S&P 500 downswing was rejected but did it need to happen in the first place? Squaring the bets before Thursday‘s CPI doesn‘t appear to be underway – the risk-on sentiment reigns still in the credit markets, but value stocks aren‘t cooperating, for they declined against the backdrop of a litlle rising Treasury yields.

VIX probed lower values, and doesn‘t look likely to have much success breaking below them next – and the put/call ratio is still rather complacent. The S&P 500 rally is about to be challenged, but stocks will ultimately prevail – I look for the bad inflation data to spur momentary panic selling. The bets on taper would increase regardless of how distant that concept is. Stocks would waver, but get over that eventually, and tech is probably going to do fine.

The dollar doesn‘t look to be turning around – Thursday‘s upswing has been erased, but look for the greenback to reflexively rise when confronted with „taper now“ prospects. But is the Fed ready to welcome higher rates, and work towards them? I look for plenty of assurances that the support would be very gradually withdrawn so as not to affect the markets…Toothless compromises for public consumption fit into the picture greatly too…

Summing up:

(…) The guessing game on the Fed‘s taper goes on, and the upcoming CPI readings won‘t add to the markets‘ peace. Most likely, fuelling the sense of taper urgency as the inflation figures won‘t be coming on the low side. Add in the job market slowly catching fire, and you‘ll understand why I have been calling for months for elevated inflation readings.

While many of the counter agruments sound fine (low yearly base, disrupted supply chains, reopening demand rush etc), they would be forgotten over the coming months as little relevant. Commodities exerting cost-push influence, and job market pressures, would be a one-two punch to the transitory inflation arguments. Deflationary shock simply isn‘t likely at the moment – the market will more probably find out the Fed isn‘t as serious about taper as it pretends to be – the ostrich pose. Or we might be cushioned into a higher inflation environment actually (thank you, Janet), being told it‘s for our own good.

Gold remains vulnerable to an opportunistic dump, and silver alongside commodities even more so. Look for precious metals to recover from the setback as the taper realization sinks in (too soon, bridge too far). Liquidity isn‘t going away, and neither is inflation – precious metals will like that.

Crude oil daily consolidation doesn‘t rule out its continuation today, as especially the volume attests to. Don‘t look for an end to its bull run, though.

Bitcoin is breaking below its recent closing lows while Ethereum is nowhere near challenging them. The disconnect is likely to grow wider as the BTC sentiment further sours.

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

S&P 500 and Nasdaq Outlook

S&P 500 defended gained ground while Nasdaq 100 rose a little – the 500-strong index rally is likely to be driven by the tech sector in the very short term.

Credit Markets

High yield corporate bonds met an intraday setback, which is part of the short-term watchouts.

Technology and Value

Technology including $NYFANG was yesterday‘s stalwart sector as value wavered. I‘m not reading too much into VTV setback though, for it fits the consolidation definition, and not one of reversal.

Gold, Silver and Miners

Gold is tireless, but miners aren‘t confirming in the short run – not being caught off guard by another potential flushout (especially in the runup to the CPI in the thinly traded hours), is a good starting point.

Silver isn‘t outperforming in any way, and it‘s the copper chart that spells more consolidation ahead. That has implications for the red metal‘s ratio to the 10-year Treasury yield – especially when it spikes on the misplaced taper fears (watered down compromise, anyone?), dragging precious metals alongside.

Bitcoin and Ethereum

Bitcoin‘s rebound off the break below its closing May local lows, is suspect at best – not to be trusted at the moment. Ethereum on the other hand is in much better shape.

Summary

S&P 500 bears shouldn‘t expect too much success, for credit markets are likely to support the upswing while value pares yesterday‘s losses.

Gold and silver are likely to benefit, the yellow metal especially. Don‘t look for silver to escape the coming tremors first, though.

Crude oil chart remains bullish, and dips are likely to be bought before too long. The unfolding breather appears healthy thus far.

Bitcoin remains struggling, and the bulls better not expect too much. Ethereum is among the most resilient crypto spaces to be in right now.