S&P 500 declined, but the risk-off move looks exaggerated, of base building before another upswing flavor – just as I wrote in yesterday‘s summary. VIX is trending down again, and the option traders don‘t have their guards raised too high – the only fly in the ointment are thus the closing prices in credit markets. But again, yesterday was a risk-off day, and the sectoral S&P 500 view mirrors that – take it as pushing the spring down before it recoils. Let the open S&P 500 and Nasdaq profits rise!
That‘s when the S&P 500 breadth would widen once again, now that the markets got a feel for what the Fed hawkishness was all about – remember, bank credit creation isn‘t there to take up the slack (and tomorrow, look for Fed‘s PCE deflator interpretation to give them an excuse to safely defer tightening to 2023 as they talk job creation some more next):
When a liquidity crisis struck China's Evergrande Group in the summer of 2021, it shook the global markets. Debt payments by China's second-largest property developer by sales were estimated in the hundreds of billions of dollars, and the company missed several payments. Those missed payments led to downgrades by international ratings agencies, but the Chinese Read More
(…) So, we got a preview of what a true tightening attempt could look like at its earliest stages, and at the same time the Powell pledge not to raise rates unless the recovery is complete, so to say. So as not to disturb the the job market recovery, assuring us at the same time that 1970s stagflation isn‘t on the horizon. For now, it indeed isn‘t as economic growth is still running faster than (current) inflation, which means that any growth scare is far down the road. Yet, the no stagflation assurances smack of this inflation narrative progression, so a healthy dose of suspicion is well placed. It‘s my view that the inflation expectations jawboning bought the central bank just a little time before the inflation trades regain traction. The Fed simply doesn‘t appear to want to act decisively.
With more taper discussions deferred to Jackson Hole, the best the Fed can do now, is to attempt to reinterpret the meaning of the word transitory – and that‘s exactly what Bostic is already doing. Suddenly, the phase of higher inflation won‘t be less than 3 months as originally expected, but perhaps 2 to 3 quarters. That‘s a world of difference!
Gold and silver keep basing, and haven‘t yet made a serious recovery attempt – and neither have inflation expectations (unless you look at RINF, of course). I see commodities – CRB, agricultural ones amongst which grains (wheat) are best positioned for an upswing, and of course the bludgeoned copper (now at $4.30, it‘s a great point to go long using both my Standard and Advanced money management techniques). It‘s that the copper to 10-year yield ratio doesn‘t favor much precious metals downside (nominal yields aren‘t a risk here – only the dollar that appears consolidating before another push higher, seriously is).
Crude oil is wavering, and so are oil stocks – but that‘s a short-term situation only. Black gold, XOI and XLE remain my mid-term bullish picks (once this so far too shallow consolidation is over, look for more gains ahead), and the commodity has already brought nice profits yesterday and earlier today.
Cryptos base building is intact, and both Bitcoin and Ethereum have rejected more downswing attempts. Much higher prices though must be achieved to flip them into a bull market again.
Let‘s move right into the charts (all courtesy of www.stockcharts.com).
S&P 500 and Nasdaq Outlook
S&P 500 daily consolidation after a prior steep upswing bodes well for continued gains, driven yet again by Nasdaq.
All the debt instruments down, giving up intraday gains, in what appears a daily retreat only (check the low volume).
Technology and Value
The sectoral S&P 500 view could hardly be more risk-off than yesterday.
Gold, Silver and Miners
Gold and miners are holding on to the recent lows, giving impression of being about to peek higher as the Fed noises die down for now – and today‘s premarket price action confirms the prior sentence taken from yesterday‘s daily report.
Silver has been equally to gold beaten down, but the copper to 10-year yield ratio suggested an upswing attempt hasn‘t indeed been that far away.
It‘s not a daily reversal, but a daily hesitation in oil – I‘m still not looking for an overly sharp price drop.
S&P 500 led by Nasdaq looks set to close at new all-time highs today, in a reversal of yesterday‘s very much risk-off session.
Gold and silver buyers are back in action, very humbly thus far. Not even miners yet confirm bullish spirits as having returned – the journey to pre-FOMC highs will be a long one.
Crude oil consolidation is arriving, but don‘t look for it to break the uptrend. We have much further to run before black gold prices become an issue.
Bitcoin and Ethereum keep staving off further downside,with the accumulation hypothesis favored by the weekly charts apparently underway. The bulls though need to break above 44,000 minimum in Bitcoin so as to regain bull market momentum.
Trading position – S&P 500 (short-term; futures; my take): the already initiated long positions (100% position size) with stop-loss at 4000 and initial upside target at 4250, are justified from the risk-reward perspective.
If you’re using e-mini S&P 500 futures, 1-point move in the S&P 500 amounts to $50. Multiply that with the difference between the entry and stop-loss, and better don’t risk more than 6% or maximum 8% of your trading account on this trade alone.
Advanced money management trading position – S&P 500 (short-term; futures; my take): the already initiated long positions (50% position size) with stop-loss at 4000 and initial upside target at 4250, are justified from the risk-reward perspective.
If you’re using e-mini S&P 500 futures, 1-point move in the S&P 500 amounts to $50, and taking me up on this trade idea means adding one half to your currently open position. Multiply that with the difference between the entry and stop-loss, and better don’t risk more than 9% or maximum 12% of your trading account on the combination of the standard money management (featured here as trade #1) and advanced money management trade (introduced just below as #2).
Trading position – Nasdaq 100 (short-term; futures; my take): long positions (100% position size) (opened via a buy limit order at 13,520) with stop-loss at 12,500 and initial upside target at 13,700, are justified from the risk-reward perspective.
If you’re using e-mini Nasdaq-100 futures, 10-point move in Nasdaq 100 amounts to $200. Multiply that with the difference between the entry and stop-loss, and better don’t risk more than 6% or maximum 8% of your trading account on this trade alone.
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All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.