Key Tactical Takeaways:
> So far, the S&P 500 is ignoring seasonal topping pattern that typically starts to develop through mid January. Pending a close < 3758, the argument for a blow-off rally in the S&P 500 will go uncontested.
> As the 10-Yr yield nears the high-end of the range at 1.12%ish with newly extended momentum ahead of today's jobs report, the short-term trend would only turn in favor of lower rates in the event of a close < 1.03%.
> After slipping into a ST downtrend on Wednesday, GLD is currently at risk of breaching key near-term support at 178.86. Should this occur, the focus turns from 186.7 to 176.40.
> As the oil rally starts to form its first momentum divergence as price tags the high-end of its intermediate-term volatility range, it's time to tighten stops. We've taken the stop on our USO long to 33.55.
Some Quick Thoughts:
There's been a lot of talk recently about the predictions about 2021 coming from the financial industry’s most influential strategists. These predictions include themes in business, investments, brands and demographics, but the one that stands out the most to us is the nearly consensus view that the US dollar will continue to weaken. Make no mistake; the list of items that can lead to a weaker dollar in 2021 is quite long. However, that's not how the market works. The market love to confound, and while the dollar has consistently struggled to lift itself up off the mat in recent months, the fact of the matter is that being short the dollar has become an incredibly crowded trade.
Widely publicized predictions from influential experts and firms often become self-fulfilling prophecies. Tactically, though, as the chart starts to show the same kind of downside momentum deceleration that preceded the start of the dollar's late-Aug through earl-Nov range, the potential for the dollar to rotate into a countertrend upswing has become elevated once again. Given the strong inverse correlations currently at play, such a development would have tactical implications for the rallies in equities, commodities and Bitcoin we've been enjoying of late. Again, this is just a warning, and no risk-off signal has been given at this time.
Ahead of this morning's jobs report, credit spread, interest rates, stocks and key currency risk currency like AUDJPY are still pointing to risk-on. While an abysmal jobs number (that's not our prediction) would probably cause equities to spike given how stupid this market has become, the same probably can't be said for rates. With the 10-Yr yield now looking extended near the high-end of the range at 1.12%ish, the short-term trend would only turn in favor of lower rates in the event of a close < 1.03%. For stocks, the argument for a blow-off rally in the S&P 500 will go uncontested against SPX 3758. Lastly, for the past 2 days of dollar stability to have any chance at developing into a more sustainable countertrend rally, settlement > DXY 90.38 is required.
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