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Week Ahead: Stock Volatility Will Continue; Dollar To Rise, Gold Could Fall

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewJun 20, 2021 08:08AM ET
www.investing.com/analysis/week-ahead-stock-volatility-will-continue-dollar-to-rise-gold-could-fall-200587129
Week Ahead: Stock Volatility Will Continue; Dollar To Rise, Gold Could Fall
By Investing.com (Pinchas Cohen/Investing.com)   |  Jun 20, 2021 08:08AM ET
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  • Stocks likely to sell off more as investors adjust to a horizon with tapering
  • Despite popular opinion, tech has been leading the rally this year
  • Bitcoin bulls have a barrage of negative news to cut through
  • Oil’s trajectory is up in a tightening market

We may have seen the start of a market taper tantrum last week, as the Federal Reserve, on Wednesday, began signaling—albeit gradually—that the easy money ride will be coming to an end.

Though investors have been spoiled by the most generous stimulus ever, both from the Fed and the Biden Administration, a healthy economic expansion must include the US central bank managing the pace of inflation. Otherwise, the recovery could become a short-lived affair, with the economy falling back into recession. Nevertheless, markets have been broadcasting their displeasure.

Surprisingly Hawkish Fed Blindsides Markets

On Friday, US equities dropped for the fourth straight day, on the heels of Wednesday's surprisingly hawkish Fed. As well, Friday’s quadruple witching weighed on stocks when single-stock options, single-stock futures, stock-index options and stock-index futures all expired in tandem.

The S&P 500 lost 1.3% of value on the final day of trade this past week, making it the worst week for the broad benchmark since February. The index fell below its uptrend line since the infamous March 2020 bottom.

The Dow Jones lost over 500 points on Friday, falling 1.6%, to lock in its worst weekly performance since October 2020. The 30-component index, which represents blue-chip value shares, was particularly hard hit by the Fed’s talk of tightening.

DJIA Daily
DJIA Daily

Like the SPX, the Dow also fell below its uptrend line since the 2020 low, but unlike the S&P 500, the blue chip index also fell below its recent low and appears to have completed a top.

Still, of the four major US indices, it was the Russell 2000 that underperformed ahead of the weekend, dropping more than 2% for the day. The small-cap benchmark, which lists domestic firms which suffered the most during lockdowns, has been the poster child for the Reflation Trade, with the economy restarting.

Russell 2000 Daily
Russell 2000 Daily

The Russell 2000 has already been flirting with a correction. The index has declined 11% from its Mar. 15 record to its Mar. 25 low. As we noted at the end of May, the benchmark could be topping out, as momentum weakens, with the RSI providing a negative divergence in the short-to-medium term. Stay tuned as the long-term outlook continues to develop.

Though the tech-heavy NASDAQ Composite tumbled 0.9% on Friday, it still outperformed its US index peers. On Friday the technology sector was also the second-best performer on the S&P, after consumer discretionary shares, (-0.5%).

Tech also outperformed on a weekly basis, as it was the only sector in the green, up 0.1%. On a monthly basis, tech shares provided the best returns as well, +6.1%. Even over the past six months the tech sector remained in the green, up 9.3%, second only to Real Estate which gained 13.2% over the same time frame.

NASDAQ Composite Daily
NASDAQ Composite Daily

The NASDAQ Composite also boasts the strongest chart. The index is testing the top of a large ascending triangle, a pattern that develops when buyers are more eager than sellers. If this continues, buyers will have absorbed all available supply and will have to increase bids past 14,175 to obtain more. On Friday, however, the index retreated along with the rest of the market.

Though Bloomberg said, "the Federal Reserve’s surprise hawkishness upended the reflation trade that has dominated markets this year,” we’ve clearly just demonstrated that the tech sector has been outperforming value stocks on every measure this year.

Fed President James Bullard told CNBC the US central bank finally began to debate reducing the rate of its post-pandemic QE program, which includes bond buying, and Treasuries, including the benchmark 10-year, fell within a whisker of 3-month lows.

UST 10Y Daily
UST 10Y Daily

Treasury yields are testing the bottom of a temperate falling channel, as the 50 DMA crossed below the 100 DMA, threatening a sharper downturn.

The mere mention by the Fed of rate hikes and reduced bond buying was enough to boost the dollar.

Dollar Daily
Dollar Daily

The greenback completed its rounding bottom, after finally rebounding from its slump, the follow-through of a rising wedge. If the USD scales above 93.50, it will have completed a double bottom, supporting our bullish position, in place since the upside breakout of the massive falling wedge from the March 2020 peak.

However, if the dollar should fall below the Jan. 6 low, we will reverse our position to strongly bearish.

Gold was pressured by the stronger USD.

Gold Daily
Gold Daily

The precious metal completed a top with the 200 DMA as its natural neckline. It then proceeded to fall back into its falling channel, on its way to test the $1,678.40 low registered on Mar. 8.

