What‘s Not To Love Here

Broad S&P 500 rally is spilling over to precious metals and commodities – Santa Claus leaves no stone unturned, apparently. Not that yields or the dollar would move much yesterday – it‘s the omicron response relief (thus far. yet APT has risen sharply to counter the bullish and wildly profitable oil message) coupled with the yesterday mentioned market friendly Fed:

(…) The Fed is still accomodative (just see the balance sheet expansion for Dec – this is really tapering), didn‘t get into the headlines with fresh hawkish statements, and inflation expectations keep rising from subdued levels.

Even though junk bonds retreated from intraday highs, the rally isn‘t over yet – VIX remaining around 18 is the best that the stock bulls can hope for today (i.e. a sluggish day still retaining bullish bias). Financials and industrials had a good day, but consumer discretionaries to staples ratio leaves more than a bit to be desired. The same goes for the financials to utilities ratio. Yes, the horizon is darkening, but further gains for weeks to months to come, still lie ahead. Remember, the topping process is about fewer and fewer sectors pulling their weight, about the market generals not being followed by the troops in the coming advance. We‘re not quite there yet.

The Fed didn‘t really taper much in Dec, thus the jubilant close to 2021 across the board. The compressed yield curve would eventually invert – regardless of the current levels of inflation, the GDP growth can still support higher stock prices. Precious metals and commodities would though become an increasingly appealing proposition as I‘m not looking for the Fed to be able to break inflation. The tightening risks are clearly seen in market bets via compressed yields, so they‘ll attempt to not only talk a good game – they will act, and the risks of breaking something (real economy) would grow. That‘s the message from Treasuries – hawkish monetary policy mistake is feared and increasingly expected.

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

S&P 500 and Nasdaq Outlook

S&P 500 and Nasdaq

S&P 500 market breadth again improved – the increasing participation shows that the bull run isn‘t clearly over. And it also reveals that this isn‘t yet the time to expect a new correction.

Credit Markets

HYG, LQD and TLT

HYG stalled a little, but doesn‘t look to have definitely peaked. One look at LQD reveals the nuanced risk-off turn yesterday, which might not interfere with further stock market gains today though).

Gold, Silver and Miners

gold, silver and miners

Gold and silver paused, but I‘m treating it as a daily pause in an otherwise developing uptrend. Once the inflation expectations stop being as steady as they had been yesterday, the metals will like that.

Crude Oil

crude oil

Crude oil is strongly up, and oil stocks confirm. The $78 zone comes next and could take a few days to be reached.

Copper

copper

Copper still hasn‘t arrived at true fireworks – but the long consolidation is being resolved in a bullish way (of course). Broader commodities are showing that the path of least resistance is higher in the red metal as well.

Bitcoin and Ethereum

Bitcoin and Ethereum

Bitcoin and Ethereum are foretelling stiffer headwinds than had been the case recently. I don‘t think this is a start of a genuine downtrend.

Summary

Santa Claus rally naturally goes on, and yesterday‘s steep gains are likely to be followed with deceleration today – at least in stocks. Precious metals and commodities are catching up, and we‘re looking at a very positive close to 2021 across the board. The same goes for optimistic entry to 2022 in stocks, precious metals, oil, copper and cryptos alike – in Bitcoin though, I would like to see today‘s lows hold, and Ethereum to spring higher faster than Bitcoin. On a very short-term basis, S&P 500 and oil are extended today, and some trepidation shouldn‘t be surprising. The medium-term trends remain unchanged and lead higher.

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Disclaimer: All essays, ...

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