being corrected.
We cannot know for sure what will come out of today’s meeting of the interest rate and debt manipulators at the FOMC, but we do know that they have the backing of an October deflationary lean with precious metals, commodities and now stock markets all playing their October roles to near perfection. I wonder how Prechter masks are selling this year.
Here is the USD chart from NFTRH 209. Uncle Buck found support after becoming deeply over sold with the QE party. The red box shows converged and down turned moving averages that will act as resistance. We are allowing for USD to ding the 200 day averages at around 80.50 on its counter-trend rise. Like so many markets, the USD remains on an intermediate trend – in this case, down – which would only be broken by a successful rise above the moving averages.
The competing Euro has a moving average box of its own. In this case a cluster of rising averages that would act as support. If the Euro breaks down, chances are the whole broad market bull is going to break down. But here’s the thing; they have not broken down yet and imposing your will on the market – whether that will is bullish or bearish – is not advisable. Sadly, all too many people do it; while talking their book so to speak.
The correction in the broad markets – including in the precious metals sector – was expected, is normal and is now maturing. It will continue to mature into its conclusion very shortly or it will mature and morph into something more virulent and end the broad market rally that got so many people off sides last summer.
As difficult and pained as the process was, NFTRH caught that rally last summer and has not yet abandoned the bull case because this October has played to near perfection to the existing plan. The plan calls for the USD being held at 80.50 or lower and various markets – most notably for our main theme, the precious metals – holding certain support levels. One of them was shown yesterday for silver.
Let’s see what the FOMC does and let’s understand that the market needed to punish the QE momentum players in a fitting October correction. Let’s resist making the mistakes that the doomsayers made one year ago until it is actually time to make such calls. Meanwhile, the bull is intact. My preferred theme is the precious metals, now that dangerous over bullishness is getting cleared out. There are other themes out there.
For example, if the bull is to continue as expected one might consider the positive risk vs. reward setup in Emerging Markets vs. broad US stocks as illustrated by the above EEM-SPY chart. Perhaps as the rally renews into its final up phase the more speculative stuff will out perform.
To answer the title question, NFTRH had expected what was termed an October “issue” within a still-bullish bigger picture and taken and advised necessary risk management steps. Yet nothing has changed with the bullish view as yet. Let the US dollar break 80.50 to the upside, let the gold-silver ratio (risk off indicator) break its 200 day moving averages to the upside (it is at the 200′s now), let junk bonds lose the 50 day averages and let T bonds break their downtrend and I will be happy to revise the plan.
For now, the costume I plan on wearing for Halloween has two horns and no, I am not talking about the devil. I invite you to follow my work by twitter, sign up for the free eLetter and/or keep an eye on biiwii.com for ongoing analysis of the current market situation. It is bound to be interesting as we head through spooky season into year end.
Also available here: http://www.biiwii.com/analysis.htm
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