Dave Erfle – Shorting The General US Equities As A Portfolio Hedge, Technical Outlook On Gold
Dave Erfle, Founder of the Junior Miner Junky, joins us to provide his technical and macro outlook on the general equities and precious metals space. We start off discussing the short inverse ETF on the S&P 500 that Dave deployed when it went up and backtested it’s 200 day SMA, to hedge against any portfolio risk he could see in his resource stocks in the event of a larger “sell everything” type of correction. He noted the island reversals seen on many general equities markets, and a number of macroeconomic drivers from the Fed just about to step up their reduction of the balance sheets through quantitative tightening, to the “crash season” in Sep-Oct in general markets, to the worsening inversion of the yield curve.
Next we pivoted over to his technical outlook on the gold price, and Dave noted that $1740 had gapped up off the downtrend line, then come back and filled that gap earlier this week, and now is bouncing higher again. A monthly close in August above $1750 would be ideal. On the downside support, we discussed the significance if the key $1675 level were to be tested once again, and if it would negate the larger PM bull market by making a lower low, or if it would simply be a big bear-trap instead.
We wrap up with a look at the mining stocks, that while rallying the last few weeks on lower volumes, have turned down earlier this week, and there doesn’t seem to be much enthusiasm or positive sentiment in the sector at present. Dave again highlighted the inflationary forces that hit the largest gold producer and bellwether stock, Newmont Mining, after a very rough quarterly operations report. He also pointed out how it is a big component in the ETFs, so it will be important to see it turn higher for generalist money flows to come back into the sector again for a more meaningful move higher.
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I tend to agree Marty, as there have been people continuously rotating out on vacation for the last few months. More than it just being investors “on holiday”, it’s more than many people are out and about for summer doing more activities, and just less preoccupied with the markets.
There is also still that underlying adage that some investors still adhere to about “selling in May and going away until Labor Day,” and we can see that reflected in the very low volumes in the Summer months of June, July, and August heading into early September.
The dollar will be toast very very soon but possibly temporarily but that will give the jeti fuel to blast gold higher consecutively in the months ahead. Many of the miners have already bottomed since July and gold will put its final monthly red candle this month. Note not a new low! The miners will lead this time up..
To those speaking of crossing averages and or spring end of first quarter before anything meaningful happens let me tell you that you will miss the current move in process. The gains in this move won’t be a joke enough to make up for losses. Just a típ lol..
My signal continues miners and gold up to year end, then correction. Last we spoke i mentioned a pause or a month stop gap, the pattern has changed “ notice “ how i tell you before hand. So no sweat but I would be all im at this current moment.
Glen
Thanks for sharing your technical outlook with us Glenfidish on the dollar, metals, and miners.
The Dollar has simply been “strong” in relation to other troubled fiat currencies like the Euro, Yen, Pound, etc… which has caused the greenback to have been a headwind to gold the last few months. It’s hard to imagine Europe or Japan or Great Britain getting their act together fiscally and seeing their currencies surge higher, and as a result some think the gap could widen between the dollar and other currencies in the months to come sending the buck even higher (many technicians on different forums have that 120 level in their sites).
This has all synched up well with Brent Johnson’s “Dollar Milkshake” thesis, where it has sucked up a lot of capital like a straw. Now obviously, Gold can still rally in tandem with the Dollar, and they don’t need to be inversely correlated, but it would provide more fuel, as you mentioned, if the greenback was to roll over. There are a lot of HFT algos that simply sell gold and other metals if the dollar ticks higher, so not that those forces can’t be overwhelmed with more carbon-based traders, but it would be a much bigger tailwind for gold if the dollar was to top and then turn down in a bigger corrective move.
As for the mining stocks, they had a nice bounce from mid-July to mid-August, pulled back down some last week, and on Monday, but had a nice pop higher today which was encouraging. It will be interesting to see where GDX and GDXJ close up the month next Wednesday. Same thing with Gold for it’s monthly close next week.
The dollar surely has been that rush to safety and outperformed the equities market when it was clear the fed would not help this time around so quickly. You were vocal on that for front a short while ago expressing the rate hikes and fed not letting down to possibly further down the line. The market sniffed that long ago and that dollar was the Recipient of that call.
I agree that many technicians are set or have there eyes set on the 1.20 I was also speaking of that last week. A good old double top would be the icing on the cake for a top. I’m of the belief that the dollar will top here possibly this month or next and head down for a few months but that won’t be the end of its parabolic run. What I do like is that during that time gold/silver and miners will continue to rally. The metals and miners have sniffed out the dollar topping soon.
In regards to the monthly candle for gold I see it ending exactly how it is today in the red possibly a red spinning top “neutral” or a doji
Third quarter should be nice for us for a change
Yeah, a monthly spinning top doji candle for the month would be prescient, as they normally indicate a tug-o-war between bulls and bears, indecision, and often harbor a change in the direction of the preceeding trend. That could synch up nicely with with a few green monthly candles in gold.
I have gone from 4 positive stocks to 19. Only a small loss over the last week or so but still within my controlled range. That must be better in some way.
That’s a good trend Lakedweller2 – to go from 4 positive to 19 positive positions throughout the day.
I had 47 positions today in the green and my account was up over 5% on the day.
As people in Tennessee used to say: “That’s better than a sharp stick in the eye.”
Just think… if I had sold everything yesterday to go to cash, that never would have happened.
Great performance EX. I was happy being green two days in a row. I would have been shocked if you had sold yesterday or today. We have to wait and see how much the Fed is planning on printing and how much they waffle on interest rates. If they can convince us things are getting better whether true or not, then we have to buy a few more cans to see how far they can kick them.
