In a rare display of being in line with logic, the market market did what it was supposed to do per our update on yields, Banks and Financials (Pigs, for ease of reference) yesterday and our more general work to date. The Pigs cracked as interest rates dropped (and bonds rose) and the broad market is looking bearish at our long-standing “by March/April” time window and in essence at our 2410 SPX target. Folks, there is a heaping helping of luck in there; just to keep it real.
It appears though that the work we’ve done in paying attention to the market’s rotation out of Trump hype items and into defensives and declining yield plays is working out. If this thing can get some traction, in my opinion a lot of unsophisticated money that bought the fiscal reflation play with the sincerity of true believers is going to be wrung out of the market in the coming weeks/months. A prospect that I think may be painful.
Regardless, let’s take a snapshot on where things stand using a few indicators.
Junk bonds took a nominal hit and more importantly, finally got cracked in ratio to long-term Treasury bonds. If this keeps up it’s risk ‘off’.
Here is how it looks on the standard weekly chart. Turning down vs. both Treasury and I.G.
Consumer Discretionary got hit…
…but right in line with current themes, the defensive Staples held relatively firm.
Reinforcing the bearish message of this monthly indicator chart…
XLP-SPY continues its fledgling upturn…
We still await the big daddy of risk ‘off’ indicators however, the Gold-Silver ratio, which is still locked below the key weekly moving average.
PALL-Gold is firm, but Copper-Gold took a hit and Silver-Gold is at risk. In short, if these all go up, it’s happy times. If they all go down, not happy.
Small Cap leadership got hit but still has not cracked.
Inflationary signaling is sagging. I am not saying an inflation problem is not coming. I am saying that the inflation/reflation fiscal hype got way ahead of itself and emotional market participants bought it.
Finally, gold has done this vs. the S&P 500 today. So, has it made a double bottom?
If so, you could say that gold mining fundamentals may be making a double bottom. In fact, it could be a short-term double bottom to the December low and also a longer-term double bottom to the late 2015 low that triggered the big precious metals rally in the 1st half of 2016. The up-crossed MACD looks interesting.
I don’t want to get too amped up but the markets took a big lurch in our favored directions this week.
As for how I’ve traded it, I got rid of the silver shorts for a very limited loss, limited a loss on IBM as it dropped below the SMA 50. I also pressed GS, shorting a bit more. Oh and regarding DVA, I accidentally sold it when trying to sell DSLV, which was just above it in my portfolio. Would-be market geniuses are not supposed to admit such things because it makes them look stupider than the image they want to project. So be it. I decided to hold off re-buying for now but it is right at the lowest of the ‘buy targets’ at the SMA 50. I am watching it. I’ll continue to tweak personal portfolios per incoming market inputs.
Other than these minor moves, I did nothing other than enjoy a perfectly logical and on paper, profitable day.