Getting long in the tooth

S&P 500 recovered the opening setback at 4,500, and the low volume behind the upswing coupled with credit market reversal shows that the push towards 4,600 is next – but it would be fraught with internal vulnerability. It‘s that value has welcomed the risk-on turn while tech barely prevented lower values – the bond reprieve won‘t last, and is providing more fuel behind the commodities push higher, and precious metals recovery.

The Kashkari effect and good ISM Manufacturing PMIs have worked fine, but the services data awaits. And I‘m looking at it to throw a spanner in the works, a modest one. For now, controlling the overall risk is key – fresh portfolio highs were achieved yesterday as new S&P 500 long profits were taken off the table – and commodities with precious metals are likely to do well in this extended (sticking out like a sore thumb) rally off oversold levels (in tech). The other key thought expressed in the linked tweet is that S&P 500 hasn‘t entered a bear market, that it hasn‘t rolled over to the downside for good. It‘s that I expect the return of the bears in the not too distant future and a smoother sailing in 2H 2022.

Let‘s move right into the charts.

S&P 500 and Nasdaq outlook

S&P 500 bulls prevailed, but the question still remains – where would the upswing stall, or at least pause? Still the same answer as yesterday - ahead soon, still this week.

Credit markets

HYG reversed higher, and the pace of its coming gains, would be valuable information. Volume tells a story of a modest setback only thus far – greater battles await.

Gold, silver and miners

Gold and silver staircase recovery goes on, showing that further retreat was indeed unlikely. The long consolidation would be resolved in a bullish way, it‘s only a question of time. Great performance this early in the tightening cycle – look for PMs upswings once the rate hikes get going.

Crude oil

Crude oil bulls aren‘t wavering as the whole energy sector attests to. Black gold hasn‘t dipped yet below $86, and keeps marching and leading the other commodities $100 is approaching.

Copper

Copper‘s recent red flag was indeed dealt with decisively, and higher prices prevailed. Still great room to catch up with the rest after the preceding reprieve across other base metals as well.

Bitcoin and Ethereum

The narrow crypto trading range continues – I‘m still not looking at the Bitcoin and Ethereum buyers to succeed convincingly. Time for a downside reversal is approaching – will happen just when Ethereum loses the bid.

Summary

S&P 500 bulls again scored gains yesterday, but the sectoral rotation and credit market turn would build a vulnerability going into Friday when value would suffer. Before that, I look for the bears to gradually start appearing again, taking probing bites, but not yet being decisive. VIX has some more room to decline indeed, confirming my earlier thoughts – the volatility return would happen on non-farm payrolls inducing a fresh guessing game as to the Mar rate hikes – 25 or 50bp? Inflation, precious metals and commodities would though still emerge victorious. For now, overall risk management is key – fresh portfolio high was reached yesterday.