A good report that departs from some of the nuts and bolts (so much so that I forgot to include the usual currency segment, which we have frankly had nailed since the commodity currencies broke down a year ago and the great USD rally was just a twinkle in Uncle Buck’s eye ), managing what was an expected early December drop in markets with an eye out toward Tax Loss, Santa and January Effect seasonals.
But to me the most important aspects of #321 are its clear views about why nothing about this macro environment is healthy, how the market is vulnerable and how 6 years later we are simply closing out a massively significant market event, with the majority at the opposite end of the emotional spectrum to Q4, 2008.
On that note, at the prodding of a subscriber, I’ve excerpted a segment from NFTRH 7 (Nov. 8, 2008) on Deflation and Inflation. To me it shows how little things have changed in the ensuing 6 years. Amazing, really. I’ll probably post it here later, to go with Friday’s post about a potential ‘inflation trade’ bounce, possibly in early 2015.
Allow me to share a simple sketch I drew that was part of an NFTRH interim update for subscribers last night. The black line is where we have been. The blue line is a projection of what a typical correction (whether a healthy interim one or a bear market kick off) might look like.
We used real charts of the Dow, S&P 500 and Nasdaq 100 to gauge the entry into the current correction and now the resistance points to the expected bounce off of the US market’s first healthy sentiment reset in quite some time. But our cartoon above gives you the favored plan on how the correction could play out.
Well, here came the short covering rally in the precious metals. By calling it that I don’t mean that it cannot turn into something more, but today was most assuredly driven by short covering as the US dollar unwound some of its speculative sponsorship. One can assume that large speculators took it on the chin on both ends, in the USD and in gold/silver as the Commercial traders had been aligned increasingly bearish and bullish, respectively.
Folks, this chart is from yesterday’s close. Commodities are down hard again today. They are also deeply over sold, yet I still want nothing to do with them (note to self… don’t let silver drop too far with those calls still in hand). 500 is the key level per this weekly NFTRH chart we have used since well before CCI’s breakout early in the year.
It is time to be considering that the age of inflation or more accurately its cost-effects may be over.
It is time to be considering that inflation gurus set up a cottage industry in scaring everybody about hyper inflation.
It is time to be considering that for now the US economy and stock markets benefit from a transitional Goldilocks phase.
It is also time to consider the message that commodities may be sending for a day when that pendulum (the lack of inflation expectations) swings too far.
Listen folks, this is an economic indicator. While legions of gold bugs continually obsess on the metal itself as some sort of Idol, it is actually just a simple counter cyclical asset. When it is measured against cyclical assets like commodities, it can give macro signals.
The message here is that Au-CCI has broken above some moving averages that have held it down since 2012. If these moving averages cross, it would mean a condition is in place that indicated the US financial crisis and the acute phase of the Euro crisis.
Gold rooters and gold stock boosters may be chomping at the bit to get bullish, but they are going to need to be patient. This macro stuff plays out of time and we as humans tend to see things on the day-to-day.
Today’s Employment Report and the anecdotal information I have on machine tools may (repeat may) be initial signs of a better environment for the gold sector (Au-CCI is up today, not shown on the chart above), but… patience please. We have to get rid of all the bugs that think Ukraine has anything to do with anything and Indian Wedding Season is the big driver.
Using monthly charts I want to update more big picture views of where we stand in the financial markets. This is just a brief summary [edit; okay it’s not so brief. In fact it had to be ended abruptly or else it would have just kept on rambling] and not meant as in depth analysis with finite conclusions.
I was listening to Martin Armstrong talk about his ‘economic confidence’ model and realized that the way he views gold is similar to the way I do (and very dis-similar to the way inflationists and ‘death of the dollar’ promoters do). I don’t love the way he writes, and I usually avoid these weird interview sites, but checked it out (linked at 321Gold) anyway and found him enjoyable to listen to.
Anyway, this prompted another big picture look at gold vs. the S&P 500 and as with the shorter-term views, the picture is not pretty.
Well, it is pretty if you have patience and no need to promote gold as a casino play. Gold will be ready when gold is ready and that will not be until confidence in policy making and by extension the stock market, starts to unwind.
Gold vs. SPX has meandered out of a long Falling Wedge (blue dotted) with 2008’s Fear Gap still lower. On the big picture the risk vs. reward is with gold over the stock market. But it is a funny thing about big pictures; they move real sloooow. A fill of that gap may not feel so good to anyone vested in an immediate conclusion to gold’s bear market vs. SPX.
Moving on, let’s look at some ratios of components of the stock market…