A minor US Equity pullback looks to have begun, though it remains tough to be too bearish in the month of December. Dips might very well end this week before attempting to push back higher, given a lack of structural weakness. Looking back, today proved to be the first pullback to multi-day lows since early November, while market breadth proved to be just fractionally negative. I expect that the next two weeks present the optimal period from a cyclical perspective to consolidate some of these recent gains, but until SPX and QQQ break the uptrend from early November (Near 6006), pullbacks likely could prove buyable. Initial technical support for SPX lies near 6017.
Monday’s weakness might have seemed overdue to some, but it wasn’t the broad-based shellacking that many Bears had been hoping for. Sectors like Healthcare and Materials were positive on the day, and with REITS and Staples were four sectors that rose in trading. There were barely more Declining issues than Advancing by the end of the day, and Technology proved to be very much mid-range, not a big decliner.
While I did expect that some market consolidation might be possible this week into next, SPX arguably requires a move down under 5977 to expect that a larger decline is getting underway, which looks doubtful this month.
As daily charts show, this first pullback to multi-day lows might have another couple days of follow-through, but initially should find strong support near the area of early November highs near 6017 while 6006 represents the first 38.2% Fibonacci-based area of support bacs on the advance from mid-November.
S&P 500 Index
China’s rally was just jump-started by the first meaningful shift in monetary policy in 14 years
As shown below, FXI -2.29% gapped up above its 2-month consolidation phase and has reached the 50% retracement level of its consolidation from October just in today’s trading.
Today’s Monetary policy shift by China’s Politburo, saying they will embrace a “Moderately loose” strategy, is the first real shift on monetary policy in 14 years. They also indicated a more proactive fiscal policy, so the combination has caused a big jump in FXI -2.29% , KWEB -3.12% as this indicates much greater easing ahead.
FXI closed right near its 50% retracement of the October-November decline near $33.50. While this level is important, the act of having closed higher from today’s early opening gap should allow for movement to $34.44 in the days ahead.
Thereafter, a retest and possible break of early Oct highs near 37.50 is possible. While overbought on hourly charts based on today’s gap higher, this is a constructive development and the decline in USD in the next couple months should aid China along with many other Emerging markets, in my view.
iShares China Large-Cap ETF
Gold and Silver should begin to turn back higher to break this past Fall’s highs
China’s shift in monetary policy could be exactly what Gold and silver need following the Politburo’s first shift in 14 years.
The gap higher in Silver helped Spot Silver finish higher by +3.24% but Gold also rose fractionally on the session but just barely in positive territory.
As can be seen below, Gold faces near-term resistance near 2677 but this level is not though to represent much serious resistance before this pushes higher.
Given that Gold has relatively outperformed Silver over the past year, it’s still thought that Gold should show better intermediate-term relative strength. However, China’s lift could temporarily help Copper as well as Silver.
From a risk/reward standpoint, I like Gold to push higher to test 2790 and breaks above this level should lead this up to between 2900-3000. ETF’s like IAU 0.80% and GLD 0.78% both are vehicles that allow investors to participate in possible gains in Gold (and IAU is preferred given a much lower expense ratio.)
CFD’s on Gold
Copper also looks to be turning back higher
While I harbor doubts on the longevity of any Copper bounce, Monday’s move does look important for Spot COMEX Copper and should result in a coming bounce to test early October peaks.
This bounce directly coincided with the bounce in Chinese Equities, and this looks to be an interesting area which might benefit from looser fiscal and monetary policy in China.
Initial resistance for generic Copper futures lies near $4.45, then $4.79. The ability to exceed $4.79 might prove difficult right away, but if/when accomplished would allow for a much larger rally up to challenge $5.20.
While I was skeptical of the possibility of a bottoming in Copper technically, this looks to be the case in the short run and could fuel a decent bounce over the next 1-2 months.
Copper Futures
