Global markets remain in the same trend as discussed in Market Outlook 2017 According To Our Proprietary Indicators. Stocks surge higher as stock and bond indicators signal ‘risk-on’. At a certain moment in time, markets will go back to ‘risk-off’, but that moment is not now.
Investors watch closely what happens with several leading markets, each of which arrived at an inflection point simultaneously and collectively. Clearly, something could be brewing. But an ongoing trend remains a trend until proven otherwise: Gold remains in a longer term downtrend, commodities are stable though a select number of commodities are in a tactical bull market, the S&P 500 index continues to surge higher.
The ‘risk-on’ sentiment is still intact. As said before, the 10-year yield is the leading risk indicator, and it has not peaked at this point.
We consider the U.S. stock market, with the S&P 500 as the bellwether, to have a “textbook breakout” formation. That is bullish for the short to medium term. Furthermore, last Friday was a strong day for stocks, with a rise in the transportation sector, financials, and small cap (Russell 2000). That is a confirmation of strength in the stocks.
Gold’s relief rally on the other hand is stalling right at major resistance. Gold is moving in rising and falling channels as explained here. It is no coincidence that gold rose sharply from $1120 to $1220. That was certainly in the cards, but the bigger question now is what gold can do around $1220, and, best case, $1350. For now, gold remains in a long term downtrend, until proven otherwise. With ‘risk-on’ in stocks, the likelihood of gold to remain in a downtrend is very high.
