In lieu of the lower volume trading in the markets over this last week and heading into the next, as many folks in North America are traveling to see families and friends over the holiday season, this Week In Review will be a bit more brief than usual.
In the last few weekly wraps, we’ve focused at length on macroeconomic data points like the trends in the inflation picture, dissecting the numbers feeding into the labor markets, Fed policy messaging and market expectations, and the overall health of the US and global economy. I’m sure we’ll get back into many of those areas in the new year ahead of us. For now, let’s just check in on how a few market segments ended this week, let’s highlight a few key interviews conducted over at the KE Report this last week, and keep expanding on some of the opportunities seen in the energy sector and growth-oriented gold producers.
Interest Rates:
With regards to interest rates, the overall theme the last 2 months in US Treasury yields has been a steady decline to lower rates. It wasn’t that long ago, (October) that we were discussing the 10-year yield piercing up through the 5% levels, and we closed up the week once again below the 4% level at 3.90%. The yield curve remains inverted with the 2-year yield at 43 bps above the 10-year, closing the week at 4.33.
As mentioned last week, it still shouldn’t be understated that the bond yield curve remains stubbornly inverted, with higher rates at the short end of the curve, and the 2-year yield consistently higher than the widely-followed 10-year yield. While this inversion is quite abnormal on a longer-term historical basis, it has become something investors for over a year now have become nonplussed about, and apparently desensitized to as simply the new normal. However, this will come to an end. When the yield curve inevitably does flatten back out and normalizes with higher yields back at the longer end of the curve, then that is often a signal that indicates a recession is more imminently at hand. We clearly haven’t seen that yet, but it will be something to keep our eyes on moving forward.
As per usual, we’ll take a technical look at the (TNX) CBOE US 10-Year Treasury Yield Index, because it is a good way for investors to trade the trends in interest rates is using the most widely watched bond yield in the 10 year as proxy. As noted last week, one can see that after a solid year of moving higher, this index topped out near $50 in mid-October along with interest rates, and over 2 weeks ago, it actually pulled back down below key support at the 200 day exponential moving average (currently around $41), before appearing to bottom this last week at $38.29.
We noted last week that after rallying the end of that prior week and then bouncing up higher on Friday to close at $39.60, that it would be key for the TNX to see if that $38.85 low from that week held. Well… that low did not hold, and instead a new low was made this last week. As a result, the bond bulls and interest rate bears still have very much been in control. Interest rate bulls and bond bears need to show that the TNX 10 year yield index can break back up decisively above that 200 day EMA on a daily basis and hold the line to build a new higher level of support and reverse the current trend. With the pervading message in the markets that the central banks are done hiking rates, and more likely to cut rates in the year to come, breaking out to new highs in the yields in the near-term seems much less probable, although, a counter-trend rally at this point is a bit overdue.
US Dollar:
The US dollar continued to drop again this last week, in sympathy with falling interest rate yields, and conversely to a few global currencies gaining ground on the greenback, closing the week at 101.36, after diving down to a new short-term low of 101.10 earlier in Friday’s trading session. The falling dollar and falling interest rates have continued to be a boon to most other markets, from US general equities, to cryptocurrencies, to the commodities.
We noted last week the wild rollercoaster ride that the US Dollar has been on the last few years, and this can been seen in the chart below. After surging from the mid 89 level in early 2021 it screamed up higher to a peak of 114.75 in September of 2022. Since that highwater mark, the USD has been falling and has generally been in a downward trend. However, we did see another counter-trend rally kick off this last summer where it bottomed at 99.22 and then double-topped in early October and again in early November around the 106.70-107 level. Since then, the greenback has again resumed it’s downward trajectory, and has been in declined for the last 8 weeks.
It is going to be very interesting to see if the $USD pulls back to test that lateral price support zone from 3 recent troughs at 100.68, 100.42, and the summer low at 99.22. I’d anticipate that support zone to hold if tested in the weeks and months to come, at least for another bounce, as there is a great deal of pricing memory and congestion in that area. However, another bearish signal for the USD is that the shorter-duration 50 day exponential moving average just pierced down below the longer-duration 200 day exponential moving average, which could portend of more weakness to come for the dollar. If that 99.22 level does eventually break to the downside though, then Katie bar the door…
How high the dollar goes on the next bounce or how low it goes if key support in the 99-100 range does finally give way, will be due to a confluence of factors from technical levels, to patterns in US treasuries, and also global moves in the 6 largest currencies in the basket weighted against the dollar in the index. Again, the greenback remains a key market to follow for investors, as not only the world’s reserve currency, but also a key number in high-frequency trading algos.
