Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Fed Taper Smoke and Mirrors

Stock-Markets / Financial Markets 2021 May 05, 2021 - 12:35 PM GMT

By: Monica_Kingsley

Stock-Markets

Once in a while, stocks closed in red – is that a reversal or the most the bears could hope for these days? Thursday‘s hanging man got its follow through, yet the bulls staged a rebound into the close. Perhaps that‘s as good as the selling pressure gets, for I think the path of least resistance is still higher in S&P 500.

If you look at the VIX or the put/call ratio, Friday‘s setback is readily apparent, and stocks seem ripe for an upswing now. Fed‘s Kaplan did its job s with the taper talk, yet I think he played the bad cop part – the Fed will really act ostrich in the face of not so transitory inflation, for as long as the Treasuries market doesn‘t throw a tantrum.

And the 10-year yield has been quite well behaved lately, closing at 1.65% only on Friday. The April calm seems to be over, and I‘m looking for the instrument to trade at 1.80% at least at the onset of summer. Then, let‘s see how the September price increases telegraphed by Procter & Gamble influence the offtake – will the price leader be followed by its competitors? That‘s one of the key pieces of the inflation stickiness puzzle – and I think others will follow, and P&G sales and profitability won‘t suffer. The company is on par with Coca Cola when it comes to dividends really.

Once there, we would progress further in the reflation cycle when inflation is no longer benign and anchored. We‘re though still quite a way from when the Fed tries to sell rising rates as proof of strengthening economic recovery – once the bond market would get to doubt this story though, it would be game over for its recent tame behavior.

Friday‘s retreating Treasuries though didn‘t lift gold, and neither helped miners – it‘s not that inflation expectations would be sending a conflicting signal, as these slightly receded too. Inflation at the moment is probably still too low for the complacent market lulled to sleep by the transitory story, but look for that to change.



Once the reality of modern monetary theory driven spending in eternity does result in higher inflation biting into real rates even more, the below quote would need to be updated:

(…) It‘s as if the market place didn‘t deem inflation at the moment too high, i.e. as if real rates were actually rising (those believing so are in for a surprise). Personally, I find it odd that the transitory inflation story is still getting some ear, and wonder when last have the lumber, oil, copper, iron, nickel, zinc, corn, soybean (and soon also coffee) prices been checked.

The taper story being revealed for a trial baloon that it is, would quickly reverse Friday‘s sharp USDX gains, where particularly the USDJPY segment is worth watching. In the end, the debasement of fiat currencies against real assets would continue, and accelerate as the dollar goes fully onto strategic defensive in 2H 2021 again.

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

S&P 500 Outlook



Stocks declined, volume remained elevated – so is this the start of a downswing, or rather its closing stage? In spite of weak smallcaps and emerging markets, it‘s the latter – thanks to the credit markets, including emerging market ones.

Credit Markets



It‘s the high yield corporate bonds intraday recovery that appears key here, for the junk bonds joined the investment grade ones and long-dated Treasuries. The dip is being bought in the credit markets.

Technology and Financials



Technology recovered from steep intraday losses, and so did $NYFANG. To complete the picture, value stocks were out of the daily favor too.

S&P 500 Market Breadth



It‘s not just the advance-decline line or advance-decline volume to pay attention to right now, but the new highs new lows too. All three indicate that we are nearing a local bottom.

Gold and Miners Short-Term



Gold is quite holding up, yet not totally convincingly, especially when miners are examined. This setup screams danger as the retreating nominal yields were ignored on Friday. But...

Gold and Miners Long-Term



The copper to 10-year Treasury yield isn‘t breaking lower, and neither is gold. The stage is set for the yellow metal (and silver naturally too) to catch up and start outperforming the commodities, especially in the 2H of 2021.



The miners to gold ratio‘s posture is curious to say the least. Is it a fake breakdown along the late Mar lines, or it it attempting to lead lower in earnest? The 2018 and 2019 gyrations are more applicable than the uniquely deflationary corona crash in my view – but the miners need to turn higher and lead relatively shortly to confirm.

Crude Oil



Crude oil quite steeply declined on Friday, but the daily downswing doesn‘t have the characteristics of a reversal. The post-correction pattern of higher highs and higher lows remains intact, and black gold is like to return to scoring gains shortly.

Bitcoin



Such was the Bitcoin chart on Sunday when I tweeted about this go long opportunity. Since then, prices have risen to almost $59,000 as we speak. The uptrend is reasserting itself, but might take a while longer before the Bollinger Bands‘ upper border is reached.

Summary

The S&P 500 is probably almost done meeting headwinds, and the risk-on trades are likely to return before too long – the top of this bull market is still far away.

Gold and miners need to prove themselves – especially the miners. With gold holding $1,760 and miners rebounding, the benefit of the doubt given to the precious metals upswing, would be justified – this precious metals upleg is quite well established already.

Thank you for having read today‘s free analysis, which is available in full at my homesite. There, you can subscribe to the free Monica‘s Insider Club, which features real-time trade calls and intraday updates for both Stock Trading Signals and Gold Trading Signals.

Thank you,

Monica Kingsley

Stock Trading Signals

Gold Trading Signals
mk@monicakingsley.co

* * * * *

All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.

 


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in