Hit by a barrage of negative developments, Bitcoin has edged lower for a sixth straight day. For starters, higher interest rates and bond tapering increase the value of the dollar, invalidating, at least in part, Bitcoin's role as a store of value. As well, the World Bank refused El Salvador’s request for help on BTC transition.

Finally, in perhaps the most high-profile development for the cryptocurrency, last week Tesla (NASDAQ:TSLA) CEO Elon Musk said he'd reconsider accepting Bitcoin as payment for the company's electric vehicles “when there’s confirmation of reasonable (~50%) clean energy usage by miners with positive future trend.”

BTC/USD Daily
BTC/USD Daily

BTC/USD is being pressured by a Death Cross, even as the digital token is trying to complete a round bottom at the January low. Failure to remain above $29,000 will likely see a deeper plunge, while a push above $43,00 could test the April all-time high.

Oil advanced for the fourth week in a row on strong global demand. Worldwide consumption is 97 million barrels a day, according to Goldman Sachs. Moreover, a post-lockdown summer, in which travel resumes with a vengeance after consumers spent more than a year sheltering in place, could see incredibly tight WTI supplies. However, a selloff in risk assets is likely to weigh on oil prices too.

Oil Daily
Oil Daily

Friday’s crude oil uptick retests the evening star, an ideal short position for aggressive traders who don't mind going against the trend and are counting on a return-move to a bullish triangle. The RSI has dipped after reaching the most extreme overbought condition since the triangle began.

The Week Ahead

All times listed are EDT

Sunday

21:30: Australia – Retail Sales: seen to remain flat at 1.1% MoM.

21:30: China – PBoC Loan Prime Rate: has been holding steady at 3.85%.

Monday

10:15: Eurozone – ECB President Lagarde Speaks

Tuesday

10:00: US – Existing Home Sales: forecast to decline to 5.72M from 5.85M.

14:00: US – Fed Chair Powell Testifies

Wednesday

3:30: Germany – Manufacturing PMI: expected to dip to 63.4 rom 64.4.

4:30: UK – Manufacturing and Services PMI: printed last month at 65.6 and 62.9 respectively.

8:30: Canada – Core Retail Sales: anticipated to plunge to -5.0% from 4.3%.

10:00: US – New Home Sales: predicted to climb to 875K from 863K.

10:30: US – Crude Oil Inventories: expected to jump to -3.290M from -7.355M.

Thursday

4:00: Germany – Ifo Business Climate Index: forecast to rise to 100.1 from 99.2.

7:00: UK – BoE Interest Rate Decision: presumed to remain steady at 0.10%.

7:00: UK – BoE MPC Meeting Minutes

8:30: US – Core Durable Goods Orders: outlook is for 0.7% from 1.0%.

8:30: US – GDP: anticipated to jump to 6.4% from 4.3% QoQ.

8:30: US – Initial Jobless Claims: seen to shrink to 380K from 412.K.

Friday

8:30: US – Personal Spending: forecast to slip to 0.3% from 0.5%.

Week Ahead: Stock Volatility Will Continue; Dollar To Rise, Gold Could Fall
 

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Week Ahead: Stock Volatility Will Continue; Dollar To Rise, Gold Could Fall

