Happy 2022 Entry

S&P 500 pared prior steep gains, but 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. As stated on Thursday, the open profits would still keep rising.

Precious metals were the key winners Friday, paying attention to the dollar and nominal yields retreat the most. The red metal‘s upswing certainly helped – such were my latest words:

(…) copper is primed to catch up in the short run to the other commodities, gold is well bid at current levels, and together with silver waiting for a Fed misstep (market risk reappreciation) and inflation to start biting still some more while the real economy undergoes a soft patch (note however the very solid manufacturing data) with global liquidity remaining constrained even though the Fed didn‘t exactly taper much in Dec, and nominal yields taking a cautious and slow path towards my 2022 year end target of 1.80-2.00% on the 10-year Treasury.

As I wrote prior Monday, we‘re looking at still positive 2022 returns in stocks – of course joined by commodities and precious metals. The path would be though probably a more turbulent one than was the case in 2021.

Finally, cryptos look to be in agreement with not reading too much to Friday‘s downswings – both Bitcoin and Ethereum are turning up as $46K in BTC held up once again.

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

S&P 500 and Nasdaq Outlook

S&P 500 and Nasdaq

Nasdaq got a little oversold relative to S&P 500 – this is not the start of a fresh downtrend. Once financials and consumer discretionaries turn up, the rally will be on better footing again.

Credit Markets

HYG, LQD and TLT

HYG could have declined some more, but tellingly didn‘t. Bonds aren‘t ready to turn to risk-off just yet. Upswing attempt next shouldn‘t be surprising in the least.

Gold, Silver and Miners

gold, silver and miners

Gold and silver are looking at a much better year than was 2021. Stock market volatility, GDP growth challenges and persistent inflation would help the metals and commodities rise.

Crude Oil

crude oil

Crude oil is about to move up again as gains were taken off the table on Friday. With the omicron response and related pronouncements coming in lately from the U.S., what else to expect – a great deal of destroyed demand doesn‘t look to be ahead.

Copper

copper

Copper undid the prior pause and looks ready to keep defending the $4.43 area. The long consolidation that started in May, would be eventually broken to the upside.

Bitcoin and Ethereum

Bitcoin and Ethereum

Bitcoin and Ethereum may be short-term undecided, but don‘t look willing to decline. Cryptos are still bullish above mid-Dec lows.

Summary

The first trading day of 2022 is likely to extend prior gains, resolving the prior sideways move. As risk-on faltered on Friday, S&P 500 and cryptos are likely to catch up, and oil would probably outperform copper today while precious metals digest very solid New Year‘s Eve gains. We‘re nowhere near the good days ending just yet – turbulence would come once Fed tapering gets really noticeable (post Olympics), with VIX trending higher well before that already.

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