Stocks and Gold; the Next Opportunity
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Unless you visit the Notes From the Rabbit Hole website regularly, you might think the title of this article implies it is written by a market analyst pretending to know what will happen; like a top in the stock market or a resumed bull cycle in gold. You might also think it is written by one of the writers who’ve either a) been fighting the stock bull since the bearish market terminated a year ago or b) been a perma gold bug bull.
So once again, we have our disclaimers because in a milieu of quickly forgotten soundbites, integrity is important. So I point you to a couple of posts (among many others) that indicated, when the time was right for people to get bullish the stock market in favor of gold.
From the July 22 NFTRH update, in the event you don’t wish to follow the link to read the whole thing…
Yesterday in a public post a target was established for the S&P 500. I’d love to see a drop toward 2100 to clear over bullishness but regardless, SPX targets 2410 as long as it’s at or above the noted support zone.
Here is the price panel of the chart from that update…
Indeed, SPX went on to make a hard test of 2100 on election jitters, as you can see by today’s version of the very same chart. That folks, was the last opportunity for those who had remained bearish after Brexit, to stop being so.
Sure, I tout this stuff to show that NFTRH has nailed the markets over the last year – and indeed, through the preceding bear phase as well – but I also tout it because today I am writing an article that looks ahead to the changes that I think are coming and it is important for the reader to know that this is not written by a perma bear clicking the heels of his ruby slippers hoping that this time, finally, he can go home.
The target was and is 2410. The target will be wrong (either too low or too high) because what are the odds that the S&P 500 is going to just stop on a dime at a measurement made by someone who knows how to add and subtract? I mean, I’d love it because then I could pretend to be like the gurus whose marketing machines routinely bombard you with ‘broken clock’ calls that finally worked out. But functionally, I’ll take any number that is close and as of this morning, we’re 63 points from SPX 2410. So we are in essence, just about there.
So the US stock market is coming up to targets (including 21,000 on the Dow and 5500 on NDX). Everybody’s bullish and what’s more, we have a business-friendly president who is talking down the US dollar, talking up American jobs (and inflation), and how could it get any better? Well, when these higher paying middle class American jobs fail to materialize or they do materialize but drive inflationary effects so high that the middle class will again not be able to keep up, and the rich continue to get richer, we will see how wonderful the picture is.
I assure you I am not playing politics when I write the above. I am playing economics. Why will the jobs picture not be what is hoped for? Well, automation for one. See Protection Will Lead to Great Prosperity. Why will the rich get richer? Same story as it was under the previous administration; inflationary policy that benefits asset owners (monetary policy under Obama and fiscal policy under Trump, yet it is important to understand that call it what you will, it is all man-made).
The market is near target and it needs a real correction, at the least. But now let’s consider this chart from goldchartsrus.com, by way of Steve Saville, by way of this post at Biiwii.com and Saville’s blog.
Now let’s also consider that we became bullish months before the election, as proven by the first two charts and associated posts linked above. The stock market is not bullish because of Trump. It was already bulling (and loading the SPX 2410 target) long before. So now, backing out all of the political noise, and in consideration of the chart above, we can at least say this…
The stock market is at a long-term historically high risk juncture as it approaches targets that were laid out in an unbiased manner well before any US election hype got in the way. Further to that, bullish momentum is gathering steam as the dumbest money buys with both hands, not wanting to be left out and the mainstream financial media are churning the reasons and justifications for the bull every day in a closed sound loop of bull… BULL… BULL!!!!
In US stocks, my plan and that advised in NFTRH is and has been to be slowly taking profits and raising cash. Profits have already been taken on global items like Japan, Asia and India. But that is only half the plan. If stocks top out for a correction or a real bear cycle you’d want investments that are built for the counter cycle. Enter gold (pays no dividend, holds no liability), Treasury bonds (in a classic contrarian setup as the news amplifies global selling of US debt while commercial hedgers are positioned very long) and items that would do well in a declining interest rate environment, like Utilities.
To be sure, the Trump administration is expected to take actions that do not favor the risk ‘off’ items noted above, but the admin does not control the markets. Man, machine and associated sentiment and coding do. If something goes wrong along the way, those men and those machines are going to puke this market that is priced for Trumpian perfection. Gold would benefit and Treasury bonds, while a fundamentally flawed asset, would gain the liquidity bid.
But it is not as easy as ‘make a target, sell everything into the target and short the hell out of the market and buy gold’. A topping process can grind everyone up and the minute gold hits some technical objectives the bugz will be right out front touting the end of the world. That is a reliable signal for oncoming volatility in the ancient monetary metal.
No, the process needs rational management every step of the way and so I ask you to tune down the media, tune down any gold bug who failed to stop being gung ho last summer when a bear phase began for the metal and tune in to your own well maintained B/S Detector (I suggest you go with a premium brand, not the special TV offer for $19.95 +shipping and handling).
Your new premium B/S Detector will also come equipped with a setting for independent financial writers. For instance, when you seem me putting this chart out you will realize that it was used first to be bearish in 2015, then bullish in 2016 (with the moving average cross upward) and then to illustrate the possibility of a large H&S top in the making. But that is just speculation. You will also realize that it is pretty cool that the speculation is taking place as the writer’s long-held target and time window (“by March/April”) come into view. So your premium B/S Detector also has a setting for giving credits to certain sources as applicable.
But ultimately, the broad view of the US stock market is so bullish that any bearish projections are still only projections. So please be clear on that.
Ultimately, these projections include many diverse indicators from market leadership to sentiment to the above noted long-term measured targets. I have been writing in NFTRH that what I want to see is a combination of extreme over bullishness and complacency along with pervasive media bull rationalization and the acquisition of the above noted target areas. That would constitute some actionable input to a market that is and has been at high risk.
I’ve already begun taking action by slowly taking profits on long positions and raising cash. I also have initiated a short against the S&P 500, which I’ve added to on euphoric up days. Understanding that I have no implied right to predict the future (as your B/S Detector will surely instruct) I commit to illustrating what is in play each week, managing my own portfolios accordingly and presenting as clear a picture as possible for NFTRH subscribers.
The bottom line is that we are approaching a point that we’ve awaited since last summer. That would be a top (of some kind) in the US stock market and a confirmed new bull phase in counter-cyclical gold. While everything is on track with this plan, neither of these things are confirmed yet and what we all need to do is have logical plans, but also have open minds that can subordinate bias in favor of dealing with what is. After all, that is exactly what got us here successfully in the first place.
By Gary Tanashian