No More Rocking the Boat in Stocks But Gold? / Commodities / Gold and Silver 2021

Stocks sharply reversed intraday, and closed just wherethey opened the prior Friday. That indicates quite some pressures, quite somesearching for direction in this correction that isn‘t over just yet. Stockshave had a great run over the past 4 months, getting a bit ahead of themselvesin some aspects such as valuations. Then, grappling with the rising long-termrates did strike.

So did inflation fears, especially when looking atcommodities. Inflation expectations are rising, but not galloping yet. What tomake of the rising rates then? They‘re up for all the good reasons – theeconomy is growing strongly after the Q4 corona restrictions (I actually expectnot the conservative 5% Q1 GDP growth, but over 8% at least) while inflationexpectations are lagging behind.

In other words, the reflation (of economic growth) isworking and hasn‘t turned into inflation (rising or roughly stable inflationexpectations while the economy‘s growth is slowing down). We‘re more than a fewquarters from that – I fully expect really biting inflation (supported byoverheating in the job market) to be an 2022-3 affair. As regards S&P 500sectors, would you really expect financials and energy do as greatly as they doif the prospects were darkening?

So, I am looking for stocks to do rather well as they areabsorbing the rising nominal rates. It‘s also about thepace of such move, which has been extraordinary, and left long-term Treasuriestrading historically very extended compared to their 50-day moving averages.Thus, they‘re prone to a quick snapback rally over the next 1-2 weeks, whichwould help the S&P 500 regain even stronger footing. And even plaintemporary stabilization of theirs would do the trick.

This is taking me directly to gold. We have good odds oflong-term rates not pressuring the yellow metal as much as recently, and inflationexpectations are also rising (not as well anchored to 2% as the Fed thinks /says). As I‘ll show you in the charts, the signs of decoupling have beenalready visible for some time, and now became more apparent. And that‘s farfrom the only suggestion of an upcoming gold upswing that I‘ll bring you today.

Just as I was calling out gold as overheated in Aug 2020 and prone to a real softpatch, some signs of internal strength in the precious metals sector werepresent this Feb already. And now as we have been testing for quite a few days the first support in my game plan,we‘re getting once again close to a bullish formation that I called precisely to a day,and had been banging the bearish gold drum for the following two days,anticipating the downside that followed. Now, that‘s what I call welcome flexibility,extending to accentuated, numerous portfolio calls.

And the permabears keep (losing capital through manybullish years in a row in some cases) calling for hundreds bucks more downsideafter a respite now, not even entertaining the thought that gold bottom mightvery well not be quarters ahead. It‘s easier to try falsely project own permastickers onto others. Beware of wolves in ill-fitting sheep clothing. Look atfull, proven track records, compare varying perspectives of yesteryear too, andwave off cheap halo effects.

It‘s the above dynamic between nominal rates taking abreather, dollar getting back under pressure, commodities continuing their riseand stocks gradually resuming theirs – see the ebbing and flowing that I‘mlaying down in the daily analyses on the revamped homepage, and you‘ll get a knack for my timingsof local tops or bottoms just the way I did in the early Sep buying climax or in thecorona crash.

True mastery is in integrating and arguing opposing viewswith experience and adaptability daily. People are thankfully able torecognize these characteristics on their own – and they have memory too. Whoneeds to be told what to read and consider by those embracing expertise only toturn against it when the fruits were no longer theirs? Sour grapes. Narrow thinkingis one of the dangers of our era replete with empty and shallow shortcuts.Curiosity, ingenuity and diligence are a gift to power mankind – and what you get from financial analysts – forward in a virtuous circle.

If gold prices rise from here, they have bounced offsupport. Simple as that, especially given the accompanying signs presented.There is time to run with the herd, and against the herd – in both bull andbear trends, constantly reevaluating the rationale for a position, unafraid toturn on a dime when justified.

Whatever else bullish or bearish I see technically andfundamentally in rates, inflation and dollar among much else, I‘ll be duly reportingand commenting on as always. It‘s the markets‘ discounting mechanism of thefuture that counts – just as gold cleared the deflationary corona crash inpsring 2020, just as it disregarded the tough Fed tone of 2H 2018, just as itsprang vigorously higher in early 2016 stunning bears in all three cases withsharp losses over many months, or just as stocks stopped declining well beforeeconomic news got better in April 2020 or March 2009.

Make no mistake, the markets consider transitioning to ahigher inflation environment already now (the Fed timidly says that reopeningwill spike it, well, temporarily they say), when inflation expectations arestill relatively low, yet peeking higher based on the Fed‘s own data. Such weremy Friday‘s words:

(…) Let‘s keep the big picture – gold is in a secularbull market that started in 2018 (if not in late 2015), and what we‘re seeingsince the Aug 2020 top, is the soft patch I called. The name of the game now,is where the downside stops – I am not capitulating to (hundreds dollars) lowernumbers below $1,650 on a sustainable basis. The new precious metals upleg is aquestion of time even though the waiting is getting longer than comfortable formany, including myself.

