alice

NFTRH; Market Status, Yields, Commodities & Gold

On Monday we noted the levels that would signal the potential for more than a “blip” of a market pullback if indexes closed below them.

The Dow closed below last week’s low of 23,300. It is bouncing in pre-market. They key level here is the orange dashed EMA 20. A close today below it keeps the correction scenario (min. to the SMA 50) going and a rise and close above it opens a conversation of “blip over”.

indu

SPX closed below last week’s low of 2566.33. It does not need to bounce too far to take that back but again, the EMA 20 can be watched as a gate keeper. The EMA 10 & 20 have started to curl down for the 1st time since August. They will be key short-term resistance for the market.

spx

Neither NDX nor SOX closed below last week’s lows and those indexes are using the EMA 10 & 20 as short-term support, not resistance. The RUT has been relatively weak, but as noted in a post yesterday it has tested key longer-term support and remains intact.

Bottom Line

The market has finally taken a bit more than a 1 day blip of a pullback, and the Dow & SPX have given the ‘below last week’s low’ signal. Now the bounce is on to test that signal. NDX & SOX are relatively strong and RUT relatively weak. But even RUT is unbroken and at key lateral support. A hold below the EMA 20 on Dow & SPX could signal the market is ready for a real pullback.

One thing mitigating the bear view is the relatively big spike in the VIX, implying sentiment is already much cleaner than it was a week ago. Also, ‘Smart’ money is surging and ‘Dumb’ money has been fading with the pullback. That is a bullish marker, just like the VIX. The question is, is there more sentiment reparation to go before the market finishes its pullback?

smart, dumb money

Yields, Commodities & Gold

And of course, long-term Treasury yields are whipsawing to the positive side today. I am still holding my bond bears TBT and TMV but I sold KRE on the bounce, in order to manage rising yields potential directly (the recent disconnect between the Banks and Yields was frustrating and messed up the balance I thought I had in my holdings). The intermediate view has been for rising yields, rising commodities and rising ‘inflation trade’. WTI crude oil is at key support as noted in yesterday’s update. Base metals are just above support. So considering yields and commodities, the projected ‘inflation trade’ scenario (to the 10yr & 30yr yield limits of 2.9% and 3.3% respectively) is still alive, but getting a hard test.

Gold and gold stocks are not expected to do well in an ‘inflation trade’, at least relative to other assets. However, if risk goes ‘off’, yields either decline or the yield curve rises then it would be time to favor the sector over most others. With gold and silver, there is the issue of the not yet repaired Commitments of Traders trend as well. It will not be time for gold, silver and the miners until the risk ‘on’ macro cracks for real. They could (and do by the usual suspects) get an inflation tout, but it’s the economic contraction and/or risk ‘off’ atmosphere that will fuel the sector.