Stocks And Gold – Hot And Hotter

The rebound off Tuesday‘s lows continued semi-successfully yesterday – further upside was rejected in spite of signs of strength both within the S&P 500 and outside markets. Technically, the bulls are still on a dicey, vulnerable ground – but increasingly less so. It‘s that VIX is calming down, and the put/call ratio has sharply moved into its complacent spectrum. And not only that – new highs-new lows are rising in spite of the advance-decline line being little moved.

These are all budding signs of the upcoming break higher, and no change in the reflationary positive dynamics for stocks, let alone the red hot commodities. These (copper, agrifoods, base metals, lumber, oil) continue appreciating in spite of nominal yields pulling back a little these days. Make no mistake though, deflation isn‘t about to break out.

Lower yields no longer work in support of all the defensive sectors – technology has passed the leadership baton long ago to value stocks (think Mar), but appears to be bottoming here in spite of the reversal late yesterday. That‘s positive as any S&P 500 advance has to count on both value and tech pulling ahead more or less simultaneously. A welcome sign of returning animal spirits in the 500-strong index would be the Russell 2000 juices flowing again. Thus far, even the emerging markets are hesitating.

Not that they should be – the USD Index looks very vulnerable to me here, and its anticipated downside move (the smoke and mirror games I talked about on Monday and Wednesday are nothing but a distraction) would help lift international markets and is also part of the explanation behind the strong commodity performance these days. This CRB Index move is key and shows how far have real assets progressed in shaking off the dollar link – if you compare the dollar‘s value in early Feb and now, you are looking at very meaningfully higher commodity prices over that same time period.

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Monica Kingsley 1 month ago Author's comment

A very prescient title...

European session update: we got some more SPX and XLK buying to top the daily reversal off. At the top of the recent consolidation range, new ATHs are once again in sight. As for metals, needless to say they extended gains... who would have throught but the bulls who did their homework...