Fear vs. everything bubble

Selling strong NFPs came much belatedly, but the rise in unemployment rate and tame wage growth are soft landing supportive, Powell didn‘t utter a single hawkish word in the testimony, and crucially earnings have the power to propel stocks amid continued strong rotations higher while inflation remains acceptable to the financial markets. All of these speak for Friday being only a (start of) corrective move, not the start of a significant correction perpetuating the strong sell – a move that intended to shake retail complacency and was heavily concentrated in semis and tech.

Rising yields aren‘t this time as negative a factor for stocks as they were in 2023 – these reflect stronger than expected growth. The dollar has been clearly disappointed by Powell‘s stance – rate cuts are more likely than dreaded rate hikes, and it would be too soon to recognize inflation as sticky, but the signs are it would hit the spotlight again before elections.

For all negative divergencies that are likely to serve as a bear trap in the not too distant future, there is still ample room in breadth left to take S&P 500 over the 5,200 resistance so vigorously defended Friday. Selling conviction and volume in NVDA and SMH point to continuing pressure early in the week, and $840 NVDA can be broken still before the (hot to come – therefore no landing) retail sales Thursday. Tuesday‘s CPI data would rhyme with core PCE end of Feb – headline 0.4% as expected, but core as well 0.4% vs. 0.3% expected, making the stock market rally a bit harder till the realization that strong retail sales means strong growth while inflation isn‘t yet as serious a problem as before the tightening cycle got kicking.

Tech would though keep gyrating between underperformance and outperformance – Thursday‘s rush into it gave way, way too quickly. Russell 2000 and select sectoral picks from industrials, discretionaries, financials are and will be though doing great. Same materials and energy. Note how well communications are consolidating, and real estate with homebuilders catching fire – these speak for a bit hotter inflation figure as well.

As I wrote in the preceding article:

(...) Overpowering a bunch of bearish to neutral catalysts, with BoJ and ECB balancing themselves out, semiconductors doing great throughout the regular session – no matter how short-term overbought equities are or the bearish divergencies manifest for months whether in Stochastics or RSI, the sellers couldn‘t hold the 5,115 - 5,125 line even for a couple of hours, so strong was the squeeze and that wasn‘t through the deemed resolved NYCB or yen carry trade unwinding fears.

… no landing... That‘s where we would end up as a mainstream scenario in the months ahead, just like with accepted sticky inflation that bottomed nowhere near the usual pre-corona 2% CPI lows, and is slowly heading higher again. I‘m giving that realization roughly two quarters at best.

BoJ thus far only sent yen higher, which doesn‘t influence global liquidity much for now – hence the fundamentals driven rally continues without sputtering, nothing on par with last summer sending shockwaves via a trial balloon.

Well, almost everything bubble then it‘s correct to say – most commodities are still very affordable, but for all the calm in oil, WTIC and energy shares are medium-term turning up as industrials keep pushing higher and USD buyers haven‘t exactly proven themselves till now.

Source: www.stockcharts.com

Gold, Silver and Miners

Source: www.stockcharts.com

USD downswing Friday was for now rejected, and while this rush into gold is nowhere over, the yellow metal will get under modest pressure next week. The same for silver as inflation isn‘t on everyone‘s mind yet again.

Crude Oil

Don‘t expect miracles from oil in the very nearest term – it‘s been taking too long to break above $80. Economic activity prospects aren‘t bad, but this much caution as the oil chart shows, is warranted for now. After all, unemployment rose enough to meet the Sahm rule (0.5% rise precedes a recession), but it is far from perfect timing indicator, and I look for oil to rise in the weeks ahead.

Copper reached my Friday target of $3.88 that I expected to hold, and is likewise prepping for upswing continuation from these quite oversold levels.