US General Equities:
We’ve talked a lot recently about the strength seen in the US general equity markets, and there does seem to be a lot of optimism amongst general investors and the mainstream financial media. In last week’s review we noted that the Dow had climbed up to a fresh all-time high, and that the S&P 500 and Nasdaq had at least made new 2023 highs (eclipsing their prior summer peaks). Those moves in the broader averages were quite significant for the technical setup, and played into the improving sentiment and optimism on the street, and most pundits believe we’ll see this Santa Claus rally continue into Q1 2024.
I had posited the question last week: Will we see a big hangover after the recent Powell Pivot Party has run it’s course? From a technical perspective, at least on the more short-term daily chart, we can see that if the (SPX) S&P 500 large cap index has yet to break to a new higher level and hold it above the current all-time high of $4818.62. The SPX did close on Friday at $4754.63, roughly $64 off this all-time high. All eyes are on that prize in the week(s) to come, but looking at the RSI and MACD, we are seeing the SPX still in overbought territory, but sometimes in a bullish trending market, these indicators can stay overbought for longer than most are anticipating… so maybe there still is enough gas in the tank to get the S&P 500 up to new all-time highs in the near-term.
On our podcast show on the KE Report, we featured yesterday on our Weekend Show, two different analysts that we respect a great deal, Jesse Felder and Dana Lyons. They both have very different takes on the health of US general equity markets and the economy in the medium-term, along with the technical and macro factors playing into those outlooks. Jesse sees the recent rally in the stock markets as getting a bit ahead of itself, and questions the sustainability of the this move as we move forward into the first half of 2024. Dana’s quantitative and technical models have them more constructive on the markets for the medium-term, noting that while we could see a pullback in the short-term, that there seems to be a lot of pent-up demand for “buy the dip” in the markets, as well as improving market breadth in the small cap stocks, as evidenced in the big surge recently in the smaller cap stocks and equal-weighted stock indexes.
- Here is a link to that Weekend Show with Jesse Felder and Dana Lyons:
With regards to those small cap stocks found in the (IWM) iShares Russell 2000 ETF, Dana’s point is worth considering, as the index of these companies has really jolted higher over the last 2 months, off the late October low at $161.08 and then surging higher past the 3 most recent peaks at $197.09, $196.34, and $197.10, to close the week at $201.48 for a new recent peak, and levels not see in the IWM since early 2022. Aside from the recent prior resistance and peaks around $197 level, that should now act as support, there was a gap created around the $192-$193 region, that may be a pricing level that will need to get tested on any pullbacks.
Commodities:
Oil and energy stocks continued to get a bounce last week, albeit it was mostly sideways action just hanging onto the gains from the prior week, and the question remains whether oil and energy stocks can hold the line here, or if they are in danger of rolling back over. We saw WTI popping up over $75 on Wednesday, and then ratchet back Thursday and Friday, to close the week at $73.49. When we talk with analysts and investing thought leaders on our show that follow the energy space, most of them are a bit mixed on how they see the sector setting up, with neither a very intense bullish or bearish tilt in the near-term. Most analysts are still bullish for the longer-term though for the sector.
In Jesse Felder’s closing comments on his segment of the KER Weekend Show (already linked above in this article), he outlined his bullish outlook for the medium to longer term picture in the oil price and energy stocks. Additionally Jesse noted that the possibility of a recession next year was already priced in at these current levels, and that if we don’t see as much economic pain next year that the sector still has much room to expand to the upside.
We had 2 other commodities and energy analysts on our KE Report podcast show this last week, where they also weighed in on the mixed picture in the energy sector. Both Joseph Schachter and Sean Brodrick’s interviews are well worth the brief time to review, for investors focused on the oil and natural gas sector and related equites in the energy sector.
