Beneath The Surface Rally

Very good S&P 500 entry to 2022, and the HYG intraday reversal is the sight to rejoice. In the sea of rising yields, both tech and value managed to do well – the market breadth keeps improving as not only the ratio of stocks trading above their 200-day moving averages shows. Likewise, VIX refused to reach even 19 and instead is attacking 16.50. This is not complacency – the bulls were thoroughly shaken at the entry to the session yesterday – but a buying interest that convincingly turned the tide during the day.

As I wrote yesterday:

(…) thanks to the credit markets message, I‘m not reading into Friday‘s weakness much. There is still more in this rally – value held better than tech, and high yield corporate bonds didn‘t really slide. The year-end rebalancing will likely give way to solid Monday‘s performance. While VIX appears to want to move up from the 17 level, it would probably take more than one day to play out.

As the Santa Claus rally draws to its close, the nearest data point worth looking forward for, is Tuesday‘s ISM Manufacturing PMI. It‘ll likely show still expanding manufacturing (however challenged GDP growth is on a quarterly basis), and that would help commodities deal with the preceding downswing driven by energy and agrifoods. Both of these sectors are likely to return to gains, and especially oil is.

The only sector taking a beating yesterday were precious metals. While inflation expectations were little changed (don‘t look for inflation to go away any time soon as I‘ve been making the case repeatedly), the daily rise in yields propelled the dollar to reverse Friday‘s decline, and that knocked both gold and silver off the high perch they closed at last week.

Still, none of the fundamental or monetary fiscal policy originating reasoning has been invalidated – not even the charts were damaged badly by Monday‘s weakness. As economic growth gets questioned while the fiscal policy remains expansive unlike the monetary one, volatily in the stock market together with persistent inflation would be putting a nice floor beneath the metals.

Even cryptos are refusing to yield much ground, the Ethereum to Bitcoin ratio keeps trading positively, and I‘m not even talking about the rubber band that commodities (crude oil and copper) are. Very good for our open positions there, as much as in the S&P 500 – let them keep bringing profits.

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

S&P 500 and Nasdaq Outlook

S&P 500 and Nasdaq

Really bullish price action in both S&P 500 and Nasdaq – that was the entry to 2022 I was looking for. Embellished with prior downswing that lends more credibility to the intraday reversal.

Credit Markets

HYG, LQD and TLT

HYG refusing to decline more is the most bullish sign for today imaginable – let it hold, for junk bonds now hold the key, especially if quality debt instruments keep declining steeply.

Gold, Silver and Miners

gold, silver and miners

Gold and silver look to have reversed, but reaching such a conclusion would be premature. The long basing pattern goes on, and breakout higher would follow once the Fed‘s attempting to take the punch bowl away inflicts damage on the real economy (and markets), which is what the yield curve compression depicts.

Crude Oil

crude oil

Crude oil is about to launch higher – and it‘s not a matter of solid oil stocks performance only. Just look at the volume – it didn‘t disappoint, and in the risk-on revival that I expect for today, black gold would benefit.

Copper

copper

Copper swooned, but regained composure – the stop run is over, and we‘re back to base building for the coming upswing. Broader commodities certainly agree.

Bitcoin and Ethereum

Bitcoin and Ethereum

Bitcoin and Ethereum are very gently leaning bullish, but I‘m not sounding the all clear there yet thanks to how long Bitcoin is dillydallying. Cryptos aren‘t yet out of the woods, but their posture has improved thus far noticeably.

Summary

The first trading day of 2022 extended prior S&P 500 gains, and the risk-on appetite is improving as we speak. Commodities are reaping the rewards, and we‘re looking at another good day ahead, including in precious metals taking a bite at yesterday‘s inordinately large downswing. Nothing of the big factors ahead for Q1 2022 as described in today‘s analysis (I wholeheartedly recommend reading it in full for the greatest benefits – there is only so much/little that I can fit into a one paragraph summary), and that means we‘re looking at further stock market gains as the bull runs (including in commodities and precious metals, yes precious metals), aren‘t over in the least.

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