Risk-Off Is Back Again

Stocks reversed yesterday, and the close below 3,900 indicates short-term weakness instead of muddling through in a tight range. Especially the sectoral reaction to still retreating yields is worrying. Yesterday‘s session means a reality check for prior reasonable expectations:

(…) The index is likely to advance, but the engine is going to be tech this time – not value stocks. I view this as a deceptive, fake strength in the bull market leadership passing over to value inevitably next. That‘s why I expect the S&P 500 advance to unfold still, a bit rockier than it could have been otherwise.

Tech faltered yesterday, and neither the other sectors were convincing. Rotation within stocks didn‘t work yesterday or the day before, and that‘s short-term concerning for the stock market bull health – as in, the path ahead would be truly rockier and accompanied by brief, sharp selloffs such as the one bringing S&P 500 futures to 3,865 moments ago. The bull market isn‘t though over by a long shot – all we‘re going through is a recalibration of the rising inflation – I still stand by my year end call for $SPX at 4200.

It‘s commodities that are under the greatest pressure now, and the copper and oil signals doesn‘t bode well for the immediate future. These are likely starting consolidation of post-Nov 2020 sharp gains – they are no longer frontrunning inflation expectations. This has also consequences for silver, which is more vulnerable here than the yellow metal now.

Gold is again a few bucks above its volume profile $1,720 support zone, and miners aren‘t painting a bullish picture. Resilient when faced with the commodities selloff, but weak when it comes to retreating nominal yields. The king of metals looks mixed, but the risks to the downside seem greater than those of catching a solid bid.

That doesn‘t mean a steep selloff in a short amount of time just ahead – rather continuation of choppy trading with bursts of selling here and there.

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Monica Kingsley 4 weeks ago Author's comment

The morning retreat in stocks has quite receded - would it turn into a bear trap? XLK at least stabilized on the day and VTV is at work erasing earlier losses. Value can be counted upon to be the coming upleg driver once again. Further positive sign is HYG having reversed higher as well.

Treasury yields turned higher on the day, and the miners to gold ratio still looks bearish. Gold has been though remarkably resilient, and silver erased quite some intraday losses. Oil and copper continue being worrying. Precious metals mixed, but time appears working to the bulls' benefit (weeks ahead view).