What doesn‘t go down, must go up? With a little Kaplan help, sideways S&P 500 trading well above 4,370 – 4,375 area spurted higher as the taper prospects rebalancing worked its magic. As I had been writing thoughout the week and well before, mathematics of growing deficits doesn‘t favor decreasing asset purchases. On top, the economy appears a little slowing down – while no recession this year or next is likely – we‘re midpoint in the expansion cycle as per my credit spread indicators – the slowdown looks inevitable, and the only question is the extent and seriousness of any Fed tapering.
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The talking has thus far lifted the dollar, enabling the central bank to take on inflation through the back door. Combined with the decreasing margin debt (first sign that something with the M2 rate of growth is amiss), the reflation and commodity trades have suffered, and all it took was a mere 2.5% from S&P 500 ATHs to make the Fed blink as per the title of my prescient Friday article.
Treasuries though aren‘t yet convinced, having merely wavered – they‘re overestimating the odds of economic growth turning negative. The same trading action describes the dollar, and inflation expectations dipped on the day as well. As a result, expect the turn to risk on beyond stocks, to continue in fits and starts – Friday was but a first swallow revealing that the Fed is ready to step in when things start to look bleak for the „generally accepted metric of economic success“, the stock market.
Let‘s move right into the charts (all courtesy of www.stockcharts.com).
S&P 500 and Nasdaq Outlook
Reversal continuation on not outstanding but still good volume – it‘s the high beta internals that bode well for the coming week, as it‘s about the degree of value and tech outside $NYFANG performance.
High yield corporate bonds have led the reversal in credit markets, while the quality debt instruments remain elevated, with especially Treasuries still doubting the stock market rebound. That‘s but one of the signs of caution for the S&P 500 bulls.
Gold, Silver and Miners
Miners finally stopped falling, but much more needs to happen so as to brighten the PMs outlook considerably. Thus far, just gold can be counted on to be resilient while silver is being challenged alongside commodities during any selloffs.
Energy stocks stopped their daily decline, and the sellers might be getting exhausted here – anyway, the local bottom appears approaching, and today‘s premarket trading taking black gold over $64, highlights that.
Copper rebounded, and very strongly. The volume didn‘t disappoint either – some trading between the two moving averages appears likely next. I‘m not counting on a steep and immediate rebound above the 50-day moving average in spite of the positive fundamentals behind copper and other base metals just yet.
Bitcoin and Ethereum
More base building over the weekend gave way to upswing continuation – the path of least resistance is still up.
Monday‘s trading shows the markets are taking the dialing back of Fed‘s taper seriously, and risk-on assets are surging, accompanied by the dollar retreating. And that bodes well for value stocks today as opposed to tech behemoths. Thus far, it‘s only precious metals where the upswings are much tamer, compared to copper or oil.
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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.