S&P 500 went nowhere yesterday – just like the prior Monday, heavy buying into Friday‘s close met no follow-up the day after. After almost touching 16 to close the week, VIX peeked higher yesterday only to reverse back down. Nice try but if you look at the put/call ratio turning down simultaneously, the alarm bells are far from ringing.

The S&P 500 rise of late isn‘t without its good share of non-confirmation though. The ones seen in Russell 2000 and emerging markets got a fresh company in the corporate credit markets. No denying that the stock market is in a strong uptrend, but it got a bit too stretched vs. its 50-day moving average – a consolidation in short order would be a healthy move, but the CPI readings above expectations don‘t favor one today.

If you look at the put/call ratio again, its lows throughout Mar and Apr haven‘t been reaching the really exuberant levels of prior months, hinting at a less steep path of S&P 500 gains. And what about the volume print as stocks went about making new highs? Not encouraging either, and it‘s not that rising yields would be causing trouble:

(…) The retreat in rising yields is running into headwinds, much sooner than the 10-year one could reach the low 1.50% figure at least. Value stocks and cyclical such as financials appear calling it out, and both rose on Friday.

And financials had a good day yesterday too. Technology welcomed the reprieve, and the heavyweights joined in increasingly more. Again though, more than a little stretched, these $NYFANG generals are rising while the troops (broader tech) are hesitating, which makes a down day/consolidation quite likely, especially should the TLT retreat again. As I wrote yesterday:

(…) The rotation simply isn‘t much there, and the TINA trade isn‘t letting much air come out of the S&P 500 sectors that would be expected to sell off in a more relaxed monetary policy.

And that‘s probably what gold is sensing as it grew weak yesterday. The rising yields aren‘t yet at levels causing an issue for the S&P 500, but the commodities‘ consolidation coupled with nominal yields about to rise, has been sending gold down yesterday – and miners confirmed that weakness by leading lower. This would likely be a daily occurrence only unless and until copper gives in and slides – that‘s because the inflation expectations have stabilized for now, but Treasury yields not really retreating. Yes, gold misses inflation uptick that would bring real rates down a little again – and is getting one in today‘s CPI as we speak.

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

S&P 500 Outlook

S&P 500 is no longer trading above the upper border of Bollinger Bands, but volume isn‘t picking yet up either. That makes a largely sideways consolidation the more likely scenario here.

Credit Markets

Both high yield corporate bonds (HYG ETF) and the investment-grade ones (LQD ETF) declined yesterday while long-dated Treasuries went nowhere – but the bullish spirits in stocks didn‘t evaporate proportionately. This non-confirmation isn‘t too pressing at the moment.

Technology and Value

Tech (XLK ETF) stumbled yesterday, and it wasn‘t because of $NYFANG (black line) – yet value stocks didn‘t sell off either during these lately turning vapid rotations.

Smallcaps and Emerging Markets

The long underperformance in both indices vs. the S&P 500 goes on, and is actually a stronger watch-out than the corporate credit markets at the moment.

Inflation Expectations

Inflation expectations as measured by the TIP:TLT ratio are basing, but bond yields are aiming higher again, making higher inflation on the horizon a virtual certainty.

Gold, Silver, and Miners

The daily underperformance in miners is worrying – this daily leadership to the downside, where gold and silver declined proportionately to each other. Given that commodities didn‘t point to greater weakness, I consider yesterday‘s precious metals downswing as a bit exaggerated.

Summary

S&P 500 still appears as entering a consolidation, but I‘m not looking for way too much downside. The Big Tech names would decide, and if you look at Tesla doing well yesterday, the S&P 500 correction would play out rather in time than in price.

Gold depends upon the miners‘ path, and nominal yields trajectory. Once more inflation spills over into CPI readings, which would work to negate temporary weakness caused by real rates pressures, which is what we are getting.