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Flirting with Fed policy mistake

Commentaries & Views

S&P 500 didn't like the underwhelming NFPs, but didn't collapse either. Orderly reaction to a bad number powerful enough to postpone Fed's Nov taper, to be followed by celebration of continued monetary support, or creeping worries about Fed policy mistake in letting inflation become an even bigger problem than it is already? Not that it's not set to become one – even the lazy and slow PCE deflator has scored a jump not seen in decades.

The doubts are starting to be seen in the pressure on USD – the dollar looks set to swing lower next. Not breaking down, but gradually trending lower. It's telling that not even higher yields could power it up over the past week. Tech was relatively resilient, and value didn't react much to TLT moves, making me think we're in for a brief retracement of the prior downswing in the credit markets. And that includes the soundly beaten HYG – a bit too much, and the corrective move would take VIX even lower to the border of its most recent (and worryingly slowly rising) border.

Precious metals should like the inflation spurt, and rising inflation expectations outpacing the nominal yields increase. Real rates (short duration maturities are virtually flat) look to be getting more negative, miners to gold ratio turning, silver to gold ratio rising – good news for the precious metals sector as oil continues its run, and copper presents just one question mark: when it would catch up with other base metals. Cryptos are also set to be doing good when everyone and their brother talks inflation.

Let's move right into the charts (all courtesy of www.stockcharts.com).

S&P 500 and Nasdaq Outlook

S&P 500 formed more of a consolidation than a true reversal candle – the volume wasn't there, and prices haven't moved much. No need to be outrageously bearish unless prices close Thursday's gap.

Credit Markets

HYG moved down alongside quality debt instruments, but a reprieve wouldn't be too surprising here.

Gold, Silver and Miners

Some life is returning to precious metals, even though it's not apparent when looking at gold only. The yellow metal's upper knot isn't though necessarily bearish, and can be reversed over the nearest week – the key thing is that silver and miners are waking up.

Crude Oil

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Crude oil hesitation didn't reappear on Friday, and oil stocks continue moving up – the chart remains bullish as there is no hint of follow through selling to heavy volume days with a slight upper knot.

Copper

Copper continues underperforming both the CRB Index and other base metals, and its upswing appears a question of shortening time. Is silver sniffing out copper awakening soon?

Bitcoin and Ethereum

Bitcoin and Ethereum arte pushing higher after calm weekend trading, look set to be rising and lifting the open profits up!

Summary

Stocks are likely to pause and recover from Friday's inconclusive downswing, and precious metals together with cryptos remain positioned for an upswing as stagflation growingly permeates everyday vocabulary. Fed response, and whether it would be willy nilly made to taper by rising inflation, or whether it misses the boat even more.

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