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Comments (15)
Efstathiou Michael
Efstathiou Michael Jun 21, 2021 7:10PM ET
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XAU obviously found a support. Inflation is still here and going strong. we are almost on the support of the long term term. Rate increase is in 18+ months. Fed needs cheap loan rates. I was bearish, turned bullish . it doesn't seem they want stringer dollar right now.
Mark Stallone
Mark Stallone Jun 20, 2021 7:23PM ET
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And Kam Kam will continue to avoid the Crisis at the border.
Jacob Steinschlag
Jacob Steinschlag Jun 20, 2021 6:37PM ET
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Again, i disagree that the Russel2000 is correlating with value stocks. The Dow Jones does this part best and has outperformed the NASDAQ and Russel2000. In the recent month where growth stocks have outperformed everything else, Russel2000 has risen alongside NASDAQ and Arkk while the Dow Jones has declined. Besides that, wonderful article.
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 6:37PM ET
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Hi Jacob, in every measure: Daily, weekly, monthly, 3 months and YTD the Russell underperformed, while the Nadsaq outperformed. At what point exactly, then, did the Dow outperform or underperform the Russell, a day here or there? That's noise. I demonstrated a pattern. It's a free country, you're allowed to be wrong. Thanks for your feedback.
TL Chan
TL Chan Jun 20, 2021 12:44PM ET
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I believe for high quality stocks, Monday would do nothing because Fed members only start talking on Tuesday. But for speculative stocks, guess would still subject to some volatility.
Guidothekiller pimp
Guidothekiller pimp Jun 20, 2021 11:46AM ET
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No one knows what will happen but I hoping the Mad Money Man Cramer is right. I watched a short video of him Friday and his thoughts were Monday would be a down day but after that it should start to go back up. crossing my fingers that happens.
Jouni Matero
Jouni Matero Jun 20, 2021 11:46AM ET
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He's not Nostradamus. Dude has been soooo wrong with all meme stocks for the last year so you shouldn't count on him.
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 11:46AM ET
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Jouni Matero  Thanks for having my back, Jouni
Luis Quezada
Luis Quezada Jun 20, 2021 11:46AM ET
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That wasnt his preditcion though it was Larry Williams who found the pattern which has happens 21 of the last 22 years
Guidothekiller pimp
Guidothekiller pimp Jun 20, 2021 11:46AM ET
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I didn't mean any offense but it looks like the market is going up already. Have a nice day and good luck.
Guidothekiller pimp
Guidothekiller pimp Jun 20, 2021 11:46AM ET
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well it looks like he was was right this time with the exception of Monday.
sourabh soni
sourabh soni Jun 20, 2021 11:35AM ET
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Thank you sir, for your analysis.
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 11:35AM ET
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Pleasure, Sourabh
Install Expert
Install Expert Jun 20, 2021 11:07AM ET
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Hawkish on these "talking heads" controlling too much value of our investments. Time for their naps. Like they don't know what inflation levels could be while thieves are strolling right out the door at Home Depot with loads of lumber worth 4 to 5 times more than it was just a year ago. Give me a break! Have you bought a sheet of plywood lately? You know, that stuff they build homes with. Need a new roof? Good luck. Maybe invest in tarp makers.
Miriam Morkhul
Miriam Morkhul Jun 20, 2021 11:07AM ET
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There are gonna be price controls if i understood things right. When they say "transitory" it's probably not a naturaly self regulation harmonic monetary/market effect but a central plan policy.
CHADWICK RICHINGTON
CHADWICK RICHINGTON Jun 20, 2021 10:07AM ET
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Gold is an obvious BUY
Alan West
Alan West Jun 20, 2021 10:07AM ET
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It’s an obvious sell, it’s plunging.
Steve Uzor
Steve Uzor Jun 20, 2021 10:07AM ET
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why
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 10:07AM ET
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While I disagree with your certainty, I agree with your expectation. See today's Chart of the Day.
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 10:07AM ET
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Alan West  When an asset plunges it's obvious it sold off till now, not that it will continue to do so. See todays' Chart of the Day.
Paolo Paolo
Paolo Paolo Jun 20, 2021 9:59AM ET
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Thanks Pinchas, you are always very clear!
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 9:59AM ET
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Thanks, Paolo, though I suspect that may have something to do with my editors.
Daniel Bergman
Daniel Bergman Jun 20, 2021 9:51AM ET
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The Fed has to keep interest rates low to pay interest on the meganational debt. The result, hyperinflation to pay it back with worthless dollars. It’s all talk obviously. Any meaningful rate hikes make debt payments too expensive eating up a lions share of GDP. Short of defaulting on the debt, the only option is relatively low interest rates. The dollar has to sink long term no matter how you look at it.
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 9:51AM ET
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There is merit to what you say.
Solomon Lalani
Solomon Jun 20, 2021 9:51AM ET
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Pinchas Cohen  Pinchas: low employment (whatever the reasons incl stimulus money, skillsets mismatch, et al) and increasing inflation - isn't this stagflation? Isn't stagflation more difficult to handle than inflation?
Amie Inconnue
Amie Inconnue Jun 20, 2021 9:51AM ET
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That's what I've been thinking... Worst-case scenario. Let's hope that we are wrong.
Vimal Garachh
Vimal Garachh Jun 20, 2021 9:28AM ET
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fantastic knowledge based information
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 9:28AM ET
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Awww, go on, Vimal!
ALI SALEM
ALI SALEM Jun 20, 2021 9:14AM ET
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Very good analysis.. Thank you
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 9:14AM ET
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My pleasure, Ali!
Steve Uzor
Steve Uzor Jun 20, 2021 9:14AM ET
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are we to expect a bearish dollar as market recovers ?
Allen Drewe
Allen Drewe Jun 20, 2021 9:09AM ET
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Betting the dollar will rise on news of possible rate cuts in 2023 that members of the fed have said they are not in favor of is an extremely bold strategy. I see the dollar falling monday and through the week.
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 9:09AM ET
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May the best (or luckiest) man win!
Jeff Chui
Jeff Chui Jun 20, 2021 9:09AM ET
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Agreed. Rise will be short lived. People just take time t odigest what the fed says.
Dwayne Smith
Dwayne Smith Jun 20, 2021 9:04AM ET
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Always enjoy reading your articles. thank you.
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 9:04AM ET
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My pleasure, Dwayne!
William Robbins
William Robbins Jun 20, 2021 8:46AM ET
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I appreciate your clear summation of our current voltile markets.
Pinchas Cohen
Pinchas Cohen Jun 20, 2021 8:46AM ET
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Thanks, William!
 
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