The news driven short covering rally yesterday was impressive and now momo’s are being punished. Makes sense.
But the question is whether items were going to take a counter trend rally even before the Fed Minutes were released, so let’s get back to some indicators on that…
The US dollar (UUP fund shown) is bouncing off the middle Bollinger Band up to the EMA 10, which had been short-term support all the way up from July. A rise above that level would strongly question the bounce scenario. The gold-silver ratio is unsurprisingly bouncing as well.
Nominal TIPS (inflation protected T bonds) are rising, while the TIP ratio to TLT (unprotected) is on a very little bounce.
Neither the US stock market (SPY) nor the gold sector (GDX) are making new lows, although they are erasing the majority of yesterday’s event-driven gains.
While any coming investment case in the gold mining sector (counter cyclical) would like to see a continuation of the bearishness (and gold rising vs. oil, stock market, etc.) the short-term ‘inflation trade’ scenario is still alive as long as USD remains contained roughly below its EMA 10 and the gold-silver ratio has topped out for now.
a) If that is to be the play then many items could rise as USD takes another drop.
b) If events flow into our big picture view, then most items (including precious metals) could decline, with an eventual buying opportunity on the gold sector amidst a coming counter cyclical environment.