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Here is an
email update that went out to NFTRH subscribers this morning, reproduced for
you with my compliments. More and more the service is becoming focused on
'in-week' management updates to go along with a formal letter that ties
things together each Sunday.
Yesterday, as you may have noted in a blog post or
on your own, the leading indicator JNK-LQD (junk/investment grade bond) ratio
(daily chart below) broke down hard and is currently below both the
exponential and simple 200 day moving averages. While still clinging to a
support area, this looked like an impulsive little move that you do not want
to be taking on risk against.
This is happening at notable long-term resistance on
the S&P 500. So the technicals came to a
logical point for a top of some kind and the most recent 'jobs' report seems
to have been among the fundamental catalysts.
Without getting too wordy this morning, we fine tune our sketch of what could
be in play: 1) Precious metals under pressure due in part to FOMC tough guy
stance with regard to QE or panicky inflation policy... 2) Gold stocks broke
down from the consolidation and gold stock players head toward
capitulation... 3) The urge to speculate wanes (as indicated in the JNK-LQD
ratio among other things)... 4) Broad market declines from obvious resistance
and it potentially does so with some degree of impulsiveness... 5) Fed no
longer has the need to pretend to be austere stewards of sound monetary
policy and Bernanke has license to come to the rescue since he has proven to
be 'in control' (remember the magazine cover with a heroic and triumphant Ben
looking down at we little underlings?) and if he chooses to overtly inflate
(handily, in an election year) then he must know what he is doing (the
'austerity movement' was so Spring, 2011)... 6) Precious metals pick up on a
change in policy maker attitude first and begin to rise (or launch) after
having dismissed the latest batch of players who have sworn off this infernal
sector for good... 7) Of course, the object of policy maker affection would
be broad stocks and I do not expect a repeat of 2008 there. Not yet, anyway.
Reviewing a chart of the SPX, I may have been a little too aggressive talking
about 1100-1150 and I wonder if the old major resistance/support level of
1240-1260 might do the trick in getting policy clerks to blink. We'll just
manage events as they come rather than trying to predict.
The gold-silver ratio (a market liquidity indicator,
weekly chart below) will be the ultimate map to any coming policy changes. A
daily chart continues to show a pattern from which GSR can rise. The below
weekly chart shows an upper resistance level at which policy might be
compelled to ease. We will watch the GSR ever more closely now to see if it
rises first, and then ever more closely watch to what levels it rises. If
silver continues to hang tough against gold, we may have a hint that policy
panic is coming sooner than expected and thus, so too would be actionable
bullishness in the precious metals first, and potentially commodities and
markets next. It's a week to week diagnosis.
The trick will be in avoiding the majority of downside pain, largely sitting
this one out if you will... but at some point if this sketch is near the
mark, it will be time (for me at least, one bit player with one set of goals
and orientations) to start being brave amid the destruction. If the 'real'
price of gold (i.e. gold vs. all of the commodities and markets of positive
economic correlation) takes a new leg higher, while gold bugs are
regurgitating shares at reasonable downside targets, the setup could be epic.
I am already fundamentally bullish quality gold stocks, with a shopping list
of items including former portfolio members to add to the mini core already
held when the time is right. But the technicals
must be right as well. This could come with an upward reversal and break back
above the HUI neckline area (475 or so) or more likely in my opinion, at
lower levels as the broad markets sort themselves out in the coming weeks.
Patience and a week to week perspective from a position of strength is our
key. I think the next 6 months is going to be as interesting as the last 1.5 years
was stultifyingly boring in the gold sector. The
broad markets and commodities are in for some thrills and spills as well.
Regards,
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