The market pulled the ole’ whipsaw on those thinking that Trump would tank the markets or that he was somehow good for gold. I don’t really understand the logic of that second item.
But now the big event has passed and it is time to go back to a strict market focus. A key item continues to be interest rates, which we have been following for quite a while. Long-term rates are rising and yield curves are rising in tandem. We have noted that this can be a positive for the banks/financials and gold. So while the market whipsawed people trying to momo gold out of fear of Trump, the precious metals can do well in a rising interest rate environment as long as the curve is rising as well. Here is the 10yr-2yr…
And here is the 30yr-5yr w/ nominal 10 year yield at bottom.
So far the curve is still rising, but the precious metals remain in correction mode. Don’t try to force it, gold bugs. I took some profits today and also whopper losses on a couple of gold stocks in order to offset some tax gains. Right now I hold KLDX, KLG.to, SSRI and SAND, all of which are on the ‘quality items’ list in NFTRH. I don’t want to micro manage the gold sector because we reviewed the charts this morning and nothing has changed except that the sector got hyped and then got most of the rug pulled out from under it. As of now it remains in a daily downtrend and in correction mode. Let’s continue to use the 50 day moving averages as the first hint that the trend could be changing. Today, all these guys closed below the SMA 50.
While on the subject of rising rates, I want to put the sector relationship (to rates) data in front of you again. The lower on this list below, the better a rising interest rate environment tends to be for a given sector.
The real action is in the stock market. We noted that SPX 2120 to 2140 was the resistance area that would keep SPX in corrective mode and 2160 was the doorway to bullish outcomes (SPX having tested the SMA 200, after all). With a close of 2163, it’s right at the door. Including last nights Trump-induced angst, the market may well have been spooked enough to fully clear sentiment for a bullish run. Also, the volume on this and other indexes was strong; in some cased nearly double what it had been averaging since July.
I am inclined to lean bullish now and in fact used today’s drop to get rid of the China short for minimal damage. But we need confirmation of the price and volume above in the form of a clear break upward in SPX. Also, the leading SOX was relatively weak today and NDX is still lurking at resistance and the SMA 50.
One might call the nominal prices of junk bonds a negative divergence as they went down today with all other bond classes. But look at the big jump in ratio to Investment Grade & Treasury. That thing slammed from risk ‘off’ to risk ‘on’ as the market apparently thinks Trump has already made America great again.
As for global stocks, I bit my lip and held Japan and Europe but did not buy Asia and India, which as you know I have my eye on. Asia missed the party entirely and the INDY chart does not yet look compelling either. This is apparently an American thing.
As such, the Vampire Squid, GS turned into a monster, the Transports ETF held firm and other items I hold reversed their fairly dramatic losses to close mostly higher.
Bottom Line
We have got to respect the markets at all times. While this may have been an epic whipsaw with bear glory just around the corner, interest rates are rising, which means bonds are dropping. What do the vast majority run to when risk is ‘on’ and bonds are dropping? Stocks, especially after a period of fear and angst.
Remember that among the scenarios we have been looking at is the prospect for the support test to finish up and for the market to be positive for the final 2 months. Another prospect – according to the ‘Democrat to Republican’ hand off data we reviewed over the weekend – is a negative year 1 of the new president’s term.
For the short-term though, markets are right at the doorway to a new thrust upward (that is a conscious reference to the original thrust we had noted coming out of Brexit over the summer… thank you again subscriber ‘LN’ for your data interpretations). Let’s let the market decide the short-term, but it is looking more bullish to me considering the big tank job and reversal that shook out fearful hangers on today.
