S&P 500 plunged to open the week – how fitting given the unfinished job in tech and Treasuries. The rising yields are all about betting on a really, really hawkish Fed – just how far are the calls for not 25, but 50bp hike this Mar? Inflation is still resilient (of course) but all it takes is some more hawkish statements that wouldn‘t venture out of the latest narrative line.

Anyway, the markets aren‘t drinking the kool-aid – the yield curve continues flattening, which means the bets on Fed‘s misstep are on. True, the tightening moves have been quite finely telegraphed, but the markets didn‘t buy it, and were focused on the Santa Claus (liquidity-facilitated) rally instead – therefore, my Dec 20 warning is on. The clock to adding zero fresh liquidity, and potentially even not rolling over maturing securities (as early as Mar?) is ticking.

And the run to commodities goes on, with $85 crude oil not even needing fresh conflict in Eastern Europe – the demand almost at pre-corona levels leaving supply and stockpiles in the dust, is fit for the job. So, let‘s keep enjoying the SPX short and oil long profits, while having an eye on how far can the bulls move the 500-strong index today. That would require quite a move in bonds and tech…

Let‘s move right into the charts.

S&P 500 and Nasdaq outlook

Chart

The rise in volume doesn‘t qualify as accumulation just yet, and that detracts a little from the developing rebound. I still think we‘re likely to go down some more, but will happily reenter at higher levels as I was just taken out of the current position.

Credit markets

Chart

HYG had a weak session – there is no outperformance of quality debt instruments to speak of. Crucially, cyclicals were unfazed with higher yields, which may be a sign of temporary exhaustion to the downside approaching. Bear markets simply like to take a breather before the sellers return.

Gold, silver and miners

Metals

Gold and silver are sending a mixed message – but it isn‘t one of worry. GDX actually printed a nice upper knot yesterday while silver rose in spite of the USD upswing. Classic signs of a top and impending slide? Formally, but I don‘t think that‘s applicable given the metals performance over the past few months.

Crude oil

Oil

Crude oil is still on the path of least resistance – higher. No true reversal to be seen yet, but some sideways to up consolidation in the absence of geopolitic conflagration, is very much possible.

Copper

Copper

Copper missed another opportunity to catch up – postponed a little, it will still happen. It had been the red metal doing better than silver over quite a few 2020-2021 months, and silver now looks out of the blue to have woken up a little. More confirmation from the red metal would be helpful here.

Bitcoin and Ethereum

Crypto

Bitcoin and Ethereum may be setting up a little breather but unless the 2022 highs are taken out, the most probable path next, is to the downside. This direction still makes most sense.

Summary

S&P 500 is staging an upswing, which could still turn into a dead cat bounce. That‘s still my leading scenario, but I would prefer to see the constellation when the bulls get tired again, first. Remember that the sharpest rallies happen in bear markets – and while we aren‘t in an S&P 500 bear market yet, this correction is likely to turn out on the really memorable side of the spectrum since the bull market was born on Mar 23, 2020. It‘s all about developing appreciation for the Fed‘s tools practical limits, still expansive fiscal policy and absolutely unyielding inflation (in that it‘s beyond the tastefully palatable limits). The unfolding correction for us to go through still would set the stage for a good 2H advance. As written in Monday‘s extensive analysis, the early phase of the Fed tightening cycle belongs to the bears, and it would continue to be commodities and precious metals to weather the storms best. Long live the inflation trades.

All essays, research and information represent analyses and opinions of Monica Kingsley that are based on available and latest data. Despite careful research and best efforts, it may prove wrong and be subject to change with or without notice. Monica Kingsley does not guarantee the accuracy or thoroughness of the data or information reported. Her content serves educational purposes and should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks and options are financial instruments not suitable for every investor. Please be advised that you invest at your own risk. Monica Kingsley is not a Registered Securities Advisor. By reading her writings, you agree that she will not be held responsible or liable for any decisions you make. Investing, trading and speculating in financial markets may involve high risk of loss. Monica Kingsley may have a short or long position in any securities, including those mentioned in her writings, and may make additional purchases and/or sales of those securities without notice.

Feed news Join Telegram

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD holds above 1.0700 after US inflation data

EUR/USD holds above 1.0700 after US inflation data

EUR/USD stays in the lower half of its daily range but continues to trade above 1.0700 in the early American session on Friday. The data from the US showed that the annual Core PCE Price Index declined to 4.9% in April as expected, making it difficult for the dollar to gather strength.

EUR/USD News

GBP/USD trades above 1.2600 as dollar struggles to find demand

GBP/USD trades above 1.2600 as dollar struggles to find demand

GBP/USD clings to daily gains above 1.2600 and remains on track to end the week in positive territory. The greenback struggles to attract investors after the data from the US showed that PCE inflation softened in April. 

GBP/USD News

Gold pulls away from daily highs, holds above $1,850

Gold pulls away from daily highs, holds above $1,850

Gold has lost its traction in the second half of the day on Friday and declined toward the $1,850 area. The benchmark 10-year US Treasury bond yield staged a modest rebound on the US PCE inflation data, not allowing XAU/USD to preserve its bullish momentum.

Gold News

Terra’s LUNA 2.0 support expands with Binance and Kraken welcoming the airdrop, here’s how you need to prepare

Terra’s LUNA 2.0 support expands with Binance and Kraken welcoming the airdrop, here’s how you need to prepare

Terra’s LUNA fork proposal has passed with 65.5% votes, Revival Plan 2 in action without algorithmic stablecoin UST. LUNA price could wipe out losses incurred by holders in the colossal crash of LUNC and UST. 

Read more

FXStreet Premium users exceed expectations

FXStreet Premium users exceed expectations

Tap into our 20 years Forex trading experience and get ahead of the markets. Maximize our actionable content, be part of our community, and chat with our experts. Join FXStreet Premium today!

BECOME PREMIUM

Majors

Cryptocurrencies

Signatures