Yesterday we concluded…
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.
The status of the 1st item is not changed. While I still have suspicions that it could be an upside throw over (and potential bull trap) on summer volume, when removing the human and his perhaps over thinking brain the technicals are generally ‘blue sky’ for US stocks. We can theorize or project all we want but price is the only reality at this time. As of now, it’s bullish.
But lets consider this view of the Citi Economic Surprise Index (CESI) by way of Sentimentrader. What this means is that economic reports have generally come in lower than projections by analysts and economists. It is interesting that the rally to the January top was built on exceeded expectations and the rally to test the top has been built on disregard for failed expectations. Now, is that a wall of worry or is it a poor underpinning amid summer’s lower participation?
The market is bullish, but this is a caution point. While it appears to have been an incorrect projection, I am not ready to disqualify our top-test scenario quite yet.
I held all my shorts yesterday, including on the SPX, which I am still watching closely. Two of them (on ACWX & DBC) are anti-USD plays. So if USD is to test its SMA 200, those shorts too would likely be covered. Yesterday we noted that USD was still at lateral support and grappling with the SMA 50. This morning it is trading at 94.78 and testing its dip below the SMA 50 (which it did several times this summer before climbing back above).
So the view on USD is ‘at support’ with no actionable reason to expect the SMA 200 in the low 92s at this time. That would be projection, as in yesterday’s view that it could dip to that area to make a right side shoulder. Could does not = will. A lower low to July however, would bring that on as a target.
Here is a look at Uncle Buck’s Public Optimism profile as it stands now (from Sentimentrader). It is not so over bullish anymore. So the question is whether or not USD became extremely over bullish to the extent to kill the rally. That is debatable, given previous extremes.
As long as USD retains its footing at the SMA 50 I am going to try to hold the anti-USD items (global stocks and commodities) short. I am also going to try to be aware of what sectors relatively benefit and do not benefit from a firm or weak dollar. The XLI (Industrials) add yesterday was a creep in the weaker dollar direction. XLI’s chart looked too good not to give it a shot.
As for gold, we noted that it had come to the lower end of the target range of 1220 to 1230 and that HUI was just under the 1st resistance of 150. Gold’s sentiment profile (OPTIX) has bounced back just as USD’s has dropped.
If those numbers project through to the current situation then there would be more upside coming. Personally, if I could see some fundamental signs crop up (they have not yet) I’d want to be more committed with historicals like that. But as it stands, I have faded the sector over the last 2 days, per the TL. But the above gives us something to think about at least. One scenario is that the OPTIX above could grind up and down at the green dashed line for an extended period as it did before the Dec. 2015 bottom.
While this snapshot in time sees the Good Ship Lollypop sailing along with barely a care in the world, the best scenario for turning the macro would be for risk ‘on’ markets to fail while gold grinds out a pained and agonizing low. Now there’s a projection for ya! Let’s take it week by week and gauge what actually happens.