alice

NFTRH; SPX, 10yr Yield, Oil & Gold

It’s been a tough market for day to day management (for me, anyway) because the futures open down and then the thing spends all day recovering the opening losses. I cannot short the market (other than for hedging, which I am not doing, but I did sell items that ‘break’ original trade parameters) until I see a setup and as laid out a few days ago, the first inkling of a setup would be after the market makes a daily close below the previous week’s low. Day traders may and probably do play it differently.

When the market hit a real rough patch in 2015 that is how we viewed it and there was plenty of time and opportunity to take bearish positions when setups were in place. So again, a close below 2566.33 would increase the odds of a test of the SMA 50. The market is also more than due for a test of the SMA 200. Both of those would occur within a bullish major trend, if they come about. Shorting within this bullish major trend would require a level of nimbleness.

Calling a bear market is beyond my tools right now, especially since the big picture macro indicators have not registered yet.

spx

I put together this graphic combining the elements that would theoretically be in place when it is time for the bull market to end (and for gold to pivot once again to being a key asset, even the ‘go to’ asset). Could everything abort right now and the macro change before the limits of these charts are reached? Sure. But I would not bet heavily on it, pending much more evidence.

3 amigos

Here is the state of interest rates, which generally go up with risk ‘on’ but also affect different sectors in different ways. In other words, some sectors out perform when yields are declining. But this week it appears a bout of risk ‘off’ is hitting the market and that weakens most items.

I noticed that the Banks were strong yesterday against a weakening yield and that affirms our notion that on any given day or week correlations don’t need to hold. But if the Banks hold relatively firm vs. SPX as yields continue to pull back we may have an indication on the near-term future of yields. The favored plan remains a rise in long-term yields to the ‘limiter’ per the TYX chart above. But the market is forcing a healthy review of that plan.

Banks vs. SPY has been positive the last 2 days as it closes the disparity with the 10yr yield. Let’s see if the ratio remains firm when trying to gauge the intermediate yields picture.

kbe vs. spy

Meanwhile, the 10yr yield is at 2.34% in pre-market, as indicated by the red arrow below. It has not broken down but it is not looking stellar either as it fills the gap from last week. It would have been so easy to just have a breakout in yields and make the firm plans that would go with it. But it’s not easy, is it? It never is… until trends are established.

tnx

Another big marker for the bull case closing out the year has been in crude oil and the energy sector. Another breakout, and another test. These have been happening in several areas of the markets. It’s almost as if the machines have been set to screw the TAs, including me, who trumpet such things. But a breakout is a breakout until it fails. We’d noted that there was additional resistance just above at around 62 and maybe this is the shakeout needed to re-fuel. But as we’ve been noting each week in the Sentiment segment, oil has been among the most consistently over bullish items, which is contrarian bearish. So we can surely be on alert for a failure as well. WTI is currently at 55.09 in pre-market. Hence, it is still in breakout mode. Maybe this shakeout can fix sentiment to a degree.

wtic

Finally, we have gold, the counter-cyclical and generally risk ‘off’ metal. We have been noting its firmness even as the stock market and risk ‘on’ assets were at peak froth levels. The original pullback projection was to the SMA 200 which is now rising. It’s like gold has been gently nesting just above it. Gold is firming vs. stocks and other risk ‘on’ assets and if it hits certain markers it will begin to fix the gold sector’s macro fundamental and sector fundamental pictures, which have been degraded by the macro party going on.

gold

As noted at the site yesterday, I bought a couple of gold miners back. These were NGD and BTG. I also added WDO.TO, way down low as both Mark (IKN) and Fred are constructive on it. But I am going to stay measured, until I get a good read on what the risk ‘on’ markets are actually doing and the gold and silver CoTs as well. These have not been favorable to a long-term bottom.

Bottom Line

I could write a full report here, but that might be counter productive. I’ll try to keep updates clear and concise. The stock market is on a much needed blip or correction. A close below last week’s low sets a test of the SMA 50, but a test of the SMA 200 is also doable and actually overdue (the last instance was over a year ago).

The interest rate situation is grinding me up as I try to hold the line. It remains at the center of inflationary vs. deflationary, risk ‘on’ vs. risk ‘off’ and that includes its dynamic internals, like the yield curve, which continues to favor a risk ‘on’ backdrop.

Crude oil could be tell on the party atmosphere as to whether it tests and holds or fails.

Gold is in wait, nesting above its SMA 200 and looking constructive on the near-term. The longer-term is still at issue.