Janet smoke and mirrors

Weak overnight trading gave way to tepid European session with a predictable buying interest at the U.S. open - which fizzled out though after a few minutes. The tight range consolidation of late gave way to heavy selling as Janet Yellen talked rate hikes and inflation. Friday‘Kaplan trial baloon, and now this – she walked back her statement in the aftermarket, and stocks kept recovering since.

Even the VIX upper knot doesn‘t look so spooky anymore, but the options traders aren‘t convinced. But how many such headline shocks have we seen recently? Capital gains tax plans, anyone? See how the market did next, shaking off the shock and rising on the Fed‘s continued liquidity wave next. Watch what they do, not what they say – and for now, the ingredients are still in place for further stock gains, and I made a good decision to buy yesterday‘s dip on signs of intraday stabilization.

Even long-dated Treasuries dialed back their gains and inflation expectations receded on this perceived readiness to take that pesky „transitory“ inflation seriously. The dollar though had a hard time reversing Monday‘s losses that were virtually guaranteed once the 2021 mini-taper tantrum played out on Friday in currencies. The big picture is still the same – we‘re still living the good reflation, and even if it doesn‘t miraculously rekindle lasting inflationary flames, the print & spend magic recipe will be tried again until it does.

Gold rose on the S&P 500 selloff only to reverse lower, but has anything materially changed? Miners keep doing better – they declined less, and the volume wasn‘t just there to the same extent as with the yellow metal.

And the other commodities? I‘m known for incessantly beating the copper bullish drum, and also the oil one, and here we are with further gains added since my latest oil analysis. Silver might pull back a little here, but look for it to mirror the insatiable appetite for base metals and other commodities. Beyond the Green New Deal mandates, the monetary demand is set to help power the white metal higher.

Let‘s move right into the charts.

S&P 500 outlook

Quite a steep increase yesterday, and more upside price action returning SPX back into the range over the coming days, is needed to fix that dicey look in the daily indicators. Nothing unimaginable in this data-light week (don‘t look at non-farm payrolls), unless a black swan arrives. No signs thereof in the credit or currency markets, luckily.

Credit markets

Plunging in line with stocks, junk corporate bonds made an intraday recovery on high volume – their dip was also bought. And as the investment grade bonds maintained their opening gains as much as long-dated Treasuries did, the stage is being set for stocks to shake off yesterday‘s plunge.

Technology and value

Has technology found the bottom, or not? Semiconductors (XSD ETF) aren‘t overly positive, and a similar statement can be made about $NYFANG performance. Tech didn‘t join in much sturdier moves across the defensives, and didn‘t welcome retreating rates the way it used to earlier. Value stocks are the ones to rely upon as even financials (XLF ETF) rose on such a TLT move – but stellar S&P 500 gains require both parts of the stock universe to do well simultaneously.

Gold and miners short-term

Gold and miners need to stand their ground, and return to gains. It looks that miners would once again lead the yellow metal higher, now that nominal yields are biting less, and USD/JPY isn‘t exerting pressure.

Gold and miners long-term

Gold is struggling to overcome $1,800 for a few weeks already, but both the black lines shown in the above chart, support the eventual break higher. I assume that when that comes, it would just leave the bears in the dust.

Summary

S&P 500 looks ready to continue its gradual recovery, and take on the all time highs next. A key enabler would be the tech heavyweights no longer standing in the way – tentative signs of their local bottom are appearing.

Gold and miners suffered a minor setback yesterday, and the signals from related markets continue supporting further gains in spite of prolonged hesitation in the yellow metal lately.