Frothy Equity Sentiment, Will Hedgers Show Love For Gold? - Morning Market Squeeze

Key Tactical Takeaways:

> Although major rotation into financials, industrials and energy continues to slow, there really aren't any other sectors that seem to be picking up enough steam to become the new leaders.

> Growth looks poised to outperform value over the short-term after relative conditions became depressed last week.

> While extended momentum warrants some profit taking in EM, core longs should be maintained against EEM ....

> GLD is now testing falling trend support at ... without positive momentum divergence. Risk will stay leaning to ... pending a close > .... Recent CFTC COT data show that commercials have not favored gold.

> Although the VIX is bid this morning, a close > needed for higher vol. to be maintained.

Some Quick Thoughts:

There's no denying that the rapid pace to a vaccine has given investors hope. However, we must now question whether investors have priced in a return to normalcy at a pace that is simply too fast for the pace of actual economic growth. Technically, our concerns remain the same. Specifically, equity sentiment is simply too frothy at a time when interest rates have begun to diverge against the latest up-leg in the S&P 500. For us, this is not an environment where we feel comfortable in advising readers to add to equities that trade with a strong correlation to the major indices. But this does not mean that there aren't opportunities outside of the major indices. In fact, it's quite the opposite, as numerous small cap stocks have been rising from large basing patterns of late. In addition, we’ll be adding some Chinese ADRs to our trade ideas soon, based on the price action in that part of the world.

Oil fell to a 3-day low overnight after an informal meeting of OPEC+ ministers didn’t reach an agreement on whether to delay January’s oil-output increase. Crude will maintain immediate support for a push to new highs against a stop of .... Should such a rally occur, however, the wave structure looks to be getting mature enough to ...

Needless to say, gold's correlated decline with the US dollar has been very uncharacteristic. While many have blamed this on haven demand being drawn out of the system by the fast-track to a vaccine of late, we continue to argue that a large part of this may be due to the generational preference for Bitcoin vs. gold. We await this afternoon's CFTC COT report to gauge whether commercials have begun to decrease their net-short gold positions, which has not been the case of late.

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