Last week the S&P500 bounced back 0.8% but on very light volume. Volatility in the S&P barely changed; it remains on the extremely complacent end of its long-term range. Confirming the move higher in US stocks, the HYG (or high yield) ETF also moved higher by the end of the week. On the other hand, US Treasuries resisted the positive tone in risk asset markets and their yields barely budged, instead of rising to confirm the movement of money into risk assets.
In US economic news, the results were once again very mixed. The Dallas Fed manufacturing survey missed. So did personal spending. Initial jobless claims came in worse than expected, and consumer sentiment disappointed. On the positive side, international trade beat expectations. So did consumer confidence. Pending home sales and the Chicago PMI also beat consensus estimates.
In terms of technical analysis, the recent retreat in prices (last week’s rise notwithstanding) has slowed the upward momentum that has characterized the Trump reflation trade. For this slowdown to be reversed completely, stock prices would have to continue to rise this week and most likely next week.
The price of gold and silver continue to trace out a long-term bottoming pattern, a pattern that spans more than three years. Specifically, the dip in the fall of 2016 has completed the right (and final) shoulder in an inverted head & shoulders pattern, a bullish pattern that usually precedes a major upward movement in prices. The left shoulder was formed in late 2014 (or possibly mid 2015), and the head was formed in late 2015. The last remaining hurdle in this pattern will be the movement of prices above the neckline, which is approximately at the mid-$1300 level. If prices break above $1375 and stay there, then the long-term nature of this bullish pattern suggests that prices could echo their last bull market run which added over a $1000 to the price of gold. So this means that if another bull market develops, gold could finally reach and exceed $2000. It came close in 2011, but never reached this level.
Almost the exact same analysis applies to the price of silver.
So despite the fact that a huge sword is hanging over the US stock markets, here’s one market that’s poised to do the opposite—enter a major bull market that lasts several years.