- As noted in the previous (public) post, the VIX looks bullish and does not seem in line with a resumed stock market rally scenario. That can change in an instant, but as of right now I don’t like the look of the VIX if I am a bull.
- Leadership has been falling off with NDX and SOX having tested their highs (NDX to a bull trap throw over to a higher high and SOX to a lower one) and the Dow, as we’ve noted over the last couple of weeks is sticking out like a sore thumb. RUT got harpooned despite a still-strong US dollar.
- Gold has been weak and when we remain aware of the fact that it led the inflation trade in December of 2015, we might think about where it is leading the markets now.
- That is not a bearish call on gold by the way. Bounces aside, we have been non-constructive on the precious metals for most of the post May 2016 period. If stocks are pivoting bearish for a harsher correction than usual, I expect that gold will grind out a low and rally before most of the risk ‘on’ stuff gets its footing. But this stuff does not happen on an in-day or in-week basis.
- I want to see that higher low hold in gold and if it does and the stock market does resume correcting, the gold sector may yet get a real rally.
- Despite the spike in oil, which is rising for its own supply/demand fundamentals (with a side of geopolitics), commodities remain weak and inflation expectations are flat (at best). Ref. 10yr breakeven inflation rate, TIP/TLT and TIP/IEF.
- The disinflationary whiff has boosted risk ‘off’ Treasury bonds. The same T bonds that the media scared everybody out of a couple months ago.
- With any luck, we may yet get the counter-cyclical lurch that the Semi sector has been hinting about for the last several months.
All of the above said, the market’s trends are still generally up. But I don’t like (well, I do because it would be according to our favored plan for the summer, but bulls should not) some of what I am seeing for the stock market as the US market reversed and failed to continue its bounce today.
No index or sector ETF of note has yet made a critical lower low. But I am ratcheting up the risk profile here, trying to stay right with the market’s rotations, slowly increasing cash and select short positions as well.
Generally, the statement still applies that cash (T-Bills, Treasury Money Market & safer vehicles) is now paying a decent little income and is the default position in my opinion. That applies regardless of whether or not SPX resumes its post-March rally.