Key Tactical Takeaways:
> Communications is now the only sector to be leading the S&P 500 on a tactical basis, after the energy sector rotated into the Weakening quadrant on Monday.
> Gold and gold miners appear to have entered respective 3rd waves up from their respective 11/30 lows.
> As sentiment froth and VIX non-confirmation of the S&P's rally continue to grow, do not underestimate the potential for major equity indices to continue to bleed higher pending a breakdown in trend. Bull trend support starts at SPX ....
> While the Nikkei and Shanghai Composite entered bearish short-term trends overnight, at this time aussie/yen is not showing signs of worrisome deterioration. That won't occur until support at ... fails.
Some Quick Thoughts:
What a shock! After weeks of jawboning about a coming stimulus deal, financial media outlets are blaming this morning's equity weakness on fading optimism over a deal being struck by year end. This comes as Senate Majority Leader Mitch McConnell continues to push for his own plan's acceptance as he holds firm on introducing federal limits on Covid-19 lawsuits against businesses. With time quickly ticking away, the House is due to vote on a continuing resolution on Wednesday to keep the federal government running for another week to settle on a potential omnibus bill that could include stimulus spending.
For a 2nd straight session, global indices are lower this morning. This time, though, we're looking at a Nikkei and Shanghai Composite that have now closed below their bullish short-term stops, with the DAX threatening to match this weakness as of this writing. For the DAX, its bullish short-term stop rests at ..., while the S&P cash index has a short-term stop at 3651. Needless to say, it is certainly noteworthy that this weakness comes just as the first patients were vaccinated against Covid in the UK.
The VIX is higher again this morning, building on its trend of higher lows that began diverging against the S&P's higher highs at the start of December trading. In order for this to expand to the point where volatility-based black boxes initiate a short-term long position in the VIX, settlement > ... is required.
Late in November, we talked about the possibility that gold prices were about to stage a “false breakdown” below the post-August down-channel. After Monday's intra-day reversal higher from a far shallower than expected retracement of the post-11/30 rebound, the "false breakdown" argument has been confirmed. As a result, default potential back to ...
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