PCE inflation data, allegedly the Fed's favorite inflation indicator, came out Friday morning and printed a little light with the core PCE coming in at 0.3% vs. expectations of 0.4% while the year-over-year number printed 4.5% vs. expectations of 4.6%. The PCE sparked a muted response at first, but as the trading day wore on the indexes ended the week with a steady, grinding move higher as the NASDAQ Composite clears its recent trading range and left-side double-top peak at the early February high. The move into big-cap, long-term established tech names has the flavor of a defensive rotation as money clears out of the banking sector plus the adv/dec line in the NASDAQ is at one of the weakest levels.
But we have been able to play this market quite well via the alternative-currency space, e.g., precious metals and Bitcoin.
The precious metals space has become nothing short of an upside monster as gold and silver trend higher, driving big moves off the early March lows in nearly every gold and silver related stocks including those that mine the metals directly and those that own gold and/or silver production royalty streams like our favorite in the group, Osisko Gold Royalties Ltd. (OR), so far the de facto leader in the space.
AngloGold-Ashanti (AU), another name we have discussed frequently since November of last year, broke out on Thursday on a buyable gap-up (BGU) move. In this case the move is actionable using the Thursday intraday low at 23.80 as a tight selling guide.
A number of gold miners and related stocks have broken out recently, such as Alamos Gold (AGI), Equinox Gold (EQX), and Gold Fields Ltd. (GFI), but all are extended. Some remain within buying range of recent breakouts such as Eldorado Gold (EGO) as it pulls back into a prior breakout point with volume declining. With respect to the other three we would watch for pullbacks into the 10-dma in any of them as potentially lower-risk long entry opportunities.
Bitcoin remains a viable vehicle in the lifeboat trade as the Grayscale Bitcoin Trust (GBTC) holds tight along the 10-day moving average. While it and the Bitcoin ETFs, the ProShares Bitcoin Strategy (BITO) and Valkyrie Bitcoin Strategy (BTF), have been buyable along the 10-day moving averages, we might consider a more pronounced pullback to the 20-dema in these Bitcoin vehicles as a more opportunistic entry if we can get it. That, however, is not clear, since demand for precious metals and Bitcoin appears to be rooted in the lifeboat trade which is more of a thematic, fundamental phenomenon than a purely technical one. With the banking sector under deep stress due to the fastest rise in interest rates in history from near zero levels, the value of bonds, which are normally low risk investments, plummeted. The question remains when the next domino falls as unfunded liabilities such as pension funds at home and abroad and mortgage backed securities such as commercial real estate may also suffer similar fates.
Constructive action is also seen in gold production royalty stream owner Franco-Nevada (FNV) and gold miner Barrick Gold (GOLD). Both stocks are exhibiting tight price action as they meet up with their 10-day moving averages as volume dries up. These are buyable along the 10-day line which then serves as a tight selling guide. We would also key on any move in gold through the $2,000/ounce level where stiff psychological resistance has remained.
If gold can clear the key $2,000 level then we would expect miners and related stocks to push higher as well. One might argue that the sharp moves off the early March lows in precious metals stocks is presaging a breakout through the $2,000 level in gold. Hindsight, of course, would offer us 20/20 vision so for now we can only wait and see, but there has already been plenty of upside to play in the precious metals, Bitcoin, and related stocks in the month of March.
Interest rates as represented by the 10-Year Treasury Yield ($TNX) and the U.S. Dollar ($USD) have remained in downtrends since the early March peaks. If these trends remain in place then this would provide additional evidence for higher prices in alternative currencies such as gold, silver, and Bitcoin. The recent bounce this past week in Treasury yields is likely temporary as the market is closer to believing the Fed is done or nearly done with the rate hikes.
With the NASDAQ Composite and NASDAQ 100 Indexes leading the current market rally higher as we came into the end of the first quarter of 2023, we have started to see some positive action among tech-related names. Axon Enterprise (AXON), formerly Taser Industries (TASR), posted a pocket pivot back to the top of its current four-week base on Friday. Catalyst Pharmaceuticals (CPRX), which is showing strong fundamentals, posted a very subtle and quiet pocket pivot at its 10-dma on Friday. Telecom names such as Arista Networks (ANET), Ciena (CIEN), and Juniper Networks (JNPR) have been strong lately, and we note that Extreme Networks (EXTR) posted a very strong pocket pivot as it recovered up through its 50-day moving average. Cyber-security leader Palo Alto Networks (PANW) posted a pocket pivot breakout on Friday as it makes another run for the $200 century mark where it failed and broke down back in April of 2022. From a tactical standpoint, we view these as signs of constructive price/volume action, but in cases like AXON and EXTR where they are a bit extended we tend to look for pullbacks to buy into. Something like CPRX is most actionable since it sits about 1% above its 10-day moving average based on Friday's close and represents the proverbial "buy it when its quiet" type of pocket pivot action.
This remains a challenging environment where news/event risk remains a factor. Paying close attention to entries and position size and scaling accordingly without chasing strength on the upside or weakness on the downside is the best way to operate in an uncertain, potentially dangerous environment.The Market Direction Model (MDM) remains on a CASH/NEUTRAL signal.