Punch Bowl Removal

Punch Bowl Removal

S&P 500 intraday upswing fizzled out in spite of credit markets remaining mildly conducive. But tech just couldn‘t and couldn‘t rise, and value remained weak throughout as well. VIX is having trouble declining some more as seen through the last three days‘ lower knots.

In short, the TLT upswing standing out in bonds, reveals that risk-off hasn‘t thrown in the towel – fresh S&P 500 downswing looks to be a question of time only. Could it be thanks to a hot CPI print, or will a lower inflation reading bring instead joy that Fed‘s Nov taper might not be coming after all? That‘s the key calculation moving the markets these weeks. Apart from the debt ceiling and $3.5T infrastructe bill, that is.

Precious metals look to have an answer, and the pressure to go higher without hesitation, is building up. As said yesterday:

(…) All that‘s necessary is a spark, and tomorrow‘s CPI is likely to deliver that. I‘m looking for a reasonably hot number that wouldn‘t show the massaged figure‘s further deceleration. Talking numbers powerful enough to make the Fed move – and more importantly to make the markets force the Fed to move – I asked [Monday] whether there are:

(…) creeping worries about Fed policy mistake in letting inflation become an even bigger problem than it is already? Not that it‘s not set to become one – even the lazy and slow PCE deflator has scored a jump not seen in decades.

Crude oil is consolidating, and so are cryptos – both in line with my yesterday‘s expectations. What bears significance, is the copper drive lining up with other base metals – the momentum appears returning, and that also bodes well for precious metals.

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

S&P 500 and Nasdaq Outlook

Punch Bowl Removal - 1

S&P 500 weakened yesterday, thanks to heavier selling before the close. More (intraday) chop appears likely before the bears step in again – and they better did so relatively soon so that the daily indicators don‘t carve out bullish divergencies.

Credit Markets

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HYG turned around, but visibly lagged behind quality debt instruments, leaving a mixed impression. The high volume spells reversal, but there isn‘t enough power to force it higher.

Gold, Silver and Miners

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Precious metals are showing very encouraging signs of life, and follow through higher across the board looks a question of time. Just as I wrote yesterday - the fireworks can be expected Wednesday.

Crude Oil

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Crude oil consolidation is here, and the bears can make a move – but don‘t look for miracles and way too low prices any time soon.

Copper

Punch Bowl Removal - 5

Copper endured a daily consolidation, and the red metal‘s short-term fate would tell a lot about the unfolding precious metals upswing. The bulls who looked for one more trip to the low 4.20s, can keep a close eye on when the momentum stalls.

Bitcoin and Ethereum

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The expected crypto pause is here, but the bull run continues!

Summary

Stock market rebound will likely run out of steam, and the elevated CPI reading would add to the bulls‘ woes. No upswing is sticking, credit markets aren‘t raging risk-on, and yields keep forcing Fed‘s hand by preempting the taper announcement – with tech increasingly suffering. Precious metals love the inflation prospects and real rates going more negative. Real assets stand to benefit greatly, and so do cryptos.

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Monica Kingsley

Monica Kingsley is a trader and financial markets analyst. Checking dozens of charts daily, she integrates their messages with economics and in-depth experience. Trade calls and writing are her cup of tea as much as studies in market histories. Having been at the financial markets when the Great Recession arrived, she experienced many bull and bear markets - be it in stocks, bonds, gold and silver. Check her out at https://www.monicakingsley.co