by Mahesh Kalbhor | Apr 10, 2024 | Weekly Update
The Gold Surge: How China’s Shifts Are Elevating Gold Prices
Inside recent months, the allure of gold has intensified, a phenomenon significantly influenced by economic movements within China. The World Gold Council’s latest reports reveal a stunning 33% increase in China’s gold purchases in the initial quarter of 2024, and a reduction in their acquisition of U.S. Treasuries. This shift is not arbitrary but rooted in strategic financial decisions and changing consumer behavior within the nation. Here’s why gold is experiencing this upward trajectory, largely thanks to China:🇨🇳
Central Bank Strategy: Hedging Against UncertaintyIn 2023, The People’s Bank of China elevated its gold reserves by 225 tonnes, marking an all-time high. However, China isn’t isolated in this endeavor; globally, central banks have amassed 1,037 tonnes of gold on a net basis last year, making it the second-highest record. But why this gold rush among central banks?Central banks, operated by some of the world’s most astute economists and bankers, are increasingly wary of the vulnerabilities of major reserve currencies, particularly the U.S. dollar. With national debts ballooning and interest rates climbing, the cost of servicing these debts threatens to eclipse national revenues, potentially leading to a currency crisis. Gold, therefore, emerges as a formidable ‘Plan B,’ offering a stable reserve in times of monetary uncertainty.
Shifting Sands: China’s Middle Class Turns to GoldThe Chinese middle class, traditionally inclined towards real estate as a primary savings vehicle, is now facing a stark reality. The plummeting real estate prices, coupled with a looming demographic decline, have rendered property investment untenable. Additionally, the disillusionment with the Chinese and Hong Kong stock markets, exacerbated by non-business-friendly policies, has eroded confidence in equities as a safe haven for savings.This confluence of factors has pivoted the middle-class savings habit decidedly towards gold. Sales of gold jewelry and bullion have skyrocketed, showing a 60% year-on-year increase. The accessibility of gold, through jewelry shops, the ubiquitous WeChat app, and the Shanghai Gold Exchange, has democratized gold investment, making it a feasible option for the average Chinese citizen.
Conclusion
The dramatic uptick in China’s gold purchases is more than a mere statistic; it’s a reflection of a broader economic strategy and a significant shift in consumer behavior. As central banks bolster their reserves to hedge against currency risks, and as the Chinese middle class seeks refuge from the volatile real estate and stock markets, gold’s position as a bastion of financial security is only expected to strengthen. This pivot towards gold in China is not just reshaping the nation’s investment landscape but also setting the stage for a sustained increase in global gold prices.
by Mahesh Kalbhor | Apr 5, 2024 | Weekly Update
Navigating Market Turbulence: A Strategic OutlookIn recent weeks, the financial markets have experienced a whirlwind of activity, with the S&P 500 Index (SPX) showcasing significant movements that have caught the attention of investors and analysts alike. On March 28th, the SPX reached new all-time highs, both closing and intraday, signaling a robust market performance. However, the landscape shifted slightly at the start of this week, marked by a minor pullback and some deterioration in market internals, though these changes initially seemed insignificant.By the afternoon of Thursday, April 4th, the SPX was on the verge of surpassing its recent highs, reflecting a market poised for continued growth. This momentum was abruptly interrupted by comments from Federal Reserve Governor Neel Kashkari, whose hawkish statements led to a sudden increase in selling pressure, illustrating the market’s sensitivity to monetary policy cues.
The SPX subsequently retreated below its first support level at 5180, stirring concerns among market participants. Nonetheless, an established support zone ranging down to 5050 offers a cushion for the market, suggesting that the bulls may still have room to maneuver. This zone is visually represented with a scatter pattern on the accompanying charts, providing a clear indicator for potential reversal points. Should the SPX breach the 5050 threshold, a more significant technical sell-off could be triggered, highlighting the critical nature of this support zone.
Despite these challenges, the current pullback has brought the SPX to its rising 20-day moving average, a development often seen as a normal correction within an overall bullish trend. The market’s resilience, as demonstrated by this reversion to a key technical indicator, reinforces a fundamentally positive outlook on the SPX.
Market sentiment, as gauged by the standard and weighted put-call ratios, has shifted, with both indicators accelerating to the upside, signaling increased selling activity. Similarly, market breadth—a measure of the number of stocks advancing versus those declining—has shown signs of weakness, further complicating the market’s trajectory.
