The post title mentions signals. Like banks firm but yields dropping (one of these things is off base). Like gaps filling left and right after the goofy upside in momentum earlier this week. Like the VIX finally proving to have been on a bearish signal (of at least minor degree). But as with the Banks/yields, some signals are mixed. It’ll shake out soon to either a reflationary continuation or deflationary whiff/scare (which would likely be accompanied by a rise in the gold/silver ratio and USD).
Are long-term yields about to rise because the banks are firm or is the reflation about to fail because long-term bonds are firm? Whatever it is, I am doing as I’ve said I’d do and defaulting to cash.
I reluctantly take some profits in the taxable account but am also taking some losses to at least partially offset them to a degree. 2020 has been a very good year and while today is just a blip, a short-term twitch and correction of the bubbly momo in play this week I (not necessarily you, since we all have different orientations) must default to raising cash and profit retention.
At this time the precious metals are still in consolidation. Yesterday we reviewed the Gold/SPX ratio and noted that the decline in gold vs. SPX must be arrested at a higher low to the June low. Well, today’s stock market hammering showed up at just the right time to support that outcome.
However… let’s note that while the gold stock sector is maintaining its consolidation posture, if the stock market pressure gets bad enough they could well be dragged down with it. Simply recall the spring, where the miners got pulled back and then ended up leading the crash. I still don’t think that is in the cards this time, but it’s something to be aware of if the inflation bugs panic. I’ll only hold a core if things look to go that way.
But tuning out that noise, the Gold/SPX ratio is getting the stock market pullback it needs to remain constructive for the sector’s ongoing bigger picture. This is a must hold for a continued bullish view on the miners. So far, so good.