Just What Powers SPY

S&P 500 closed the week below fresh highs thanks to a bout of tech and some semis relative weakness. The rally is though broadening with XLI and XLV posture as well, and that‘s on top of the three sectors I mentioned lately to clients as those to outperform S&P 500 medium-term. The theme of disinflation continues – core PCE came in line with expectations.

So what‘s driving the broadening rally, how much more can it be pushing to fresh highs? I‘ll develop yesterday‘s thought about inflation with the Sep 2023 tweet quote – those of you following my thoughts closely knew that I called for high inflation data early autumn, and right then for lower inflation to return, which we haven‘t seen the end of yet.

Treasury has been relieving the pressure on long-term yields over the last months with reliance on more short-term debt issuance,yet yields rose still in Jan by around 0.5% on the 10y. That‘s though a function of wild gyrations in rate cut odds estimates, taking Mar odds of over 75% to below 40%, and 46% currently. While I still see Mar rate cut as more favorable than not, I‘m also in favor of yields rolling over to the downside, and 10y closing the year well, well below 4% or even 3.75%.

The only open question remains how long this little mentioned engine of easy liquidity conditions (not to mention China stimulus finally arriving), would last before the players decide to get more powder dry, and the reverse repo facility starts growing again (talked last week).

✕Time for more profits whether swing or intraday, just like Friday with a series of total three quick trades we delivered.

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Let‘s move right into the charts (all courtesy of www.stockcharts.com) – today‘s full scale article contains 6 of them, featuring S&P 500, sectoral picks, precious metals, oil and copper.

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Gold, Silver and Miners

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Optimists say that gold is basing here (note the low volume rejection of Friday‘s highs), and 4 hour chart agrees. While gold and silver are little exciting at the moment, it‘s worthwhile to position oneself for the upcoming upleg on retreating yields. The only habitual watchout is those common pre-FOMC smackdowns.

Crude Oil

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Crude oil consolidated the sharp acceleration gains, and the following push above the 200-day moving average, would be successful. $82.50 is the upper border of the resistance zone, and odds are it would be reached in a few short weeks at the latest.

Copper

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Copper $3.81 – $3.82 would be a fine long entry point if the market declines there. Commodities have clearly changed the tune, and dips are to be bought as a testament to strengthening real economy.

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