Did AMAT Chirp? Implications For The Economy And Gold

The following is the opening segment of this week’s Notes From the Rabbit Hole, NFTRH 396. The report also covers, in detail, the technical status of US/Global stock markets, precious metals, commodities, currencies and even a few individual gold miners and a couple of new (non-gold related) NFTRH+ trade ideas.

In January of 2013 we noted that the “Canary’s Canary” chirped and signaled an economic up phase (such as it was) on the horizon. The Canary was the Semiconductor sector, which is cyclical and economically sensitive. The Canary’s Canary is the Semi Equipment sector, manned by the likes of Applied Materials and Lam Research.

On Friday the market got a nice quarterly report from AMAT as it beat estimates across the board and offered positive guidance. The broader market used it as an excuse to at least temporarily neutralize a perfectly good (daily) bearish pattern on the S&P 500. AMAT received $3.5 Billion in new orders, which is up 37% from last year. Now, does this rhyme with something we have reviewed recently? Recall that the March Book-to-Bill ratio (‘b2b’, shown below) for the Semi equipment sector was positive and more importantly than that, the ‘bookings’ side of the equation was strong. The next b2b is due to be released on May 24 and it will be a key to our analysis going forward.

Display and NAND Flash memory chips saw big jumps while DRAM floundered. This illustrates why more modern, specialty chip companies are doing well and dinosaurs are lagging. But is it an economic signpost? I have created new multi-paneled charts with relevant gold ratios and this seems like a convenient time to introduce them. So lets interrupt the Semi discussion and see how the counter-cyclical theme is shaping up.

Gold vs. stock markets (counter-cyclical indicator) has been flat to down for several months now as markets positively correlated to the global economy have experienced relief. That is fine, we knew it would happen. At this time Au-Stocks remains on a counter-cyclical theme (above the moving averages), but it is being tested.