NFTRH 'Morning Notes' Email Update: April 10
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Here is an email update that went out to subscribers this morning, 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 attached) 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 attached) will be the ultimate map to any coming policy changes. A daily chart continues to show a pattern from which GSR can rise. The attached 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 XXXX, XXX, XXXX and more 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.