A seemingly uneventful and tight range day on the S&P 500 gave way to extraordinary selling once the 4,220 intraday support broke. The bulls obviously have quite some damage to repair before thinking about taking on new highs. Prices have moved back into a prolonged consolidation, in what isn't a true breakdown though yet.
Neither the small caps, nor the emerging markets, let alone the S&P 500 fell on sharply rising volume, which speaks in favor of a bad day, chiefly driven by tech and weak credit markets. Look at market breadth – new highs and new lows stunningly rose yesterday in spite of the 500-strong index losing quite a few dozen points.
It would be classic risk-off positioning, if only the defensives as a group did a lot better. But it could have been worse had commodities joined in the melee. They didn't, and they are, thus, the dog that didn't bark, detracting credibility from yesterday's stock market plunge (unless they catch up next, that is).
Both copper and lumber reversed, but this could turn out to be as another buying opportunity, especially in copper. Little has changed in the reflationary and reopening trades. Fnancials managed to shake off the rising yields easily yesterday. True, the VIX and the put/call ratio aren't painting a picture of calmness, but option traders are positioned a bit too bearishly at the moment. Again, it's a question of how long before the tech bottom hunters step in. Make no mistake though, growth is going to keep lagging behind value.
Gold, silver and miners are in a vulnerable position even though neither the technical nor fundamental reasons behind their rally changed. The rising yields are a testament of rotation out of stocks into bonds not having worked yesterday. Should commodities like copper get hurt again, precious metals will likely land in hot water. Thus far though, there is no sign of that. The momentum remains with the bulls overall, and higher time frames confirm that.
Miners are not flashing outrageous underperformance. The short-term fate of the precious metals upleg will be determined by long-dated Treasuries, copper and whether the dollar or USD/JPY move. Even a brief comparison of the US Dollar Index and the dollar-yen pair reveals that risk-on is the prevailing move of 2021.
Crude oil was not hurt to much by all the selling yesterday. Should it break below $64 on a closing basis, $62 could very easily come next. The daily indicators have weakened, and the bulls don't appear ready to break above $66 next.
Cryptos are also in a wait-and-see mode, yet with noticeably less bearish undertones than black gold. Bitcoin remains choppy around its flat 50-day moving average, and should better return trading above it. No prodding by Ethereum, though, helps. The bulls are still taking a short-term break.
Let's move right into the charts (all courtesy of www.stockcharts.com).
Gold, Silver and Miners
Gold and miners are in a vulnerable position, and consolidation of recent sharp gains would be healthy and desired. The volume in both gold and silver shows the sellers don't have enough conviction, and pull-backs remain buying opportunities regardless of the threatening nominal yields move.
The weekly chart shows how little has changed. The upleg across the precious metals remains alive. We aren‘t crashing into a deflation.
Summary
The S&P 500 got under selling pressure that is showing no signs of abating, yet the weakness remains concentrated in tech names. Besides these, credit markets aren't doing fine either.
Gold, silver and miners continue to be resilient, and the coming correction would likely be a shallow one. Increasing nominal yields are countered by rising inflation expectations and copper prices, helping to keep the metals out of harm‘s way.
Crude oil bulls will have to step up to the plate, and defend the unfolding upswing that‘s threatening to crash below the recent lows.
Bitcoin is getting sold off today as well. Its bullish to neutral short-term outlook from yesterday is turning to neutral.