NFTRH; State of the Correction for Several Key Markets

[edit] in the time it took to write this post ES went from negative to positive in pre-market. 

Below is a look at how this morning’s futures are shaping up in several important markets. As always, any bearish implications are not meant to be over-reacted to. The US government is cooking up a new reflation package as I write. It is simply a technical snapshot of where things stand at the moment.

Long-term Treasury yields are easing a bit in pre-market and if the routine correction currently in play becomes severe enough, I’d expect them to continue pulling back. I did an NFTRH+ update on the long bond yesterday and this scenario (a pullback in the reflation trades that could suppress the hysterical rise in yields) is part of the functional reason. The sentiment reason of course, speaks for itself. The bond bear side of the boat has suddenly become very heavy.

The way it usually works is that they inflate under cover of economic problems and/or market liquidity issues. Rising interest rates tend to sop up some of the excess liquidity and rampant speculation that has been on full display in 2021. With that position in long bonds (TLT) I am in no way calling a halt to the rise in 10yr & 30yr yields, but nothing goes straight up forever and with the 30yr hitting 2.4% so soon and so close to the caution zone of 2.5% to 2.7% I don’t mind telling you I got a little wigged out (as I am sure you gathered by the Trade Log yesterday if you checked it out).

Preamble aside, everything is normal, even healthy so far, technically, with respect to the ongoing bull phase. Routine corrections are after all, healthy. So I am at once in capital preservation mode (and may or may not have to do more cash raising today) and in soon-to-be buyer mode. Let’s look at a few markets for a snapshot of the futures.

Gold is 100% on plan as it is only this morning testing the ‘high 1600s to mid 1700s’ support zone. There is the ‘death cross’ of the SMA 50 below the SMA 200 that can be all but ignored.

In a related matter we continue to watch HUI’s 245 to 260 ‘crash pattern top’ support zone with a 62% Fib pullback to 230 also very doable. A less favored ‘crash retest’ target of 170 +/- is also possible if the broad markets get momentum to the downside.

Silver is on a decent pullback thus far testing the SMA 50 and technically, still bullish. Doesn’t mean it has to stay that way, but the trend is the trend and both the SMA 50 & SMA 200 are trending up. A loss of the SMA 50 would bring on a test of the SMA 200 (23.80).

Copper poked through the long-term resistance cluster (not shown on this daily chart) and this morning is back below it. Remember when silver did that with so much drama last summer? This reminds me of a maybe less dramatic version of that. Copper is very overbought and a hard enough pullback in the reflation trades could test the firmly up-trending SMA 50. Not a prediction but with a bounce in the US dollar, very doable.

So here is USD (DXY), having faked below and now back above the SMA 50. The July-September analog is gone, but then again you know analogs; they are often or even usually poor guides. The original resistance zone still applies. We’re looking at 92.15 or so.

ES is thus far only testing the SMA 50. This is just a routine pullback and is normal. A test of the up-trending SMA 200 would be more painful, but also normal. First why don’t we see if ES/SPX can lose their SMA 50s?

NQ has cracked the SMA 50, as has its regular market hours bro NDX. It’s normal, but we are seeing growth stocks with higher valuations getting pressured more lately as would be expected with yields jumping as they have. This could be a buying opportunity, but a test of the SMA 200 – assuming the bull is not over – would be a very good buying opportunity. Meanwhile, NQ has ticked a slight lower low to the last low and hints that the deeper correction scenario could be in play.

German DAX is normal as long as it holds a higher low.

Japanese Nikkei can test the SMA 50 and remain 100% intact.

Hang Seng should hold about here as it has already taken a steep enough ‘routine’ correction and a lower low could indicate an upcoming test of the SMA 200.