Weekly: Why Stock Longs Are the New GoldBugs

Message from a GoldBug

Sep 11

Housekeeping:   Founders Class at 2pm today. The usual place! CoT, CTA, and SLV weirdness

SECTIONS

Market Summary— Message from a GoldBug
Research— GS, RBC, BOA, SH Copper, TD
Week’s Analysis/Podcasts— EU Crisis, Barclays Says Short Gold
Charts— Dx, Gc, Si, CL, Ng, ZW, Hg, Gold/Silver
Technicals— Gc, Ng, CL, Btc
Calendar— CPI, PPI, UMich
Zen Moment— Friendly bull, weaponized fish
Full Analysis—

1. Market Summaries

Fed speakers tried to put a damper on stocks all week, and they probably will be successful again, but not yet. US equity markets rallied on the week in the face of relentless Fed hawkish jawboning as well as surging rate expectations.

Bonds took the Fed talk very seriously and weakened; yet stocks once again seem to be looking for hope of some type of dovish pivot. It seems bizarre to have this happen so soon after Powell trounced previous hopes at Jackson Hole, but here we are. Despite Short term interest rate indications pointing to continued rate hikes, stocks ramped up rather well.

Nasdaq and Small Caps led the charge on the week, erasing all of the post-payrolls pump'n'dump.

The S&P 500 squeezed back above 4,000 and traded back into the range of Jay Powell's Jackson-Hole speech day.
This is the best week for the S&P 500 since early July

Stock Investors Spoiled by Success

Zerohedge noted in their Friday report: “The narrative delivered to investors is 'hope' for a 'soft landing' and 'peak inflation' - which is echoed by the collapse in Breakevens - but STIRs ain't buying it and this has the smell of another June-July-esque negative-delta squeeze as the last 3 days have seen 'most shorted' stocks soar over 12% - the biggest 3-day squeeze since late-May...”- Source

So is this another rip to sell, or are we really getting a Dovish pivot? Short answer is no pivot exists in Powell’s mind until something breaks. Our August 21st Weekly note summarized what happened in the June-July rally and what will likely happen again this way:

Bottom Line for us:
Market was really setting its heart on a Fed dovish pivot Post US inflationary data
Prior to this, several Fed speakers had been saying they would continue to be hawkish.
Market had ignored them until Thursday afternoon
German inflation came out very high, Fed speakers talked even tougher
Markets finally got the message

We do not think any voluntary Fed Pivot is coming at all. If the above pattern is repeating, we are now somewhere between #2 and #3. What was apparent the last time in August is the market ignored Fed speakers ( as they are again doing) until some horrible (inflation) data came out. Then the market reacted to the data, and “over-reacted” to the next Fed speakers. That is a pattern we are comfortable looking at a little closer recognizing it in our own trading behavior in the 1990s

What Triggers a Fed Pivot

Simply put, stock pivot hope springs eternal ( aka denial ) and then some data point causes hopeful investors to start to worry but —and this is the key we’d wager— there are still people out there hoping the Fed will talk dovishly to stop selloff moves. And that simply is not happening anymore1. Not yet any way. We suspect not for a long time now unless one of several definitive things happens as described in- What Triggers a Fed Pivot PDF HERE (prem)

Unemployment gets to 5% plus…
Inflation drops precipitously…
Stocks Crash…
GDP/Economy Crashes…

To that we can add one other: Powell Pivots if the Rest of the West cries Uncle from the strong Dollar.

Stock Investors are Spoiled By Success

Short one of those things happening, we offer this pattern of behavior to possibly prepare you for the next wave lower in stocks. The best part of this behavioral comment is in our opinion, this is a pattern witnessed and repeated (by us) repeatedly between 1995 and 1999 in the Gold and Silver markets.

Fellow Gold Bugs will recognize it immediately as how we handled the whole bear market in Gold back then. We were guilty of this for years. The irrational clinging onto hope of “one more rally” reinforced by past successes that makes us blind to the changes in play.

Here’s the playbook we were guilty of feeding into then, and see emerging in stock investors/pundits now….

CONTINUES AT BOTTOM

Remember this from 2014?… ( profanity)

Sectors/ Technicals

All the US majors pushed back up to (and beyond in some cases) their 50- and 100-DMAs

Consumer Discretionary sector outperformed on the week
Basic materials were very strong presumably in sympathy with Copper and industrial commodities
Energy soared Friday, but was the laggard on the week

Commodities:

The dollar slipped lower on the week (after an initial surge) ending back unchanged from before the payrolls print last week
Commodities were mixed this week with Silver and Copper soaring while gold and crude ended unchanged. Chinese short covering in Copper was apparent, Silver buying was out of both Europe and US.
Gold managed to find support at $1700 once again this week but lagged silver for a change as someone is trading the Gold-Silver spread the other way.

Bonds:

The yield curve went more inverted. but with one slight difference. The back part didn’t simply go up less, it actually went down small Friday. This ever so slightly implies the market feels long term rates are starting to think about the current recession a little more, and the current inflation a little less. That is consistent with stocks rallying. We don’t put a lot of weight on it, but note it in case it happens again. It also makes us a little less worried about CPI next week.

The yield curve flattened/inverted further this week, reversing all of the post-payrolls print steepening

Crypto:

Bitcoin and Ethereum rallied with Bitcoin outperforming for a change
Friday, Saylor’s MSTR announced another $500 Million capital to be raised (by stock offering) intended for more bitcoin purchases. That is why Bitcoin outperformed on the week
Bitcoin surged up towards $21,500 today, erasing most of the post-Powell-Jackson-Hole plunge

H/t Zerohedge for data and some graphics.

2. Research:

GOLDFIX: Stock Investors Spoiled by Success
STOCKS: “What to buy and Why.”- GS
OIL: More OPEC cuts to come- BOA
GEOPOL: Copper and the Global Problem- Jefferies Speech by Simon Hunt (Zoltan-like observations from a Copper Guru’s perspective)
COMMODITIES: “Switch Up”- RBC
COT/CTA: Gold and Silver Reports- TD

CONTINUES AT BOTTOM…

3. Week’s Analysis/Podcasts

This week’s Precious Metals, Energy, and Economics pieces by GoldFix

4. Charts:

Dollar:

Gold:

Silver:

Gold-Silver Ratio:

Oil:

Ng:

Wheat:

Copper:

Charts by GoldFix using TradingView.com

5. Technicals:

GoldFix Note: Do not attempt to use price levels without symbol explanations or context. Moor sends 2 reports daily on each commodity they cover. The attached are non-actionable summaries.

Gold:

TECHNICALLY BASED MARKET ANALYSIS AND ACTIONABLE TRADING SUGGESTIONS Moor Analytics produces technically based market analysis and actionable trading suggestions. These are sent to clients twice daily, pre-open and post close, and range from intra-day to multi-week trading suggestions.