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S&P 500 feels like hanging by the fingernails – tech down and value retreating intraday. Correction of prior steep upswing is here – the bears will try some more, but I‘m not looking for them to get too far. The signs are there to knock the bulls somewhat down, and fresh ATHs look to really have to wait till next week.
Checking up on the VIX, financials and consumer discretionaries confirms the odds of the bears stepping in today, and perhaps also tomorrow (depending upon today‘s close). The repelled HYG downswing likewise doesn‘t represent a significant risk-off turn (yet) – instead, we appear to be on the doorstep of another rotation, and its depth would be determined by how well tech is able to hold near current levels.
Looking at precious metals, commodities and cryptos, the sellers of this risk-on rally have good odds of closing in the black for today. Earliest signs of stabilization would come from bonds, tech and cryptos – that‘s where I‘m mostly looking today.
Keeping in mind the big picture – all eyes on upcoming Fed balance sheet data:
(…) The Fed didn‘t really taper much in Dec, thus the jubilant close to 2021 across the board. The compressed yield curve would eventually invert – regardless of the current levels of inflation, the GDP growth can still support higher stock prices. Precious metals and commodities would though become an increasingly appealing proposition as I‘m not looking for the Fed to be able to break inflation. The tightening risks are clearly seen in market bets via compressed yields, so they‘ll attempt to not only talk a good game – they will act, and the risks of breaking something (real economy) would grow. That‘s the message from Treasuries – hawkish monetary policy mistake is feared and increasingly expected.
Let‘s move right into the charts (all courtesy of www.stockcharts.com).
S&P 500 and Nasdaq Outlook
S&P 500 saw a shot across the bow, and it remains to be seen whether the bears take advantage of a promising position to strike later today. Odds are they would at least try.
Credit Markets
HYG‘s hammer-style candle on rising volume doesn‘t bode well for today. Stabilization in junk bonds would be a most welcome sign once it arrives.
Gold, Silver and Miners
Gold and silver aren‘t at all well positioned in the short-term – higher yields perhaps accompanied by consolidating inflation expectations, provide the bears with an opportunity.
Crude Oil
Crude oil is likewise stalling, but not too vulnerable unless fresh omicron fears return to the headlines. The $78 zone indeed looks to take a few days to be reached – I‘m still not looking at this week really.
Copper
Copper is taking a cautious stance – cautious, not panicky. Building a base not too far from yesterday‘s lows, would be most constructive now.
Bitcoin and Ethereum
Bitcoin and Ethereum are feeling the pinch, and the Ethereum underperformance has foretold stiffer headwinds than had been the case recently. Genuine downtrend hasn‘t yet developed – the bulls are being tested as we speak.
Summary
Santa Claus rally is getting the announced reprieve – the day of decision how far it reaches, is today. Unless bonds (I‘m looking at the junk spectrum mainly), tech and cryptos weaken inordinately much, today‘s move would come in the sideways consolidation category. Odds for that are slightly better than a coin toss, but regardless, I‘m looking for a positive first day of 2022 trading to help make up for end of this week‘s headwinds. It‘s also positive that oil remains well bid above $75.50, and copper above $4.40.
Related: What‘s Not to Love About the Markets?
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