S&P 500 bulls didn‘t make much progress even though the credit markets initially favored the daily rebound to stick. Bouncing between the daily highs and lows, the 500-strong index gave up a few moderately good opportunities to take on 4,390 again. VIX understandably calmed down on the day, but doesn‘t give impression of yielding too much to the downside – on the contrary, it seems to be on a general uptrend since early Jul. Volatility is returning, and that‘s characteristic of the unfolding correction.

How far lower would it reach? The 4,340 followed by 4,300 and lower to mid 4,250 are the key supports. The bulls haven‘t (and face quite many headwinds from related markets, including the dollar) stepped in to close Tuesday‘s gap, which would be a game changer. For now, we‘re in a trading range where the bears have the advantage. The stock market bull hasn‘t topped, we‘re merely in an unpleasant correction, of which the daily upswing in utilities or consumer staples is a testament.

Yields and the dollar are taking turns at pressuring inflation plays, and precious metals are feeling the heat especially, ignoring the debt ceiling being still unresolved. Treasury yields are returning to more reasonable levels in order to reflect the Fed‘s dillydallying:

(…) Bonds are signalling that the Fed‘s image of inflation fighter (right or wrong, have your pick) is losing the benefit of the doubt it was given with the Jun FOMC – bond yields have abruptly ended their descent and subsequent trading range. This spells not only inflation (the risk of Fed‘s policy mistake – warnings it would take longer with us than originally anticipated coupled with the professed faith it would just naturally subside all by itself), but smacks of stagflation.

The slowly but surely acknowledged inflation surprise will come back to bite the central bank as inflation expectations are finally surging again, reflecting the cost-push inflation (hello commodities superbull), job market challenges and increasingly strained supply chains characterized by order cuts, delays, shortages and general issues in getting merchandise where it‘s awaited (hello port congestion, docking plus trucking staff shortages and full container ships anchored and awaiting unloading). And I‘m not even talking record drought through the West Coast stretching into Rockies and Midwest, or China electricity rationing. Precious metals seem to be the most undervalued asset class these weeks really.

Let‘s move right into the charts (all courtesy of www.stockcharts.com).

S&P 500 and Nasdaq Outlook

S&P 500 paused for a day, and the bulls wasted a few chances to move higher.

Credit Markets

Credit markets opened on a strong note (HYG did), but gave up the advantage – lower values still seem a question of (relatively short) time.

Gold, Silver and Miners

Precious metals remain under pressure, and silver was hammered by the daily upswing in the dollar. Gold volume didn‘t correspondingly jump higher, indicating that the selling pressure taking gold to silver ratio to 80, is a tad overdone. As stated days ago, look to copper to show signs of life first – outperformance of CRB Index would be a first welcome sign.

Crude Oil

Crude oil consolidation continues, and the volume behind last two days, shows healthy accumulation.

Copper

Copper couldn‘t keep the unfolding flag intact – the hesitation goes on, and the red metal is increasingly trading in the rather undervalued end of its spectrum. Overall, it remains range bound for now.

Bitcoin and Ethereum

Bitcoin and Ethereum bulls are on the move, and the $40K in BTC held up – the daily indicator posture is improving, and we can look for the upswing to continue – remarkable in the face of rising dollar, which is in my view closer to a top than generally appreciated.

Summary

Stocks aren‘t out of the woods yet, and the yields are putting pressure on tech. Commodities are largely ignoring the taper timing and pace speculation, which can‘t be said about precious metals reacting once to the dollar, then to yields – but not to rising inflation, inflation expectations, or deeply negative real rates.