Major market indexes continue to rally in the New Year as the NASDAQ Composite clears its 50-day moving average on decent volume. A negative 0.1% month-over-month non-core CPI number vs. expectations of 0.0% combined with a continued decline in the year-over-year Core CPI number from 6% to 5.7% gave the market cause to rally but not without some early volatility.
The S&P 500 Index has meanwhile cleared its 200-day moving average on light volume. The market continues to thumb its nose at the Fed but the situation remains fluid.
The key motivator for the market has been the continued decline in interest rates as measured by the 10-Year Treasury Yield and the U.S. Dollar which remain in downtrends on their weekly charts, below, since topping in the September-October time frame. While the Fed continues to talk about keeping rates higher for longer the bond market and the U.S. Dollar are telling a different story.
The decline in the Dollar, in particular, has sent gold on a tear as it takes the driver's seat from silver and leads to the upside. Near-term, the yellow metal has gone parabolic as the New Year starts.
Silver, which led the move off the October/November lows, has now taken a back seat as it builds a five-week base. Despite the lag of robust upside so far in 2023, the white metal did post a pocket pivot at its 10-dma and 20-dema on Thursday and may be setting up for a breakout. This is something to watch for if the Dollar continues to decline.
Our two favorite gold miners, AngloGold-Ashanti (AU) and Gold Fields (GFI) continue to set the pace among gold miners and related stocks. Most recently, as noted in previous Focus List Review Reports, AU broke out of an ascending flag/base to start off the New Year while GFI broke out of a low-base range on a gap-up move. Both names are now well extended at this point.
Institutional favorites among the gold miners continue to trend higher. Newmont Corp. (NEM), the largest gold producer in the United States, cleared the 200-day moving average for the first time on Friday.
Osisko Gold Royalties Ltd. (OR) is one of the view gold-related stocks still in a long entry position. We have discussed the name in recent Focus List Review reports. It posted a pocket pivot at the 10-day moving average on Thursday and then broke out on a strong-volume pocket pivot move on Friday. It remains within buying range on this standard-issue base breakout.
In another shot across the bow for the Dollar, Bitcoin ($BTCUSD) has gone on a tear over the past week and is now pushing towards its early November peak in what may very well be a massive short squeeze.
The market bounce in 2023 so far has been good for long positions in precious metals and related stocks. That is the area we have been focused on over the past couple of months in our Focus List Review reports, and we are seeing this come to fruition. The situation remains very fluid however, as flattening Fed interest rate increases may be in the cards for 2023, but quantitative tightening (QT) as the Fed starts to unwind its balance sheet has just begun and remains in full force.
The Market Direction Model (MDM) remains on a SELL signal. CME Fed Futures projects the terminal rate to be 475-500 bps in contrast to the Fed's dot plot which suggests at least 500-525. According to Goldman Sachs and some Fed members, inflation could remain stubbornly high which would prompt the Fed to hike beyond the 500-525 bps terminal rate.