Stock Market Analysis: Time to Get Selective
Decreasing volatility gives way to rising one, but don‘t look for it to happen just today. More paring the risk-on bets seems the order of the day as even the dollar and nominal yields went down together. Gentle signs of deterioration were visible in copper wavering intraday and oil getting a bit too optimistic. Stocks though continue running, or should I better say crawling, ahead as value repelled a downswing attempt.
Margin debt is contracting, M2 not exactly at the prior rates of growth, but celebrations in the paper and real asset markets largely go on. Gold and silver are understandably lagging in the drummed up taper expectations, but I‘m not looking for any kind of dramatic statement from the Fed. The two steps forward, one step backwards melodrama is likely to continue into the September FOMC, and even that may very well leave the markets guessing. The Fed is in no position to tighten, the economic recovery is likely to continue, and the central bank won‘t kill it – which means continuous noises, and data dependecy as they like to call it.
Seeing through the bluff and long journey ahead towards anything even remotely resembling normalized monetary policy, markets would return to the risk-on stance while being more selective in the stock and commodity bull runs. Gold would also benefit from the returning inflation pressures, and the dollar will resume its bear market.
Let‘s move right into the charts (all courtesy of www.stockcharts.com).
S&P 500 and Nasdaq Outlook
Market participants are reluctant to move one way or the other too much next. A little paring back of recent optimism looks most probable to me before the Jackson Hole.
High yield corporate bonds are getting way too stretched here, and that increases the odds of a downswing surprise reaching well beyond stocks, into commodities too.
Gold, Silver and Miners
Gold took the nominal yields cue, ignoring the dollar – the yellow metal‘s downswings prior to key events are almost a ritual. Watch for the miners, yields and USD to tip their hand before – my bet is on not too much downside followed by shaking off the little clarity to be introduced by the Fed. Purposely, they won‘t release anything market moving, and that could very much disappoint the taper crowd.
Crude oil rebound is getting short-term extended, but is unlikely to roll over hard and fast.
Copper ran into resistance, and I‘m not looking for it to be overcome very fast. The commodity index though keeps sending positive signals mid-term.
Bitcoin and Ethereum
Cryptos are momentarily undecided but the upswing is very far from rolling over. Some more consolidation followed by a new upleg, appears most likely.
Before the Jackson Hole, I‘m not looking for extensive and sustainable moves one way or the other – that‘s still true. With enough appetite in the risk-on trades reaching short-term saturation point, look for renewed upleg to modestly continue once the Fed meeting gets out of the way.
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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.
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