The Volatility Index (VIX), a key measure of market fear and uncertainty, remains a critical barometer in this environment. While there has been a slight uptick in the VIX, it has not reached levels typically associated with major market downturns. A significant bearish signal would be indicated by a sustained upward trend in the VIX, especially if both the VIX and its 20-day moving average surpass the 200-day moving average. Currently, the VIX is above its 200-day moving average, but the 20-day moving average remains below, suggesting that any immediate sell signals may not be imminent.
In response to these developments, we are maintaining our core bullish stance on the SPX, albeit with a note of caution. The introduction of a bearish component to our strategy, informed by the sell signals from equity-only indicators and market breadth, represents a balanced approach to navigating the current market dynamics. As always, our strategy remains flexible, with a commitment to adapting our positions in response to confirmed market signals.In conclusion, while recent market movements have introduced a degree of uncertainty, the underlying strength observed in the SPX suggests a continuation of the bullish trend, supported by key technical levels. Investors are advised to stay vigilant, monitoring market indicators closely, and be prepared to adjust their strategies in alignment with evolving market conditions.
It is another heavy week as far as economic reports and Federal Reserve speakers go. There are a couple of inflation numbers being released, including the latest CPI and PPI numbers. In addition, the notes from the Fed’s last meeting will be made public Wednesday. The latter part of the week is heavy with Fed speaker engagements. Quarterly earnings remain quiet, but the latest round is just over a week away. Have a safe, healthy and prosperous week!
Apr 10: Consumer Price Index
Apr 10: Wholesale Inventories
Apr 10: FOMC Minutes
Apr 11: Jobless Claims
Apr 11: Producer Price Index
Apr 12: Import Price Index
Apr 12: Consumer Sentiment
by Mahesh Kalbhor | Feb 24, 2024 | Weekly Update
Every week, there’s a whirlwind drama that sends shivers through the market, only to fade away as stocks claw their way back to fresh all-time highs. The major indices ($SPX, $NDX, and $DJX) seem invincible, fueled by this constant churn that leaves underperformers like the Russell 2000 ($RUT) trailing in the dust.
Traders are flocking to the hottest stocks ( NVDA SMCI ARM AMD SMH ), buoyed by the relentless ‘new highs’ reported daily by the Wall Street Journal. For now, it’s a strategy that’s paying off.
This past week provided a clear answer to whether a single stock can impact the market. NVIDIA Corp experienced an unprecedented one-day surge in market value, increasing by approximately $273 billion after announcing its earnings. This surge counteracted the prior pullback of the major indexes, effectively erasing those losses with Thursday’s gains. While there might be another pullback on the horizon, the market’s outlook remains somewhere between bullish and neutral. Additionally, the levels of implied volatility and the prices of options have risen slightly from earlier in the year.
The Bullish Case
As long as the $SPX chart remains in an uptrend, we’ll keep our core bullish position. Recent sell-offs have found support at 4920, 4840, and there’s a strong cushion between 4680 to 4800. It’s a testament to the market’s resilience.
Warning Signs
But are there cracks appearing? Equity-only put-call ratios recently hit new lows, a classic overbought signal. While there’s been a slight uptick, our analysis software highlights that a sell signal could be imminent – meaning we might anticipate a rise in these ratios. Should that materialize, a larger pullback could be on the horizon.
Also concerning is that market breadth hasn’t kept pace with the index highs. Our breadth oscillators briefly flickered ‘buy’ signals on Feb 8th-15th but quickly faded. They’re now dancing on the edge of a ‘sell’ signal.
VIX: The Uncertainty Indicator
The volatility index ($VIX) has been surprisingly subdued, save for a spike on Feb 13th in response to unsettling CPI data. Thankfully, the spike quickly reversed, forming a “spike peak” buy signal that’s still in play.
Our Strategy: Cautious Optimism
For now, we’re bullish, actively managing our positions as calls move deeper in-the-money. However, looming sell signals from the put-call ratios and breadth oscillators warrant close attention. If these signals materialize, we’ll adjust our positions accordingly, even as we maintain our core bullish stance.
The Bottom Line
The market remains in a curious state – bullish, resilient, but with underlying hints of potential weakness. It’s a time to trade with both conviction and agility. This week is brimming with economic events, featuring several housing reports and the most recent GDP update. A number of Federal Reserve officials are set to speak, especially on Thursday and Friday, pointing to a potentially dynamic week ahead. While the season for quarterly earnings is winding down, a few key companies are yet to report. Wishing everyone a week that’s safe, healthy, and prosperous!
