S&P 500 And Gold Bulls, Get Ready To Meet The Bears

Yesterday‘s recovery ended on a weak note as stock bulls gave up the opening gap. Disappointing in the very short run, especially given that other key markets acted likewise weak. Neither corporate bonds, nor gold, nor oil could get their act together and are hanging in the balance. Inviting the bears to probe the defenses, how far south will they be able to get?

We have the Fed meeting later today, and while I am not looking for hawkish surprises or any outright optimism, the investors aren‘t taking chances. Sell now, ask questions later seem to be the mantra before the U.S. open.

While Monday‘s hanging man candlestick predictably didn‘t bring follow-through selling on Tuesday, I am looking for the bulls to get tested today. Once the dust clears, we can go on making new highs, but the short-term storm (storm in a teacup, more precisely) hasn‘t started yet.

In today‘s article, I‘ll examine the S&P 500 standing, look into precious metals, and finally answer a pointed question about gold.

Let‘s start (charts courtesy of www.stockcharts.com).

S&P 500 Outlook

S&P 500 daily

Stocks are hanging in the short-term balance following yesterday‘s weak close. Unconvincing volume, inviting a premarket push to the low 3800s as we speak. The aftermath of the Fed will set the tone for the coming sessions, but I would look for early credit market clues before buying any dip.

Credit Markets

high yield corporate bonds

High yield corporate bonds (HYG ETF) had a weak day yesterday, missing the opportunity to rise. Quite to the contrary, they traded relatively weaker than the S&P 500 did. Any time corporate bonds start underperforming stocks, I am watching closely, and often from the sidelines.

Investment-grade corporate bonds (LQD ETF) closed about unchanged while Treasuries paused and didn‘t really advance compared to Monday. They appear waiting for the Fed, unwilling to move before discounting possible hawkish surprise (positive assessment of the economy would do that trick) as a false alarm.

HYG:SHY vs S&P 500

The ratio of high yield corporate bonds against short-term Treasuries (HYG:SHY) with the S&P 500 overlaid (black line) shows the very short-term vulnerability in stocks. How low will these go as the greed sentiment gets taken down a notch?

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