Stocks are predictably staging a continued recovery from the mostly sideways correction – a shallow one not strong enough to break the bulls‘ back. Credit markets are largely behaving – with the exception of long-term Treasuries, which I see as highly likely to draw the Fed‘s attention – just as I discussed in detail yesterday.
The S&P 500 keeps doing fine, and so does my open position there – in the black again. On one hand, volatility remains low regardless of intraday attempts to rise, on the other hand, the put/call ratio has risen quite high yesterday – it‘s as if the traders are expecting a shoe to drop, similarly to the end of Jan. Will it, is there any on the horizon?
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Yesterday‘s bearish price action in stocks was the kind of shallow, largely sideways correction I was looking for. Not too enthusiastic follow through – just rocking the boat while the S&P 500 bull run goes on. Stocks are likely to run quite higher before meeting a serious correction.
As I argued in yesterday‘s detailed analysis of the Fed policies, their current stance won‘t bring stocks down. But it‘s taking down long-term Treasuries, exerting pressure on the dollar (top in the making called previous Monday
), and fuelling commodities – albeit at very differnt pace. The divergencies I have described yesterday, center on weak gold performance – not gaining traction through the monetary inflation, instead trading way closer in sympathy with Treasury prices.
Gold is dodging bullets, as it comes increasingly under fire from rising U.S. interest rates and a USD that is poised to surge.
Catching unsuspecting traders in yet another bull trap , gold’s early-week strength quickly faded. And with investors unwilling to vouch for the yellow metal for more than a few days, the rush-to-exit mentality highlights a short-term vexation that’s unlikely to subside.
Please see below:
Figure 1
Destined for devaluation after hitting its triangle-vertex-based reversal point (which I warned about previously ), the yellow metal is struggling to climb the ever-growing wall of worry.
Mirroring what we saw at the beginning of the New Year, gold’s triangle-vertex-based reversal point remains a reliable indicator of trend exhaustion.