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Key market shift confirmed

Commentaries & Views

S&P 500 bulls didn't look back, and the credit markets spurt at close confirmed. The VIX is getting serious about reaching for early Sep lows, and it shows in the sharp upside reversal of value. The tech upswing hasn't been sold into either, and the overall picture is of improving market breadth.

Such was my assessment going into yesterday's session:

(…) So, how far could the bulls make it? 4,420 is one resistance level, and then prior local highs at 4,470 await. The fate of this correction is being decided right there, and it's my view we have lower than 4,260 to go still. Therefore, I'm taking a big picture view, and that is one of continuous inflation surprises to the upside forcing the Fed to taper, which it may or may not do. The policy risks of letting inflation run wild are increasing, so the central bank would find it hard not to deliver fast – the market would consider that a policy mistake.

The tone of yesterday's FOMC minutes has calmed the Treasury market jitters, and the dollar succumbed. So did inflation expectations, but the shape of the TIP:TLT candle suggests that inflation isn't done and out. The Fed is in no position to break it, supply chain pressures, energy crunch and heating job market guarantee that it will be stubbornly with us for longer than the steadily increasing number of quarters Fed officials are admitting to.

Counting on the Fed being behind the curve, inflation has the power to derail the S&P 500 bull run – the more so it runs unchecked. The 1970s stagflation brought several wild swings, cutting the index in half as it spent the decade in a trading range. And given the breadth characteristics of the 500-strong index these days, the risks to the downside can't be underestimated. What's my target of 4,260 in this light?

Let's consider that from the portfolio point of view – purely stock market traders might prefer to short exhaustion at 4,420 or the approach to 4,470, or balance the short position's risk in the stock market with precious metals, cryptos and commodity bets they way I do it – and it's working just fine as the precious metals and crypto positions do great while I'm waiting for retracement in oil and copper (in price or in time).

Let's check that against the following market performance – bonds aren't throwing a tantrum anymore, and continue being pleased by the Fed's pronouncements. Inflation expectations haven't been revolting over the last three days either. S&P 500 has a great chance of confirming the break back above the 50-day moving average. Neither oil nor copper have offered a reasonably modest retracement of their recent upswings (orderly in the former, stellar in the latter).

Reassessing the developments way earlier today (have you already subscribed to enjoy the real-time benefits?) – both from the total portfolio and stock market point of views – has unequivocally led me to join the profitable bullish S&P 500 side (the upswing is likely to easily overcome 4,470s and then 4,510s too) and enjoy the meteoric long copper gains. This represents more conviction behind the still rising tide of accomodative monetary policy (undaunted by the taper prospects, crucially) that is likely to keep positively affecting the open precious metals positions, and further extend the extraordinary crypto gains.

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

S&P 500 and Nasdaq Outlook

S&P 500 early stage bullish upswing goes on, and the next two days are likely to confirm – the cyclically sensitive sectors are behaving favorably. That's consumer discretionaries, financials and real estate.

Credit Markets

Quality debt instruments and HYG are rebounding accordingly, and I like particularly the HYG strength.

Gold, Silver and Miners

Gold is having trouble overcoming $1,800 but miners and silver are saying the issues are only temporary. Lower volume and lower knot yesterday mean that a brief consolidation is likely ahead.

Crude Oil

Crude oil consolidation in a very narrow range is likely to give way to price gains extension, if oil stocks are to be taken seriously. Likely, they are to.

Copper

Copper steep upswing continues unabated, and volume isn't drying up. Just as in the CRB Index, the path of least resistance is up – and continued copper outperfomance in the face of downgraded economic growth, is the most encouraging sign.

Bitcoin and Ethereum

The expected crypto pause came, and is again gone. Fresh highs await, and Ethereum is closer to these than Bitcoin is.

Summary

Stock market rebound has good odds of extending gains, but the most profitable case is to be made when it comes to commodities, cryptos and precious metals. Finally, if ever so slowly, the truth about no transitory but permanently elevated inflation that I had been hammering since early spring, is being acknowledged by even the Fed officials for what it is – let alone the banking sector. Remember, we're getting started, and I wouldn't be surprised if 5-7% inflation rates were being the predictable, ongoing result. At the same time, inflation isn't yet strong enough to force S&P 500 into a bear market, let alone extend the way less than 10% correction just experienced. The path of slowly but surely increasing resistance in the S&P 500 remains up for now as the break above 50-day moving average foretells.

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Thank you,

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