We alerted new short positions to our Gold Members prior to the drop this Wednesday in the market. We currently have multiple positions that will benefit from the volatility and current drop occurring in major US indexes. As indicated in prior Weekly Briefings, we expect this volatility to continue into September with large swings in both directions. These are optimal conditions to harvest incredible profits over the next 10 weeks.
Wall Street inflation fears, global COVID outbreaks, and mixed economic releases all led to the end of week sell-off, even as Fed Chairman Powell continued to downplay the recent hot inflation. Second quarter earnings season also began with a mostly positive picture.
The Consumer Price Index (CPI) and the Producer Price Index (PPI) were the reports that had most investors on edge last week. Both reported the highest readings in three decades on Wall Street. Yields in the 10 year remain low and continue to drop. The dollar is up against resistance but has not yet reversed lower into August. The high dollar with Fed talk of inflation being “transitory” have kept precious metals suppressed. Optics are important to the Fed and if the precious metals were allowed to roar higher in the current inflationary environment the stock market would be negatively affected. Several new key developments may be needed to unleash technical buying in the metals markets. Approximately 10.5 years ago, August 2011, the US Sovereign Debt was downgraded for the first time. The US is up against its debt ceiling and the current infrastructure bill might be enough to push it past the tipping point. Look for congress to raise the US debt ceiling in the month of August and trigger at least the fear of another US credit downgrade from the major ratings agencies. Money printing does have consequences and we would not be surprised to see another downgrade in the US debt this August.
The S&P 500, the Dow, and the Nasdaq are still all above their 50-day moving averages and the benchmarks are far above their 200-day moving averages. Small-caps, as measured by the Russell 2000, hit their lowest level since mid-May as the index plunged back below its 50-day moving average following last week’s recovery which could spell trouble for the broader market. The Volatility Index (VIX) drifted sideways in a relatively narrow range throughout the week before closing virtually unchanged near 16.5 on Friday. It remains very high given the recent record highs in the S&P 500 and the Nasdaq.
Economic releases this coming week will consist of Tuesday’s consumer confidence number, Thursday’s GDP number, and Friday’s Core PCE Price Index.
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