Josef Schachter – Oil and Natural Gas; Geopolitical Factors, OPEC vs US Production, Stock Valuations
Sean Brodrick – Outlook For A.I., Defense, Uranium, Oil, Lithium, Copper, Steel, And Gold Stocks
We noted last week that we have seen a recent turn in the key oil & gas stocks tracked in the EFT (XLE) Energy Select Sector SPDR Fund for the last 2 week, after this index had previously remained under pressure for most of Q4. (XLE) had double-topped at $93 in September, and again at $92.56 in October, and then has pulled back down for the latter part of October, November, and early December. However, the last 2 weeks trading action has seen pricing blast back up through the 200 day Exponential Moving Average (currently at $83.40), and importantly consolidating above the 50 day EMA at $84.24, closing the week at $84.98. This has been pretty bullish action in the XLE and energy stocks, and we’ll be watching this next week to see if can maintain this upward momentum, working on the recent peaks up near $86.80, with a decisive break and close above $87. As far as downside support levels, if the XLE loses that toe hold above the 50 day EMA which is first support, or worse the 200 day EMA down below that, then there is another layer of downside support down where that price gap was created in the $81.50-$82.50 range.
With regards to Gold, it has continued channeled sideways above $2000 for the last few weeks, and has started consolidating these levels in a constructive way… not really breaking out, but importantly not breaking down and retreating immediately from these loftier levels as it has the last few attempts to hold the line above $2000. For the 2 months, and especially the last few weeks, the bulls have been back in control, with gold still solidly above both the 200 day EMA (currently at $1952) and 50 day EMA (currently at $2004). Gold closed the week on Friday at $2069.10, which was up a bit week over week, and kept the yellow metal well-bid on an overall quieter week.
On the KE Report, we speak with a number of pundits and thought leaders in the sector on how they are viewing the larger set up in the precious metals sector, and how they are trading the gold and silver equities. The 3 interviews from last week that most stuck out in my mind as having some great kernels of wisdom in it for investors to consider were the discussions we had with Adrian Day, Jordan Roy-Byrne, and Christopher Aaron:
Adrian Day – Gold, Gold Stocks, Royalty Companies, Strategic Stakeholders, Mergers, And Acquisitions
Christopher Aaron – Gold And US General Equities To Make All-Time Highs In 2024
(note the accompanying 4 charts on this page that compliment the audio interview)
Jordan Roy-Bryne – Focusing Less On Macro Noise And More On Company Micro Fundamental Value Drivers
In that interview linked above with Jordan Roy-Byrne, he makes a number of cogent points on why he also likes gold-oriented producers, and I agree wholeheartedly with some of the key areas he focuses on for stock selection. This is a topic I’ve been touching on in the last few articles, and on Friday I put out a bit more of the rationale behind investing in these “Holy Grail” type of growth-oriented gold producers with exploration and development upside.
> If you missed Friday’s missive on this then here is that link as a primer to future companies we’ll unpack together where there is a solid growth trajectory on tap.
Opportunities With Growth-Oriented Gold Producers
Excelsior Prosperity – Shad Marquitz – December 22, 2023
https://excelsiorprosperity.substack.com/p/opportunities-with-growth-oriented
In that piece I listed 11 of these growth-oriented gold producers that I hold in my own portfolio, and highlighted again in a little more detail the opportunity I see ahead for i-80 Gold Corp (IAU.TO) (IAUX). On the next mid-week missive I’m going to dive into a few more of the companies from that list, and will likely kick things off next time with Calibre Mining (CXB.TO) (CXBMF). Synchronistically, on Friday, we released an interview with Ryan King, Senior VP of Corporate Development and IR at Calibre Mining, with regards to their proposed business combination with Marathon Gold. Calibre Mining is a sponsor of the KE Report and a heavier weighted gold position that I hold in my own portfolio for full disclosure. I’ll link to that interview below, as a precursor to some comments to follow from me about this company in the week to come.
Calibre Mining – Unpacking The Proposed Business Acquisition Of Marathon Gold
May your week in trading and in life be very prosperous, and if you haven’t subscribed to my substack page, please come over and do so, as I’ll be periodically throwing out 1-2 other shorter articles mid-week continuing to delve more topics as they come up.
https://excelsiorprosperity.substack.com/
Thanks for reading and Ever Upward!
- Shad