Yesterday‘s thin volume session didn‘t bring any material changes as the window of opportunity for the stock bears to act, is slowly but surely closing down. Friday‘s intraday move brought increasingly higher prices, and Monday‘s trading extended gains even more. Euphoric, complacent greed as evidenced by the sentiment readings and put/call ratios, is on.

I asked on Friday:

(…) How long can it last, and what shape the upcoming correction would have? Right now, the warning signs are mounting, yet the bears shouldn‘t put all their eggs into the correction basket really, for it shapes to be a shallow one – one in time, rather than in price.

Both on Monday and today, I‘ll say that waiting for a correction is like waiting for Godot. Right from the horse‘s mouth as my personal experience with quite some absurd and Kafkaesque drama got richer recently.

The dollar keeps topping out, which I called it to do a week ago – and its losses have been mounting since. Long-dated Treasury yields are rising in tandem, which is a great environment for financials (XLF ETF) and emerging markets (EEM ETF). The former benefit from the widening yield curve, the latter from plain devaluation.

Gold performance is still short-term disappointing, and silver and platinum are leading. But it‘s the miners and the moves between various mining indices, that work to soothe the bulls‘ impatience. Understandable as we are in 5+ months of downside correction whose target I called on Aug 07 in the article S&P 500 Bulls Meet Non-Farm Payrolls, witnessing record pace of new money creation.

The ongoing economic recovery will get new stimulus support, and that will work to broaden the precious metals advance. Commodity prices are universally rising, and over time, inflation as measured by CPI will do so too. But not until the current pace of job creation picks up and participation rate turns – we‘re far from that moment. Until then, inflation will be apparent only in (financial) asset prices, which is in line with new money no longer sitting on banks‘ balance sheets, but flowing into the real economy.

Again quoting my Friday‘s words:

(…) One more note concerning the markets – in our print-and-spend-happy world, where the give or take $1.9T stimulus will sooner or later come in one way or another, we better prepare on repricing downside risk in the precious metals, and also better not to fixate on the premature bubble pop talk too closely. I have been stating repeatedly that things have to get really ridiculous first, and this just doesn‘t qualify yet in my view. All those serious correction calls have to wait – in tech and elsewhere, for we‘re going higher overall – like it or not.

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

S&P 500 Outlook and Its Internals

The bulls had an opportunity to act for quite a few days in a row, yet missed it. Their inaction confirms that the path of least resistance for stocks is to still rise.

The market breadth indicators have improved on Friday, but especially the new highs new lows has a way to go. It could have ticked upwards more given Friday‘s price advance, but didn‘t. The put/call ratio has moved upwards (see chart below), but the overall message is still one of cautious yet reasonable optimism – not enough to trigger the sizable correction quite some participants are constantly awaiting.

Credit Markets, Treasuries, and Dollar

The high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio performance isn‘t out of whack with the S&P 500, but the investment-grade corporate bonds to longer-dated Treasuries (LQD:IEI) are not confirming exactly.

Before the corona crash, the high yield ones were leading the investment-grade ones for countless quarters. From the Mar 2020 bottom, the investment-grade ones were in the pool position. And since the end of Dec 2020, the high yield ones are leading again, but investment-grade ones aren’t going up anymore, but down the way long-term Treasuries do. One more sign of the euphoric stage in stocks we’re in.

Long-term Treasuries are the chart to watch for the market to throw a fit – or not. They‘re declining at a faster pace than has been the case in late 2020, which can bring about trouble – not immediately right away, but over time it can turn out so. The dynamic of money moving into the stock market is thus far still positive as the many risk on assets are gaining on the fast pace of new money creation. The worry about a sudden, sharp reversal is misplaced for now.

The dollar is on the receiving end – there is no breakout verification before a run higher in progress – no. Neither above the 50-day moving average, nor any way you draw a declining resistance line on higher time frames. The greenback is about to test and break below its 2021 lows. Solidly below.

Gold and Silver

Gold bulls stood their ground on Friday, yet their yesterday‘s and today‘s performance is rather weak. Not disastrously so, but still indicative of the headwinds gold bulls face. Gold‘s spark isn‘t there at the moment. Putting it into context, please remember that it was first gold that jumped in the unrivaled money printing era arrival in spring 2020, followed by copper, base metals, agricultural commodities, and also oil now (remember my recent bullish calls for over $80 per barrel in less than 2 years).

Silver price action is the bullish one, in line with commodities ($CRB) performance being much stronger now. Silver is definitely better positioned to benefit from the upcoming precious metals rise – today and in the days and weeks ahead.

Gold and Silver Miners

The heat gold is taking from rising Treasury yields, is also progressively weaker. The decoupling from rising nominal (real) yields bodes well for precious metals universally, and it‘s precisely what you would expect given the (commodity) inflation, twin deficits, and the dollar on the brink.

Gold to all corporate bonds chart reflects the current dillydallying nicely. Gold isn‘t breaking down into a bearish downtrend.

The miners' examination also proves no change in the underlying bullish dynamic playing out below the surface. Junior gold miners are outperforming. the seniors and there is also the great burst of life in the silver miners – these are outperforming ever more visibly the rest of the crowd.

Once this chart flips bullish, we have the new upleg clearly visible. Thus far, we have had one recent bullish divergence only (the GDX refusal to break to new lows when gold broke below its Jan lows) – once gold miners start leading the yellow metal, the sentiment in the precious metals community would get different compared to today really.

Summary

The deterioration in stocks got postponed as both Friday and Monday brought new buyers into the market. Would the bears appear, at least to rock the boat a little? I stand by my call that they had a good chance all the prior week, but didn‘t jump at the opportunity – their window is closing, slowly but surely. The stock bull run is on, and there are no signals thus far pointing to an onset of a deeper correction soon.

The gold bulls continue lagging behind their silver counterparts, predictably, with both under pressure in Tuesday‘s premarket. Coupled with the miners‘ signals, and unprecedented monetary and fiscal stimulus, unfolding real economic recovery, inflation making its way through the system, and the dollar struggling to keep its head above water, the new PMs upleg is a question of time.