alice

NFTRH; Broad Market Update (priority: high)

Many internals indicators bounced with the markets yesterday. Among them were SPX & NDX new highs/lows, Junk bond to Investment Grade & Treasury ratios, TIP/IEF & TIP/TLT inflation expectations, Growth vs. Value stocks. Why, even the Dow Transports vs. Dow are making a bullish divergence. The stock market caught up to the bullish divergence we’ve been noting in the SPX Advance/Decline line.

Equal weight SPX vs. headline SPX was negative, implying lower participation by the smaller components.

On the metallic front, Palladium/Gold rose and is starting to get a bullish S/T look (GYX/Gold is still depressed).

Consumer Discretionary/Staples is back out of imminent danger.

The median stock (our man in the middle) broke out to a fresh high. So the average stock is confirming the headline markets in breakout territory.

A final indicator note; RUT/SPX continued its turn down from the 50 day moving average along with the weak USD, which is logical. Nominal RUT made a fresh high but reversed in-day to give up most of the gain.

The signaling appears to be that if the stock market has another leg up in it (which, barring a late-summer whipsaw is what yesterday signaled) it appears it would be driven by a decline in the USD, which is now at lateral support and grinding the SMA 50. Remember that Uncle Buck could easily take a correction to the SMA 200 in the low 92s to form a right side shoulder to a bottoming pattern (not fully shown here). RSI is very weak and now below 50, could seek the 30 level.

So yesterday’s rally was broad based and had some very bullish underpinnings. The main caveat I see is that it is happening on summer volumes, but even there volume bumped up yesterday.

Also, anti-USD (reflation) items like Industrials and Materials looked particularly bullish. Trade tensions are easing and if the anti-USD trade gets a bounce items like Commodities and World stocks likely would break their intermediate downtrends. That the precious metals are doing well on this anti-USD burst is not a positive beyond USD’s weakness. Please keep the real fundamentals in mind there. The Yield Curve for one, is still flattening like a pancake.

Summer volumes or not, SPX gapped up from the breakout point. Unless reversed quickly, the target is now above 3000 (which would be the alternate plan, negating the favored plan).

Dow convincingly breaks the channel and lateral resistance. What is not convincing is the summer volume, which is trending down. But it is what it is at this point.

NDX held the channel and made a new high.

The World remains in a downtrend, but if the USD were to take a further hit to its SMA 200, this would keep bouncing at least.

As would commodities, which otherwise have bounced to what looks like a potential bearish reversal point within the downtrend.

Gold has now bounced to the lower end of our projected bounce area. 1220 introduces some short-term lateral resistance and the hard down sloping SMA 50 brings more around 1230.

HUI is just below the first resistance area at 150. It may try to fill the gap at 152, possibly the gap at 160 and although I think it’s a reach, there is big time lateral resistance at 165-170.

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Bottom Line

  • Market Internals are holding up and with the summer volumes caveat, the US stock market is breaking out (barring a head fake & whipsaw) to the alternate view and a target of SPX 3000+. The signaling may evolve once again to ‘anti-USD’. Let’s keep an eye on that.
  • Global stocks are still trending down and have bounced as far as they should bounce unless they are going to break the firm downtrend. That does not mean ‘go bullish’, but it does mean I will probably cover my short. An anti-USD trade could whip up for a while.
  • Commodities are much the same as Global Stocks. Anti-USD or bust.
  • Precious Metals are bouncing due to what had become bombed out sentiment. All you have to do is see this post at nftrh.com to realize that worst of the gold bug promotions are alive and well. The fundamentals are not good and unless the positive things noted above turn down sooner rather than later, I don’t have a good feeling about the bugs’ prospects beyond the bounce.

But we are mere humans, not Swamis. As mere humans we should respect the signaling and right now for the short-term at least, it is positive for risk ‘on’, possibly anti-USD reflationary risk ‘on’. I plan to adjust accordingly as events move forward. That would likely be in the form of selling more gold sector positions (AAU was sold on yesterday’s 10% bounce) and temporarily at least covering some or all of my few shorts (especially the SPX short; I may or may not give commodities and global stocks just a bit more rope).

Is any of this bullish beyond the short-term? That is for the Swamis to know. When we get back to regular market operations in September we should know better. But for now we can only go by what we see and what we see is generally bullish for the short-term.

As a side note, this post yesterday on the Semiconductor sector gives more context on the markets and the economic cycle.