Markets Shift Away From Key Safe-Haven Assets In Today’s Trading

Commenting on today’s trading with a focus on  safe-haven assets Gorilla Trades strategist Ken Berman said:

Safe-Haven Assets Rally

We finally had a day when all asset classes confirmed the rally, even though the low trading volumes could signal that more trouble is still ahead. Today’s shift away from the key safe-haven assets is what bulls have been waiting for weeks, and should the trade talks resume soon, the rally could even pick up momentum. The fact that stocks closed near their intraday highs yet again shows just how eager buyers were to reenter the market.

Get Our Activist Investing Case Study!

Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below!

Q2 hedge fund letters, conference, scoops etc

The major indices closed higher for the second day in a row, and today’s session was the best in more than three weeks for bulls, as trade optimism boosted stocks across the board. The Dow was up 325 or 1.3%, to 26,362, the Nasdaq gained 117, or 1.5%, to7,973, while the S&P 500 rose by 37, or 1.3%, to 2,925. Advancing issues outnumbered decliners by a more than 6-to-1 ratio on the NYSE, where volume was below average again.

All of the key sectors finished the day with considerable gains, and even the recently struggling financials and industrials hit one-week highs thanks to the big change in China’s rhetoric with regards to the trade war. The Chinese side signaled that they won’t retaliate in the wake of last week’s escalation, and President Trump later said that the negotiations will soon resume, sending stocks even higher and causing a bounce in Treasury yields. Despite the bounce in rates, traders are still almost certain that the Fed will cut its benchmark rate once again in September, and yields remain close to their recent lows.

Safe-Haven Assets Sink As Does VIX

The Volatility Index (VIX) fell to its lowest level since last Friday’s chaotic session, dipping below the 18 level again. The Russell 2000’s strong showing also points to a sharp reversal of the recent safe-haven flows, which is a positive sign ahead of the Labor Day weekend and the first week of September that usually sees a surge in trading activity. The major indices are still well below their all-time highs from July, but should today’s rally continue tomorrow, their monthly losses might only be minuscule, especially in light of the steep drop on the first days of the month.

Today’s rally was also helped by the fact that even though the second-quarter GDP reading was revised slightly lower, to 2.0%, but the revision hasn’t changed the key positive takeaways of the quarter. Consumer spending remains very strong, and with corporate earnings also at record levels, it’s no surprise that equities have been showing resilience amid the global economic woes. The Dollar Index once again pushed higher thanks to the bullish report, and the index closed at its highest level since early-2017.

We will have another busy day of economic releases tomorrow, with a focus on inflation, both internationally and domestically. The Eurozone flash Consumer Price Index (CPI) will be out in pre-market trading, with the U.S. with the U.S. Core PCE Price Index, the Fed’s preferred inflation measure coming out just before the opening bell. As Fed and the European Central Bank (ECB) are both in for a crucial September, this month’s inflationary trends could have a major impact across assets classes, while the Chicago PMI will also be closely watched by analysts.

Technical Corner

The technical picture hasn’t changed much this week since the major indices have been trading without a clear direction, but the healthy bounce of the last couple of days could be the start of a decisive move in stocks. The benchmarks are all above their flat 200-day moving averages of 7,600 for the Nasdaq, 2,805 for the S&P 500, and 25,617 for the Dow, but they are still stuck below their 50-day moving averages of 2,946 for the S&P 500, 8,049 for the Nasdaq, and 26,585 for the Dow, despite the broad rally across the key sectors.

Gold is hot

One of the key global safe-haven assets, gold, has formed a very powerful bullish long-term pattern in recent weeks. The price of the commodity broke out above the key $1400 per ounce resistance level after forming a multi-year base, and it confirmed the breakout in the second half of August. Now, gold is ‘overbought’ from a short-term perspective, but should it pull back and get close to its steeply rising 50-day moving average, a great buying opportunity could emerge in the commodity and gold miners as well. Stay tuned!



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver