Global market stress this morning
I was going to talk about the ongoing VIX divergence and loss of momentum in SPX, regardless of how the market looked this morning. That is because when replying to a tweet showing negative divergences in the 10 day moving average of the Equity Put/Call ratio (we use the 10 week moving average in NFTRH to show the structural overbought nature of the market) last night I attached this chart and saw that the small divergence we first noted a few weeks ago in a weekly report has grown.
Similar divergences have preceded market pullbacks and crashes alike.
Then I took a look at SPX and thought that it does not need another down day to stay technically okay. Yesterday was Yellen’s jawbone threatening corporate taxes but if that was just a knee jerk down, today should remedy it. Otherwise SPX is left with a lower high after a gap fill and another test of the SMA 50, which would increase the chance it (SMA 50) will fail. The momentum indicators in the lower panels show momentum waning over the last month. Also, notice how down volume consistently exceeds up volume over that period. It looks like distribution.
In short, we already had another in a long line of classic sentiment blips in early May and another one so soon, especially considering divergences like the above, would be a warning that all’s not well. Meanwhile, going by the book, above the SMA 50 SPX is on its intermediate uptrend.
Treasury yields are firm this morning and in and of itself that is not gold-friendly. We reviewed the potential pullback area on HUI yesterday…
HUI went on to ping 325 and it would have been surprising had it not paused there. The daily chart has gotten moderately overbought and a reaction back to the SMA 200 would also be normal. That is not necessary to relieve the O/B. That could come through a few days of grinding (consolidation) as well. We’d want to see RSI meet its EMA 20 and hold it.
…and gold is already there, testing its break above the SMA 200. A hold keeps gold comfortable. A loss of 1852 targets a pullback to at least the EMA 20 (1816) but more likely in my opinion, the SMA 50 (1766) to test gold bugs’ souls.
Silver is pulling back to test the third break above long-term resistance. Broad market angst aside and taken in a vacuum, that’s a technical buy setup. But silver is also well capable of dropping back into what it is now trying to turn to a support zone (26 – 27.50) and test the converged moving averages. That too would occur within a still-bullish trend.
As noted above, the global market stress comes as long-term yields firm and here we see USD (DXY) continuing to poke at the last ditch support to keep a semblance of its 2021 uptrend in play as first noted last week. Lose this area and it looks like a shoe-in for the 88s. Ah, but old Uncle Buck is not going quietly. USD being the asset world’s counterparty, this is obviously important.
Bottom Line
- SPX has seen easing momentum for a month now and it sports bearish divergences by the Equity Put/Call ratio and VIX. But it is still trending up above the SMA 50 (in pre-market ES is testing the SMA 50 right now).
- Side Note re. NDX and big Tech: NQ, popped to test a breakdown from its SMA 50 and has pulled back anew. Watching Tech and Semi as closely as ever and I may be forced to abandon my positive view on Semi Equipment if they start throwing fundamental babies out with bath water.
- Gold is making a normal test of the SMA 200. If it passes the test, all good. If it fails then prepare for the SMA 50 at 1766 as a potential pullback target.
- HUI is as we left it in yesterday’s update. A pullback to the SMA 200 would be technically normal.
- Silver continues to be bullish. I feel funny writing that on a morning of market angst but I am here (in this instance at least) to tell you what the chart says. When it stops saying it, I’ll tell you that. But as of now it’s a bullish chart doing a normal thing in testing support. If things get rough however, look for a test of its converged SMA 50 & 200.
- USD is fighting not to go to the 88s, which would be the next target if it loses this paper thin support right here. Being the anti-market to a world full of inflation trades, a surprise rally would bring widespread, if temporary, pain.
- So think about it. Everyone, and I mean everyone is now aware of the inflation that the Fed has printed and the government has shoved into the economy. How convenient would it be for a counter-trend rally in the US dollar to quell those inflation fears a bit? The Fed wants to keep inflating but sometimes it needs little dis-inflationary pit stops along the way to refuel.
- I am going to respect technical parameters in broad stocks and commodities. Tech and Semi have already lost such parameters (SMA 50). SPX is fading in momentum.
- Don’t take it as a given that gold will flourish in the short-term in this kind of a situation (even though the best fundamental backdrop is for pain to come to the risk ‘on’ trades). The metals and miners often get tanked (at first) if/when broad markets fail. Then they bottom first and tear ass upward prior to the next inflationary phase. But with all the good work Au, Ag and the miners have done since last August, I am keeping an open mind about that. Remember, there was a reason they went into a long consolidation/correction while global markets partied on. Most of the work may already be done. At some point gold and its miners will act contrary to what’s going on in the broads.
