PPI above expectations – 0.3% as I predicted – made stocks move higher only to give up all premarket gains, and some. Rotations didn‘t disappoint me – they were weak. What was disappointing, is that the downswing didn‘t gather steam or proceed with nary a setback – instead, stocks were chopping during much of the day, and closed perplexingly on a brighter note, which might not be without consequences as the chart section shows.
The fact through remains that correction goes on, especially following the swift rejection of CPI spike, which also stopped bond yields retreating and instead made them rise. This risk-off that‘s nowhere near to its end (the 10y rebounded from 4% to close Friday at 4.16%, and is eyeing the low 4,30s with 4.33% being the prior top) would put more pressure on interest-rate sensitive growth stocks which won‘t be saved by rotations into value – financials and industrials with materials are muted, and not rescued by energy bucking the rising dollar.
Tuesday‘s retail sales or Empire State manufacturing aren‘t likely to surprise positively, with Wednesday‘s Fed minutes reinforcing the hawkish central bank realities (less than 20% odds of Sep hike is a major underappreciation of more tightening in the pipeline, but Fed would likely skip Sep in favor of Nov) and not supporting the market expectation of real economy accelerating from here. Add unemployment claims Thursday in line with expectations, and there is no stark bullish catalyst next week.
(…) The rise in yields be it through Japan or the States, is to be (and is) reflected worldwide, from Gilts to Bunds. The 10y yield does not face any real 4.20% resistance, and as we can‘t talk about risks of deflation, there isn‘t any (geopolitical or other such as recessionary) catalyst to stop yields from rising.
In my comparison of this decade to the 1970s, this does not and would not prevent gold prices from rising (the $1,930 – $1,935 area in Dec contract is well defended, which translates into $1,905 – $1,910 spot gold. Similarly oil wouldn‘t stop rising after consolidating in my $83 area.
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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 4 of them.
S&P 500 and Nasdaq Outlook
4,492 – 4,495 are the “point of control“ area, overcoming which enables 4,515 but not much more than that. 4,535 wouldn‘t be beaten on a closing basis. I‘m looking rather at stocks approaching my 4,460 via 4,482 as the more likely scenario to play out latest Tuesday following economic data. The bias remains short and risk-off.
Gold, Silver and Miners
As said in the caption, gold is close to a bottom, and next week before the BRICS summit, is likely to start turning – but before that, wouldn‘t likely escape unscathed from rising yields (except for Monday) – $1930 – $1,935 in Dec gold may be still tested, but is likely to hold.. Silver in the $22.70 is at support, but may dip to $22.50 still.
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