Stocks Shaking Off Weak Tech As Gold Bottoms?

Stocks spiked higher, but not before going sideways to down prior on the day. And the close to the session hasn‘t been convincing either – does it count as a reversal? In my view, we haven‘t seen one yesterday really, regardless of this correction not being over just yet. There are still some cracks I tweeted yesterday about in need closing first, such as the worrying corporate bonds performance, manifest in the HYG:SHY ratio, or the tech searching for the bottom (it‘s $NYFANG precisely).

Quoting from yesterday‘s extensive analysis spanning beyond stocks, metals and the Fed:

(…) Stocks have had a great run over the past 4 months, getting a bit ahead of themselves in some aspects such as valuations. Then, grappling with the rising long-term rates did strike.

So did inflation fears, especially when looking at commodities. Inflation expectations are rising, but not galloping yet. What to make of the rising rates then? They‘re up for all the good reasons – the economy is growing strongly after the Q4 corona restrictions (I actually expect not the conservative 5% Q1 GDP growth, but over 8% at least) while inflation expectations are lagging behind.

In other words, the reflation (of economic growth) is working and hasn‘t turned into inflation (rising or roughly stable inflation expectations while the economy‘s growth is slowing down). We‘re more than a few quarters from that – I fully expect really biting inflation (supported by overheating in the job market) to be an 2022-3 affair. As regards S&P 500 sectors, would you really expect financials and energy do as greatly as they do if the prospects were darkening?

Stocks are well positioned to keep absorbing the rising nominal rates. What has been the issue, was the extraordinarily steep pace of such move, leaving long-term Treasuries trading historically very extended compared to their 50-day moving averages. While they can snap back over the next 1-2 weeks, the 10y Treasury bond yield again breaking 1.50% is a testament to the Fed not willing to do anything at the moment. Little does the central bank care about commodities moves, when it didn‘t consider any market moves thus far as unruly.

Gold market offered proof of being finally ready for a rebound, and it‘s visible in the closing prices of the yellow metal and its miners. Being more than a one day occurence, supported by yesterday presented big picture signals, the market confirmed my yesterday‘s suggestion of an upcoming gold. It appears we‘ll get more than a few days to assess the legs this rally is made of, facilitating nimble charting of the waters ahead my usual way:

(…) Just as I was calling out gold as overheated in Aug 2020 and prone to a real soft patch, some signs of internal strength in the precious metals sector were present this Feb already. And now as we have been testing for quite a few days the first support in my game plan, we‘re getting once again close to a bullish formation that I called precisely to a day, and had been banging the bearish gold drum for the following two days, anticipating the downside that followed.

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Monica Kingsley 3 months ago Author's comment

TLT finally rebounding today as well, taking pressure of the gold-TLT long-term chart I featured yesterday, check it out - how far will the discussed snapback rally carry the metals?

What if the bottom is in actually in? What if that was all there was to test in the key $1,670 zone? It's a thought worth entertaining while the PMs rally internals are fine. We're almost passing the $1,720 zone I look to see cleared first. Much more obviously needs to happen before I sound the bullish all clear.

Stocks, what about them? Strong tech open today, that's exactly what I had been trumpeting as a precondition - now, it's about clearing the 3,900+ zone with conviction...

Enjoy and profit on today's analysis!