Friday’s optimism carried over to Monday, and far from only in stocks. Pendulum swinging the taper tough talk, worked powerfully to lift the beaten commodities – and unlike on Friday, oil joined in. The celebrations were a little too powerful, and I’m looking for at least a modest daily consolidation in yesterday’s star performers today.
What was most powerful though, was the daily reversal in the dollar while yields remained pretty much unchanged. The dialing back of taper didn’t lift the dollar exactly – the repo market being fixed through a meager 5 basis points rate, served it better. Anyway:
(…) As I had been writing throughout the week and well before, the mathematics of growing deficits doesn’t favor decreasing asset purchases. On top of that, the economy appears a little slowing down – while no recession this year or next is likely – we’re midpoint in the expansion cycle as per my credit spread indicators – the slowdown looks inevitable, and the only question is the extent and seriousness of any Fed tapering.
And with much of the tapering done through the repo market in a way already, the focus will shift to the ballooning deficits and debt ceiling so as to confront the disappointment creeping in through Monday’s PMIs and more. I’m not looking though for a deterioration strong enough to derail the stock market and commodities bull runs. Let alone the precious metals one. A good signal thereof would be widening credit spreads on the long end as the short end has been flattened already.
Let’s move right into the charts (all courtesy of www.stockcharts.com).
S&P 500 and Nasdaq Outlook
Reversal continuation on still strong volume – the 500-strong index is likely to consolidate the sharp 2-day gains, and so is Nasdaq, the more so if a slight risk-off whiff appears again. All it takes is one less than dovish Fed pronouncement.
High-yield corporate bonds gapped higher, and closed on a strong note – daily consolidation wouldn’t be out of the question. Overall positive turn in credit markets – one that is able to carry the stock indices during the coming days.
Gold, Silver, and Miners
Miners joined in the gold upswing, in what reflects more than a daily weakness in the dollar. Silver is catching fire too, and yesterday’s summary about the PMs upswing being the tamest thus far might need revisiting once the fiscal and monetary realities sink in.
Energy stocks stabilization facilitated the oil rebound, and black gold mustered strength seen last in mid-Jul. The local bottom is in, and too much of a retracement would be a gift to the bulls.
Copper rebound continues, and stabilization at around 4.25 would be very constructive for the bulls so as to take on the 50-day moving average next. The copper chart retains a strongly bullish flavor even if we might go a little sideways first still.
Bitcoin and Ethereum
Cryptos are still short-term undecided – backing and filling before another upswing wouldn’t be at all surprising.
Following Monday’s gains, consolidation in the risk-on sentiment is likely for today, except for the most beaten-down commodities and precious metals (these can continue extending gains). Thereafter, look for more short-term trigger happiness as the markets strive to decipher the upcoming Jackson Hole statements, and preposition themselves accordingly.
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All essays, research, and information represent analyses and opinions of Monica Kingsley that are based on availability and the 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. It 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.
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