Lights Flashing Red

S&P 500 gave in to weakness, shifting the balance of power to the bears – this close at the 50-day moving average doesn‘t look to be as appealing as the prior ones, buy the dip isn‘t likely to work this time around. Yes, I‘m saying that after the prior week‘s long hesitation/consolidation above this key support looked as if it would work, but I became not conviced on Wednesday‘s strength lacking believable follow through on Thursday. And Friday‘s quad witching dispelled the remaining question marks – the long-overdue 5%+ correction is on the doorstep. The earlier today opened short S&P 500 position is already solidly in the black.

As I wrote on Friday:

(…) Unless the 4,440 level in S&P 500 is broken to the downside, stocks appear on the verge of yet another accumulation while commodities are best positioned to rise strongly (the Fed isn‘t mopping up excess liquidity, no). Crude oil hasn‘t spoken the last word, and looks ready to continue upwards following a little consolidation around $72. Copper‘s wild ride continues, and I‘m not looking for the red metal‘s 50-day moving average to start declining.

The stock accumulation hypothesis fans are in for a reality check, and the tandem of rising USD and yields is likely to translate into commodity headwinds (including for copper, and to a somewhat lesser degree for oil), and especially (initial) precious metals headwinds. Gold will, for now, remain the more resilient metal while silver is being taken for a ride as wild as copper – these are debt contagion fears, after all.

As Q3 and Q4 GDP growth would be underwhelming in spite of recent strong retail and manufacturing data, that‘s going to affect the red metal. Though contained to China (for now but watch for USD-denominated bond yields of Chinese financial companies), the Evergrande situation won‘t help the commodity. The recession callers would be disappointed though, and the Fed will eventually taper (no, I‘m not looking at Sep). Still, commodities are likely to remain medium-term resilient.

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