Selling into daily S&P 500 strength

S&P 500 staged a dead cat bounce following Thursday‘s slide, and so did yields retreating a bit. Coupled with Japan monetary policy unchanged, disappointing PMIs from France and Germany, that was enough to stage a little risk-on retreat that I could have taken advantage of for you in both Intraday Signals with two long calls, and in the quality daily analytics as the telltale sign of inherent weakness in the rebound, was the failure of cyclicals and value to participate while tech tried as hard as it could. The same for today when I added more good calls for intraday SPX traders.

As I noted in the key 7-part tweet about FOMC consequences and upcoming yields path that make it unjustified to expect retreat in yields until incoming economic data starts sharply deteriorating, asset repricing is underway with inflation increasingly being correctly recognized for its stickiness, rising oil prices and tight job market both to be fueling at least one more hike this year (I‘m in favor of Nov), and one more I still see coming Feb 2024 (if not a hike, then the Fed would play around with balance sheet or doing away with some rate cuts, and two are currently projected for 2024).

Among the many Wednesday‘s contradictions, note the introduction of recession into the set of outcomes – even though the Fed strives for soft landing, its sum of projections made from GDP growth to unemployment rate to pushing 2% CPI goal to 2026 depend fully on expansive fiscal policy continuation, retreating bond market volatility and consumers doing fine enough (in spite of excess savings depletion and thanks to robust job market even if openings are down) to keep retail sales at least nominally strong.

As I had amply written in both 2021 and 2022, the 60/40 allocation is dead this decade – precisely for it being the secular one of rising yields and commodities superbull (precious metals will have a smoother sailing once the real rates competition from Treasuries is dialed back), and sticky inflation including inflation expectations (adjustment ahead there still) is the culprit.

The brief disinflation period is over in my view (2023), and it would be the onset of recession – typically preceded by transports, semiconductors and homebuilders rolling over (all present already) – that would with more success keep a lid on inflation while bringing down nominal yields, equals make Treasuries rise while the stock market keeps undergoing earnings disappointments, i.e. breaking the increasingly more positive stocks and bonds correlation of latest quarters, even if only temporarily.

Let‘s move right into the charts – today‘s full scale article contains 5 of them.

S&P 500 and Nasdaq outlook

4,399 indeed stopped the advance, and it really happened on tech buying spree fizzling out. Stocks are though quite weak here – only 19% trade above their 50-day moving averages – and next week coupled with entry to Oct are historically weakest. Bears clearly have the momentum as evidenced by inability so sustain even a modest rally on yields retreating, and one more turning point Friday was Daly objecting to moving the 2% inflation goal higher. Latest by Turnaround Tuesday, the bears are back in the driver‘s seat, and 4,365 won‘t hold on a closing basis perhaps already Monday.

Gold, Silver and miners

Gold is to struggle in such an environment, and would have much trouble keeping up with such rates, but given that the dollar top is as many weeks away as things start to break (concern chiefly for 2024), I would be patient about signs of decoupling from yields emerging around the last well telegraphed rate hike. First gold, then silver remain on the defensive for now, even if relatively resilient.

Copper

Copper did test the lower support of $3.65 Thursday, but the rebound was of course weak, and confirmed my words about having trouble overcoming $3.75 again. The red metal belongs among the more vulnerable ones post FOMC – the momentum for slow grind lower is with the bears.