Ssssshhhhh, while the hype and noise goes on in the broad markets about the big drop in stocks, we want to very quietly continue to follow macro indicators so that we do not get lost in any hysteria.  Gold vs. CCI (commodity index) has broken out of a bullish Falling Wedge (by weekly chart) and is bull flagging with weekly RSI above 50.  So far so good.

Now of course people are going to say that it is the Agriculturals that are weighing down the CCI and I agree.  But the Ag’s went up hard at the beginning of the year to break CCI out of its long-term downtrend and now they, like every bubble or speculative momentum play, have popped.  It’s a net neutral on the CCI, which in nominal terms has dropped exactly to where NFTRH has been targeting per this weekly chart since it topped out at resistance…

We are at an important juncture in the inflation/deflation sweepstakes.  Things I see (Utilities tanking and banks out performing the S&P 500 on the short-term*, to name but two) lead me to believe that Treasury yields are going to rise, not fall.  At least that is the direction I am leaning at the moment.

But the important things will be in what yield relationships do (i.e. whether the curve rises or continues to fall) with respect to gold, and also to a degree, the inflation/deflation debate.

Back to the post’s original intent, yes commodities were driven up and driven down by that Ag’s, but that distortion has now been neutered in both directions.  It is rubber meets the road time folks as gold and commodities play out their relationship. There are of course other indicators, but the one below has quietly been whirring in the background of the analysis – unbroken with point 4 still above point 2 – the whole while.

The chart is still very valid and it will command the big picture and its answers about a long-term economic contraction and a case for gold.

The last 2 years have helped people to lose their way.  The span of point 3 to point 4 has done its job in creating bull heroes (Bernanke sycophants and apologists) at 4, after mobs with pitchforks were ready to string him up at 3.  When you slow your thinking down to the big views and look for the mechanics in the background of the noisy macro, it is calming and things make sense.

I’ll tell you what else makes sense, taking profits on short positions at logical support levels; and that is exactly what I plan to do.  Then the play would be to short bounces and/or be ready to buy some things from puking bulls if… and it’s a pretty strong if in my opinion… it looks like this correction is just a clean out of the momo’s in preparation for new highs later on.

Okay, the post is getting scattered now but that is hard to help.  There is so much to talk about, including with gold, the miners and the 2014 ‘macro pivot’ theme.  We’ll do more of that this weekend in #302.