Let’s have a review with stocks and precious metals down this morning, amid Trump/China trade war headlines and declining interest rates…
From the update a couple days ago regarding the S&P 500:
“The short-term support shelf and the gap just below 2740 could be tested but SPX has more support at the rising SMA 50. The rally would only be broken with a lower low to the spike below 2680 a couple of weeks ago (that was Italy & Trade War hype day in the news).“
So we are pulling back hard on an inflammatory – but macro fundamentally significant – news event. You know my thoughts on alarmingly negative financial headlines. They usually prove to be buying opportunities (assuming the market is in an uptrend). But I am going to continue to respect the notes below, from the same update…
“US stocks have hit resistance and can pull back some more. But generally the theme of a top test is still in play. Now, NDX and SOX are already making that test and the latter especially is not looking stellar in that regard. What’s more, there is the divergence in Semi sector dynamics (Equipment vs. broad sector), so I do not want to be casual about the US stock market. I believe no matter how you cut it the rally is mature.”
SPX looks to open at 2769 +/- [2768, now post-open], so it is still normal as we have not even tested 2740 yet. That is generally the view on stock markets; a sharp pullback amid a flare up in Tumponomics. I see no reason yet to raise alarm because this was anticipated and Trump was the trigger. But let’s bear in mind the parameters.
As for the gold sector, of interest for different (counter-cyclical) reasons, it is also getting hammered. How can this be with interest rates down and stocks down too? Because on any given day assets counter to each other can go together. It’s the trends that are important. For stocks they are still up and for precious metals they are generally down or in consolidation.
My guess is that the precious metals could get dinged on a day like today because the dreaded inflationist gold bugs would be selling a knee jerk decline in interest rates and/or inflation expectations. If you’re going to live with the inflationist bug, you’re going to get dinged by him when he takes his ball and goes home.
A bearish macro should ultimately be a good backdrop for the precious metals and especially the miners. But not necessarily in the short-term when they have been firm along with a bullish macro.
More to come, maybe later today as the situation breathes. But stocks have been up trending and that is still quite a way from being neutralized; and while the bounce scenario is not over in the precious metals, they have as a group not established up trends, so we can watch to see if that scenario breaks down to confirm an ongoing negative/consolidation trend or the grinding bounce resumes next week.