Thanks Lakedweller2 and good points. Yeah, I was being facetious about selling everything yesterday; even though we had a very vocal poster yesterday recommending that everyone do just that in all caps. 😉
I can’t help but think that all the rhetoric about a green future is going to be backed by economies around the world and will swamp the intervenors with more demand than they can handle, as the miners can’t find enough or produce it fast enough to make up for projected shortages. Joe P. Morgan is going to have to learn that Buy is easier to write in all caps than Sell. Just my uninformed opinion. If he is right, then it is all moot anyway.
Yes, from a longer-term supply/demand deficit backdrop this bodes well for metals and minerals like copper, nickel, silver, lithium, uranium, rare earths, cobalt, graphite, and a number of other specialty metals.
As for gold, and to a lessor degree silver, they are still monetary precious metals, and are much more reactive to investor demand flows in relation to nations fiscal policies and central banks monetary policies, and so they can move independently of the rest of the commodities needed for the so-called “green revolution.”
It will be interesting to see what rate hike the Fed gives us in September, and if the November & December hikes are still on the table. The market is even starting to price back in a February or March hike now, but a lot can change as we get more CPI & PPI inflation data in, more jobs and housings reports in, more PMI numbers, more GDP info etc…. before Q1 of next year, so that situation is still quite fluid.
The closer to elections we get, the more we will not recognize the Data. Corruption cannot be fixed by more corruption. Obviously they know that and that is why it doesn’t stop.
Snowline having a good couple of days. Nice drill results with great widths out today. Dr Hennigh a fan as mentioned on Crescat last Friday. Might be ahead of itself but not if they keep getting confirmation. Kind of reminds me of the New Found Gold early run. ??? I just buy and sell stuff.
Non-deep thought of the Day: Moderator on CNBC “New data out indicates there may be some cracks in the Housing Market”.
There have been cracks in the housing market the last few months, and more and more concerning data piling up. There were reports out 2 weeks ago stating we have already begun a housing recession. This makes total sense in light of the rising interest rates bringing up mortgage rates in tandem, and new home starts down by double digits, and canceled or broken contracts up by double digits. When I talk to people in real estate they all mention things have shifted from it being a market where the asking price was the point to negotiate things higher, back to a number that eventually gets negotiated lower. It has shifted from being a sellers market, where they had the advantage and leverage, to a buyers market once again.
Of course, this along with so many other factors like the PMI (Purchaser Managers Index) coming in under 50 (shifting it from boom to bust metrics), the 2 quarters of back to back negative GDP growth, the inversion of the yield curve, etc…. is being ignored by government and banking bureaucrats, that seek to rewrite the definition of what a recession is, and claim we can’t be in one because look at those positive job’s numbers. The charade of nonsense continues on…
/GC …240 minute chart ..below 1754.8 we have a failed .382 rally attempt…i have no idea why,if…..
I think we have to see Friday how Jackson Hole works out. I don’t expect any crazy interest rate changes but we may get some words from the “speech” that opens some other doors. Just too much coming together at the same time for things to just stay status quo much longer. But, that is just me.
I am 50/50 as to whether we have seen the absolute low in silver. If we do make a new low, I expect it to be marginal.
When that low is put in, I am expecting range bound trade in silver until the spring or summer of 2023. That range could be quite large, and while I think the now declining 100 WMA will ultimately cap any rally, the possibility of a signficant overshoot is high, which will keep everyone guessing and probably even make me believe my range-bound call is wrong. On the downside, I think the flat 400 WMA will act as support, but again, the possibility of an overshoot to the downside is very possible.
I firmly believe this range-bound action will constitute a major base for silver to finally make its assault on $40-50 and then $100. Expect some crazy volatility and whipsaw action between now and then IMO. I think a lasting breakout above $28 comes in late 2023 or early 2024. It could come much earlier, but I am very doubtful–there was just too much technical damage inflicted on the long term charts over the last 1 year. This is evidenced by the now declining 100 WMAs across the sector.
Across the sector you have very long term moving averages about to converge over the next year–specifically, the 100, 200 and 600 MWAs. That convergence should create a launching pad for an incredible move higher in a very short amount of time IMO.
My confidence level that we’ve seen the low is about 90% and even higher that silver won’t be rangebound from here in any significant way (unless the range it’s bound to is very wide).
This is not at all like the period that followed the 2016 high. I’d bet that the 100 week MA will pose a problem for a few weeks at most once silver reaches it.
https://stockcharts.com/h-sc/ui?s=%24SILVER&p=W&yr=7&mn=0&dy=0&id=p13638917742&a=1236060031
If we see more weakness through the end of this quarter (5 more weeks) along with a close around the current level (not even a new low) my outlook would probably be seriously damaged/delayed for awhile. For now, I think we will see significant strength soon and probably no later than immediately after Labor Day.
Matthew: I will continue to hang with you. You have been right so far.
It seems the market isn’t very worried about Powell’s potentially “very hawkish” speech tomorrow and I’m not either.
https://stockcharts.com/h-sc/ui?s=SILJ&p=D&yr=1&mn=0&dy=0&id=p45842565890&a=1236226397
SILJ took back the important “P” price pivot and its 50 day MA and KAMA after just a week below them. The turn up happened quickly powerfully enough to prevent the KAMA from crossing back below the 50 day MA. As mentioned the other day, significant upside is likely even if this ultimately proves to be another countertrend rally rather than a new uptrend as I expect.
https://stockcharts.com/h-sc/ui?s=SILJ&p=D&yr=1&mn=1&dy=0&id=p32491212808&a=1179315544
Fund managers being away ON HOLIDAY is the most overused excuse since the GFC, and no doubt, virtually everyone in a money managing position is still in front of a screen for at least a couple or 3 hours daily, or has a subordinate keeping him/her/it current to pertinent info.
As far as Newmont, I think the low is in with my tranche buy y’day @ $42.89