A point I have been trying to make since the beginning, which in my case for public writing was 2004, is “but it is what it is” (biiwii). The name of the website was a direct (and bullish) response to my own bearish bias (which endures to this day because I have seen no improvement in monetary policy making) as the Greenspan era credit fueled cyclical bull market was getting ramped up. In other words, it is what it is; don’t fight it. It was bullish.
GOGO: Falling Wedge down to support… fills a gap, triggers MACD, meanders out of the Wedge and goes RSI 50+. Why else would I buy some not yet profitable company with a really obnoxious name?
No, charts don’t work. We are just geeks that all too many people either laugh at or more often express contempt for. We are the geeks who see patterns and keep memories of things we’ve seen before, while eggheads of all kinds over intellectualize everything.
In January of 2013 NFTRH used the Semiconductor sector as a ‘canary in a coal mine’ to a potential coming phase of US manufacturing strength and an economic bounce. This had negative implications for gold but normally would have had positive implications for commodities positively correlated to the economy.
That did not materialize in 2013 (as China decelerated) although with the recent launch of various ‘outlier’ commodity sectors like agriculture, natural gas and uranium along with persistent strength in crude oil and the highly speculative TSX Venture Exchange (CDNX), we now consider the view that some inflationary chickens (rising cost effects) may be coming home to roost. The economic bounce was after all instigated by an inflationary mix of ZIRP on the Fed Funds rate and long-term Treasury bond buying.
We are managing precious metals and commodities on an ongoing basis, but today I want to focus back where it all began, with the canaries in the coal mine. Our early alert came in the form of personal information received about a ramp up in Semiconductor fab equipment orders from a friend in the field. If fab equipment companies like Applied Materials and Lam Research were ramping up then it meant that the Semiconductor companies themselves were gearing a new build cycle. This was ‘early warning’ stuff.
But now the Semiconductor index itself, which has led the rally since Q4, 2012 (and is still leading despite some other leadership indicators like the BKX-SPX ratio falling off lately) is at a very important big picture pivot point. Here is SOX-SPX, showing leadership during the most intense phase of the cyclical bull market…
Dialing out to a monthly view of the nominal SOX index we find the really compelling picture. The Semiconductors are technically above 10 year old resistance! ← You know I don’t use (!) very often in my analysis. A March close above 560.68 is needed to confirm this breakout.
NFTRH has incidentally, added the SMH Market Vectors Semiconductor ETF to the extensive list of strategic ETFs charted each week (joining several precious metals, commodity and stock ETFs) due to SOX’ current status.
What I find interesting is that most rallies over the last decade have pinged along from the bottom to the top Bollinger Bands and back again. But the current trend is much like the pre-2000 (and pre-blow off) trend as it hugs the top BB line. This is very much in line with the current question we are asking of the markets, ‘melt up or correct here and now?’.
Put it this way, if the SOX holds above the resistance line through March, the odds become heavily tilted toward an upside market blow off, which I believe would be the nature of the bull’s end. We have had bull market termination scheduled for spring to mid-year for many months, but a picture like the above could force the analysis to adjust this potential out to Q4, 2014. We’ll just have to be patient and let things unfold.
The red line on the chart directly above represents a key level for market players. It is exquisite in that the implications of success or failure at this line are so very different.
Success means a cyclical bull market blow off is probably engaging that would kill every bear before eventually wiping out greedy bulls (silver 2011 style) who over stay their welcome. Alternatively, take the breakout as a given at this moment and one risks the pain of a potential reversal and failure.
Regardless, the potential of the SOX is very clear. The best (and crazy sounding) measured target is 953. Improbable I know, but how much about this bull market has seemed probable well in advance? Respecting potentials and probabilities while keeping ego and intellect under control will see us through. So will following the market’s road maps, like the one above. It is very clear.
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Sunday Get up feeling like run over by Mack truck. Pound 3 Advils, finish and email NFTRH report. Write free eLetter. Get various chores done and go to bed. Watch Rangers lose very frustrating game to Bruins.
Monday Get up feeling like run over by Mack truck. Pound 3 Advils, manage the Ukraine situation and an unhealthy short term setup for precious metals and a non-selling (or buying?) opportunity in the stock market publicly and in NFTRH update; note positive ISM. Go to bed, watch CNBC all day (which I have not done in years). They were actually pretty level headed. Even they could see that Russia/Ukraine in and of itself is not bearish.
Tuesday This is getting old. Pump 3 Advils, see gold and silver down and stocks up as Putin apparently says something nice. Feel satisfied that this place on the internet (and its readers/subscribers) did not get played by the emotion. In fact I managed to buy (from bed) a couple non precious metals items and hedge the precious metals yesterday on the big and overly emotional pop.
Gold bugs need to remember that ‘gold as a crisis hedge’ is never a winning strategy beyond the flashpoint. Similarly, ‘stocks down on XYZ crisis fears’ is never a winning strategy either, beyond the flash point.
Gold bugs should not be seeking to find glory (and profits) on geopolitical misery. Rather, they should simply stay focused on whether or not the economy is accelerating or decelerating (ISM coming shortly) and likely policy responses.
Stock players should be focused on whether or not these ‘jitters’ are likely to refresh the budding stock mania with a cleansing bout of negativity. Again, ISM and a raft of other data are coming this week.
The Fed is tapering long-term bond buys but guess what, T bonds have looked like they are bottoming for another upturn (rates drop), and that would do the Fed’s job on the long end of the curve. I bought TLT last week for the prospect of a bottom and renewed upturn. Yet, I wonder if I’ll need to sell it as the jitters ease?
As long as they manipulate the market (and the economy) by keeping firm on Fed Funds (ZIRP), which they can do as long as they want with bonds strong, the market’s primary fundamental underpinning (i.e. the bubble making machinery) is intact.
If gold is going to go up, it will be because of fundamentals other than Ukraine. The effects of the conflict will be fleeting.
If stocks are going to go down, it will be because of fundamentals other than Ukraine. The effects of the conflict will be fleeting.
Not that these things cannot coincide, but it is time to be careful and make sure your mental ducks are lined up in a row. If anybody lists Ukraine as a fundamental driver of gold on one of the gold sites well, I am not going to tell you what to do but I am going to tune it out. And then remember who wrote it to make sure I never take that person seriously in the future.