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S&P Holds Firm, GLD > TLT As Risk Hedge - Morning Market Squeeze

Key Tactical Takeaways: > As we show on page 8, S&P 500 sell-offs greater than 1.0% on the first day of the new year (since 1928) are, on average, followed by ... returns over the following 4 weeks. In addition, average drawdowns tend to be quite .... As long as this SPX 3674 holds on a closing basis, equity positions with high correlations to the S&P 500 should not be sold.

> As tech's leadership momentum is fading, new leadership by the ... sector is building a head of steam. ... and ...appear to be the closest to possibly moving into the Leading quadrant in the coming days.

> The 5-Yr, 5-Yr Forward Inflation Rate is starting to look comfortable above 2.0%. > GLD is now clearly exhibiting 3rd wave characteristics. ... is one gold miner that is just starting to reach escape velocity, so we're adding it to the trade ideas sheet at the open. We're also going long ...

Some Quick Thoughts: Monday's sell-off brought yet another test of bullish resolve, with concerns over today's GA Senate elections, the US's slower-than-expected vaccine rollout, and the national lockdown in England being blamed for the swift risk-off flare up. After an intra-day drawdown of -2.5%, the S&P 500 rallied to close the session lower by -1.5%. As we show on page 8, S&P 500 sell-offs greater than 1.0% on the first day of the new year (since 1928) are, on average, followed by ... returns over the following 4 weeks. In addition, average drawdowns tend to be quite .... While the higher taxes, restrictive regulation and other anti-business policies that might result from legislative control in the event the Democrats win today's GA election would certainly bring a sour taste to investors' mouths, the counterbalancing argument is that this will also bring massive spending and even greater stimulus. While we don't pretend to know how this will all shake out, we do know that price will ultimately show the way. Right now, price (i.e., the benchmark S&P 500), is holding right above critical near-term support in the ... area. As long as this level holds on a closing basis, equity positions with high correlations to the S&P 500 should not be sold. Should this change, however, we will then be forced to position for a meaningful correction either in price (i.e. a correction of the 10% variety) or in time (i.e., a multi-week period of sideways price action).

One final note must be made regarding gold. Since Democrat control might also bring greater fiscal stimulus, resulting in greater inflationary pressures, the result would be increased bond auction sizes. Couple this with the already low yields at the long-end of the curve and Treasuries will be poised to lose even more favor as a risk hedge to gold. As a result, gold is ...


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