Range Break Ahead

Range Break Ahead

S&P 500 consolidated in a narrow range yesterday, and didn‘t offer too many clues apart from bonds doing relatively fine – and one more sign pointing towards the likely path of current trading range‘s resolution (reserved for premium subscribers).

What the junk bonds are telling here, is that the bears are momentarily a little ahead of themselves – as stated in yesterday‘s key analysis, the tech earnings:

(…) wouldn‘t be as disastrous as is the market‘s expectation – suffice to look at Tesla. And if they are smart to avoid guidance for 2H 2022 (second half), S&P 500 may not stop above 4,030s in the least. HYG holds the key now, VIX isn‘t about to spike sharply, and the dollar isn‘t on a tear either.

Macroeconomically, we have many leading indicators dipping negative – such as the new orders component of the Philladelphia Fed manufacturing index, which makes U.S. recession at the end of 2022 / early 2023 a foregone conclusion. S&P global composite is now negative as namely Europe is struggling already. So, the stock market bulls are running on borrowed time, yet in the best case scenario, it can take longer than the next week for prices to resume their downswing – reality of not lower P/E multiples, but of lower earnings over the quarters ahead, would catch up with stocks as much as the stubborn inflation keeping above 5% no matter the coming two Fed rate hikes. Think stagflation with stocks in a trading range, and reversion to the mean strategies having a good time.

Precious metals don‘t look to have bottomed yet – miners remain too weak, and their decisive upswing on rising volume is the missing ingredient. The situation in crude oil is obviously much brighter – and the same goes for natural gas. Copper is likewise going to see brighter days ahead, riding the (under the hood) risk-on sentiment more reliably than cryptos. The following chart section covers deeper insights into the respective markets.

Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article features good 6 ones.

Gold, Silver and Miners

Range Break Ahead - 1

Precious metals don‘t look yet optimistic, and miners need to turn up really – yesterday‘s NEM session was highly disappointing. As said yesterday, unless we see gold to decouple from the dollar or the dollar to roll over, the start of a new PMs upleg is postponed – the Fed needs to get questioned on the still unpleasantly elevated (future) inflation first. Autumn appears a good time for reversal in gold, followed then by silver.

Crude Oil

Range Break Ahead - 2

Crude oil is turning around – this is indeed the most resilient commodity, right after natural gas (sticking with energy). Oil stocks aren‘t lagging badlym which is good – see the progress made since mid July.

Copper

Range Break Ahead - 3

Copper is about to extend gains, but the red metal isn‘t out of the woods – the base metals as such haven‘t really moved. That‘s a current reflection of the stagflationary reality awaiting a couple of quarters down the road.

Bitcoin and Ethereum

Range Break Ahead - 4

Cryptos aren‘t making progress, and are instead decoupling from the simmering risk-on sentiment. Increased focus on all that‘s wrong in the space, doesn‘t help – the bears remain in the driver‘s seat.

Monica Kingsley

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