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

S&P 500 Outlook and Its Internals

Strong rebound after more downside was rejected, creatinga tweezers bottom formation, withlong lower knots. This is suggestive of most of the downside being already in.The Feb 25 upswing had a bearish flavor to it, while the Mar 1 one looked moreconstructive – and Friday‘s one is from the latter category. That doesn‘t meanthough this correction won‘t be in the 5% range. The 3,900 zone is critical forthe bulls to pass so as to clear the current precarious almost no man‘s land.

The market breadth indicators are actually quiteresilient given how far this correction has reached. New highs new lows areholding up still very well, yet they too indicate that this correction hasfurther to go in time. While the bullish percent index still remainsin the bullish territory, it indicates how far the correction has progressedtechnically, and that we can‘t declare the bullish spirits as having returnedjust yet.

Credit Markets

High yield corporate bonds (HYG ETF) ilustrate thisfragility for they haven‘t rebounded as strongly as stocks. This correctiondoesn‘t appear to be as really over just yet, also given the sectoral picturethat I am showing you next.

S&P 500 Sectoral Look

Tech reversed, but higher volume would be welcome to lendthe move more credibility. This sector is still the weakest link in the wholeS&P 500 rebound, and not until I see the $NYFANG carve out a sustainablebottom (this needn‘t happen at the 200-day moving average really), I candeclare this correction as getting close to over.

The bullish take on the volume is that the value sectorhas undergone strong accumulation, as can be readily seen in the equal weightS&P 500 index (RSP ETF). The above chart shows that cyclicals areperforming strongly – with industrials (XLI ETF) and energy (XLE ETF) leadingthe charge as the tech and defensives are trying to stabilize, and the same istrue about consumer discretionaries (XLY ETF).

Gold‘s Big Picture View

Gold‘s weekly chart shows two different stages in thereaction to rising long-term rates. The first half was characterized by the twotracking each other rather closely, yet since late Dec, the nominal ratespressure has been abating in strength within the mutual relationship. While TLTplunged, gold didn‘t move down as strongly.

Real rates are negative, nominal rates rose fast, andinflation expectations have been trending higher painfully slowly, notreflecting the jump in commodities or the key inflation precursor (food priceinflation) just yet – these are the factors pressuring gold as the Fed‘s brinkmanship on inflation goes on.

Once the Fed moves to bring long-term rates under controlthrough intervention – hello yield curve control or at least twist – then real rates would would be pressured to drop, which would be a lifelinefor gold – the real questions now are how far gold is willing to drop beforethat, and when that Fed move would happen. Needless to add as a side noteregarding the still very good economic growth (the expansion is still young), staglation is what gold wouldreally love.

Copper and Silver Big Picture View

The red metal keeps rising without end in sight,reflecting both the economic recovery and monetary intervention. This is a verybullish chart with strong implications for other commodities and silver too.That‘s the essence of my favorite play in the precious metals – long silver short gold spread,clearly spelled out as more promising than waiting for gold upswing to arrivewhile the yellow metals‘ bullish signs have been appearing through Feb only todisappear, reappear, and so on.

As you can see, silver performance approximates commodityperformance better than gold one. And as the economic recovery goes on, it‘sindeed safer to be a silver bull than a gold bull – another of my early Febutterances.

Miners to Gold Big Picture View

This gold sectoral ratio made an encouraging rebound lastweek, but isn‘t internally as strong as it might appear, because the juniors(GDXJ ETF) aren‘t yet outperforming the seniors (GDX ETF), which had been thecase in early 2021 and late in Feb as well – right till I sounded the alarmbells on Feb 23-24. This is precisely why I was not bullish in tone at all inthe past week, as gold hadn‘t been acting as strongly now as it had been rightbefore the Feb 22 upswing that I called. And I am missing this ingredient atthe moment still.

Summary

Stock bulls stepped in and repaired much of Thursday‘sdamage, flipping the balance of power as more even at the moment. While themedium-term factors favor the bulls, this correction is slated to go on stillfor longer, as all eyes are on tech (big names) as the deciding sector.

Gold still remains acting weak around the lower border ofits support zone, silver is refusing to decline more, and signs overallfavoring a rebound, are appearing. It‘s still a mixed bag though, withespecially gold being far from out of the woods yet.

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

Thank you,

MonicaKingsley

Stock Trading Signals

Gold Trading Signals

www.monicakingsley.co
mk@monicakingsley.co

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All essays, research andinformation represent analyses and opinions of Monica Kingsley that are basedon available and latest data. Despite careful research and best efforts, it mayprove wrong and be subject to change with or without notice. Monica Kingsleydoes not guarantee the accuracy or thoroughness of the data or informationreported. Her content serves educational purposes and should not be relied uponas 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 aRegistered Securities Advisor. By reading her writings, you agree that she willnot 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, includingthose mentioned in her writings, and may make additional purchases and/or salesof those securities without notice.

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