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Readying the sell

Commentaries & Views

S&P 500 looks set to open on a relatively strong note, and the unbeaten resistance is approaching again. 4,180 or a tad above, is where the bears are. Crude oil and precious metals are improving today, and the retracement in copper would likewise be duly reversed, even if not today. The crypto upswing would likewise give way to further selling, but hasn't yet run the course.

As I wrote in yesterday's extensive analysis – with all the accompanying charts:

(…) S&P 500 gave up Thursday's gains much too easily – not even the short window of opportunity gets acted upon. Medium-term trend is winning – stocks will roll over to a fresh downtrend, it's a question of time. Bonds aren't offering too much of a reprieve – the 10-year yield didn't even decline below 1.70% when testing below 1.50% was doable. This merely highlights the brief time window for CPI inflation to make a peak – before raising its head once again. Commodity price inflation isn't going to be tamed, and Friday's non-farm payrolls have been a last good figure before we see further deterioration. As I wrote that Q1 GDP could very well be negative, the same goes for Q2 GDP – I'm counting with stall speed.

For now, each upcoming Fed meeting till September, has 50bp rate hike priced in. The question remains what happens after September – would the Fed pivot already? Crude oil prices could be more than easing by that time, if you know what I mean. The focus would have shifted from inflation to economic growth support – that would be the drumbeat of the day. Precious metals are to be the first to anticipate the next dovish turn (backing off tightening), and that moment could happen later in summer. The copper upswing is likely to continue, and factors beyond China and supply with stockpiles, continue to speak against a deeper downswing. It's a bit similar to the realization that not even the OPEC+ production increase would be enough to satisfy world demand.

The key dilemma facing the Fed – would inflation slow down enough to support propping up the real economy again? Or would they need to keep tightening as (in the larger scheme of things) inflation would be barely dented by September? Stocks are watching with a bearish bias - earnings are to be hit.

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