On The Verge Of Stocks Pullback

S&P 500 is still consolidating Monday‘s sharp gains, showered with liquidity. Yet it seems that eking out further gains is getting harder as the price action took the index quite far from its key moving averages. If I had to pick one sign of stiffer headwinds ahead, it would be the tech sector‘s reaction to another daily retreat in Treasury yields – the sector didn‘t rally, and neither did the Dow Jones Industrial Average. Value stocks saved the day, and it appears we‘re about to see them start doing better again, relatively speaking.

Yes, the risk-reward ratio for the bulls is at unsavory levels in the short run. What about being short at this moment then? It all depends upon the trading style, risk tolerance, and time horizon. I‘m not looking for stocks making a major top here as the bull run is intact thanks to:

(..) Well, liquidity and bets on the stocks benefiting from the coming infrastructure bill.

Any way you look at it, the market breadth is positive and ready to support the coming upswing continuation, even though I look for a largely sideways day in stocks on Tuesday given the aptly called fireworks to happen yesterday. Sizable long profits in stock market trades #6 and #7 have been taken off the table – 149 points in my Standard money managements, and 145 points in the Advanced money management that comes on top.

My prognosis for yesterday‘s session materialized, and we have seen quite a record number (around 95%) of stocks trading above their 200-day moving averages, which is similar to the setup right after the post-dotcom bubble bear market 2002/3 lows, or 1-2 years after the bull market run off the Mar 2009 lows. Hard to say which one is more hated, but I see the run from Mar 2020 generational low as the gold medal winner, especially given the denial accompanying it since.

Gold made a run above $1,740 in line with retreating yields and copper not giving up much-gained ground, but the immediate run‘s continuation to the key $1,760s or even better above $1,775 looks set to have to wait for a few sessions. I don‘t expect today‘s FOMC minutes release to change that. While the metals are likely to take their time, the healthy miners‘ outperformance supports its continuation once the soft patch we appear entering is over.

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Monica Kingsley 1 week ago Author's comment

Another daily SPX sideways move, this time accompanied by wavering HYG. How long before the bears pluck up some courage, and start selling? Not that I do expect them to get really far, but still - the Fed minutes were (predictably) a non-event... Note also the dollar turning up, and compare that to the TLT yields.