Market Thoughts: Silver And Gold Are The New VIX

There’s a lot to unpack in the growing instability of the markets right now so I’m going to resort to equal parts summarizing with granularity.

Banks – All four Big Banks have reported – C, BAC, JPM, WFC– and all delivered positive earnings surprises with an average EPS growth of 21% (for the group).

Did any catch/keep a bid despite a 21% YOY EPS growth? Now I’m not going to unpack consumer biz from trading or loan growth or the like to defend bull or bear case for banks, as that’s not what I do. I am going to comment on the obvious: Banks beat big but market ignored. Bond yields bounced (following strong CPI data out Friday) but banks didn’t catch a decent or sustainable bid. I said in my trading room: “That’s a Tell”, a worrisome one. I also said I would stay away from playing banks through EPS and I’m glad I did.

Small Caps – I had a cheeky trade long IWM for a run to $158 trend-line resistance. Silly.

I’ve repeatedly warned about how weak small caps are relative to SPX (see chart below). I’ve talked about how the safe trade is to wait to go long when SML price action is ABOVE its 50W. I’ve talked about how my Intermarket Analysis work portends a break of support (bottom panel) that goes back to 2011. I’ve talked about a gap-fill quite a ways down that WILL be filled. I’ve written and talked about how the weakness in small caps and transports (pulling down Industrials) are at critical inflection points, representing not only this year’s weakest stocks but also a danger to the Bull’s thesis of economic and market recovery.

The WSJ notes that while the S&P 500, Dow Industrials, and Nasdaq Composite all made new highs, the small-cap Russell 2000 has been lagging badly. Since 1979, this has only happened in January and April of 1999.

I’m really going to take my own advice now.

(Click on image to enlarge)

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Shirley J. Colon 11 months ago Member's comment

Nice topic

Gary Anderson 11 months ago Contributor's comment

Clever market analysis.