S&P 500 closed in the the red, vindicating my bearishsentiment going into Monday‘s session. And as I have tweeted during the day, the sellling doesn‘t appear to be over. Friday‘s:
(…) selling wave before the close looks to indicatehesitation ahead. Even though VIX is attacking the 16 level, and the put/callratio ticked higher, the bulls are little disturbed thus far.
While VIX rose yesterday, it finished only a little above17 – the tide in stocks hasn‘t turned to fear even temporarily in the least,and the current consolidation would still be one to be bought.
That‘s the result of ample liquidity in the system, whichis denting the rotations. Yields moved higher yesterday, and defensivesincluding tech or Down Jones Industrial Average rightly felt the pressure morethan value stocks.
Stocks are visibly in a vulnerable position as not enoughnew buyers have stepped in. The volume print attests to having to go some moreon the downside before a local bottom emerges.
Both high yield corporate bonds (HYG ETF) and investmentgrade ones (LQD ETF) weakened, and more so than the TLT did – that‘s what a risk-offenvironment looks like. Thus far, no change on the horizon – this overdue,little correction can keep going on.
Both smallcaps and emerging markets are revealing theconcerted selling yesterday – unless these turn higher next, the S&P 500has further to go to the downside still.
Gold‘s daily reversal may look ominous, but really isn‘t– it‘s merely a temporary setback. The miners have held up relatively well, andI consider the yellow metal‘s selloff as a reaction to the retreat in nominalyields and first red day in the S&P 500 in quite a while. I‘m standing bythe call of decoupling from nominal yields getting more pronounced, and byincreasingly lower dollar values powering precious metals higher, especially inthe second half of this year – the USD/JPY pair offers clearly clues for theking of metals even now.
Look how stubborn the miners to gold ratio is – no, thisprecious metals upleg isn‘t ending here, no way, it‘s merely getting started,and the panicked bears doubling down this early from the imperfect secondbottom, is telling you as much about the state of the market as the ongoingsilver squeeze driving relentlessly PSLV stockpile higher, bypassing the SLV.
Silver retreated in tandem with gold but again the fiercecopper (copper to 10-year Treasury yields ratio) reveals that this isn‘t a moveto be trusted. The trend in precious metals remains higher.
The S&P 500consolidation is here, and is a shallow one just as anticipated. The risk-offmoves were evident across the board yesterday, and might very well not be overjust yet (when looked at from a larger than daily perspective).
Gold and miners are undergoing a shallow correction aswell, but nothing more than that. Before too long, precious metals will shakeoff the setback, and revert to breaking above another resistance, the $1,800s.Since we broke above the two levels I discussed recently (the $1,760s andclosing above $1,775 on solid internals), the lows can be comfortably declaredas in across the precious metals board, and I look for miners to keep leadingthe upleg.
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MonicaKingsley
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www.monicakingsley.co
mk@monicakingsley.co
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