The news driven short covering rally yesterday was impressive and now momo’s are being punished. Makes sense.
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.
So our thesis has been that a concurrent rise of USD and the Gold-Silver ratio (GSR) would not be a good thing for markets. Stick it in the blender and mix with several other indicators (we have not even mentioned weak junk bonds and junk to quality credit spreads, at least not publicly) and you have ‘so far, so good’ on a coming bear case.
To review, a rising GSR means that speculative liquidity is coming out of the markets, as in risk ‘OFF’. The rise in USD is a fundamental consideration that would hit manufacturing first. Here again, I tell you that the biiwii guy, a former manufacturing person, was the first to project coming US manufacturing strength for NFTRH subscribers. Just to counter a few wise guys who would finger point and yell ‘perma bear!’ Today’s firm bulls were all hiding under rocks as Congress did the Fiscal Cliff Kabuki Dance at the time.
To put things in non-technical terms, I think some shit’s happenin’ out there folks. We’ll see.
The first draft is me on Saturday fighting my way through piles of macro stuff, charts and personal observations, opinions and conclusions. A review on Sunday morning let’s me sit back, try to figure out where I may be confusing people, sounding like a pompous ass or who knows what else is not in the best interest of the work? It let’s me make the report presentable. Anyway, here’s one whacky macro chart from #309.
I love these crazy ones with different colors and mark ups. Note how the 6’s are the only numbers that are the same color on the correlation of the gold-silver ratio (GSR) and the S&P 500. It’s something we noted months ago, but it could be relevant going forward now that the USD is getting in correlation with the GSR.
There are a lot of things in play today, including a notable rise in the gold-silver ratio concurrent with USD (finally, these two are both working together, which would be a component of our favored macro plan for future economic contraction, stock market troubles, etc.). But the point of this update is to further the point we made last week about the Emerging Markets’ potential breakdown nominally and in relation to the US market.
So we have been making a fairly big deal about the over bought state of silver vs. gold or put another way, gold’s extreme under performance to silver. Witness the Gold Silver Ratio (GSR)…
The gold-silver ratio is rising today, which is not a bad thing for gold stocks as long as it is rising in the context of gold out performing silver to the upside.
The stock market put on a hard bounce yesterday, but little has changed throughout the spectrum of indexes and indicators. The Dow and Tranny are trying to get the traditionalists in the Dow Theory community excited, but NDX, BKX, RUT and several others are simply bouncing as things stand now at 6:07 US Eastern. NDX for example, at 3613 is still within the 3600 +/- bounce objective we laid out weeks ago.
After Retail Sales at 8:30 we may have a different story, but as of now nothing has changed in the bull/bear mix as a result of yesterday’s action.
As we reviewed in an NFTRH update, the VIX has gone back to sleep and is in a support area. As for its partner in market anxiety, the Gold Silver ratio (GSR) got bonked but is unbroken.