– Feb 26: New Home Sales
– Feb 27: Durable Goods, Consumer Confidence
– Feb 28: GDP, Trade Balance
– Feb 29: Jobless Claims, Personal Income and Spending, Pending Home Sales
by Mahesh Kalbhor | Feb 19, 2024 | Weekly Update
In the intricate dance of the stock market, every dip, rise, and plateau tells a story. On Tuesday, February 13th, a narrative unfolded that seemed all too familiar yet distinct in its implications. The market faced a sharp downturn in two heavy waves of selling, triggered by a negative CPI report. This moment of panic, however, was short-lived. By late in the day, a reversal was in the cards as buyers stepped in, igniting a buying spree that lasted the remainder of the week. This sequence of events mirrored the sharp, one-day selloff of late January, which, in hindsight, amounted to a mere blip in the market’s upward trajectory.
In Feb 15th , the $SPX closed at a new all-time high 5048, a testament to the market’s resilience and the prevailing bullish sentiment among investors. With near-term support levels identified at 4920 and 4845—markers of the recent selloffs’ lows—the foundation seems solid. Yet, a more significant support zone lies between 4680 and 4800, promising substantial backup. A dip below 4680, however, could spell trouble, potentially flipping the $SPX chart from bullish to bearish.
Market breadth, often a telltale sign of underlying conditions, has recently shifted from caution to optimism. Despite a challenging “90% down day” on February 13th, the breadth oscillators have now edged into modestly overbought territory, nullifying any lingering sell signals. This move, albeit positive, leaves room for desire. With the $SPX scaling new heights, a more pronounced overbought condition in breadth oscillators would have been the icing on the cake.
An interesting twist in this tale is the behavior of the $VIX. Unlike the selloff in late January, the $VIX experienced a notable spike on February 13th, reaching 17.94 before settling at 15.85, above its 200-day Moving Average. This sudden jump was short-lived, however, as the $VIX plummeted to 14.38 the following day, setting the stage for a new “spike peak” buy signal.
In conclusion, the market’s ability to rebound from the February 13th selloff, paralleling the resilience shown in late January, reinforces a “core” bullish stance on the $SPX. This perspective is bolstered by the positive trajectory of the $SPX chart and the strategic trading of other confirmed signals around this core position.
Amid these market movements, option prices and implied volatility levels have seen a slight uptick, indicating a cautious stance among traders. However, the upcoming week offers a momentary pause from the hustle with markets closed on Monday to observe Presidents’ Day. This break might be a welcomed respite for traders looking to catch their breath after last week’s rollercoaster.
The economic calendar for the week ahead looks light, promising a relatively slow pace. Only a few reports are slated for release, but they include some noteworthy items. The spotlight will undoubtedly be on the Federal Reserve, with the minutes from its last meeting set to be released on Wednesday afternoon. These minutes are eagerly awaited for any hints on future monetary policy moves. Additionally, the Fed’s calendar features a couple of speaking engagements on Wednesday and Thursday, which could offer further insights into the central bank’s outlook and strategy.
As February marches on, the quarterly earnings season begins to wind down, shifting investors’ focus more towards macroeconomic indicators and policy cues.
Here’s a quick glance at the key economic events to watch:
– **Feb 20**: A day of reflection and pause as the markets close for Presidents’ Day.
– **Feb 21**: The Federal Open Market Committee (FOMC) Minutes will be in the spotlight, providing insights into the Fed’s last meeting.
– **Feb 22**: Jobless Claims and Existing Home Sales reports will offer a glimpse into the employment landscape and the housing market’s health, respectively.
As we step into a new week, let’s take the opportunity to recharge, staying prepared for whatever the markets might bring next. Wishing everyone a safe, healthy, and prosperous week ahead. Keep an eye on those economic indicators, and let’s navigate the markets with informed decisions and a steady hand.
by Mahesh Kalbhor | Feb 10, 2024 | Weekly Update
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The current market landscape paints a picture of optimism as major indices soar to new all-time highs with remarkable frequency. Among these indices, $SPX, $NDX, and the Dow stand out, affirming our steadfast “core” bullish stance. Despite the notable performance, concerns linger, notably the lagging performance of small-caps ($RUT; IWM) in keeping stride with the broader market rally. However, until these concerns materialize into definitive sell signals, they fail to sway our bullish sentiment.
$SPX finds support at 4850, with additional reinforcement at 4800. Technically, robust support rests at 4600, but a market downturn of such magnitude would undoubtedly reshape the overall market sentiment.
Market breadth remains lackluster despite the record-breaking highs of $SPX and other indices. This disparity underscores the limited bullish breadth beyond $SPX. Sell signals persist within breadth oscillators, persisting even as $SPX surpasses the 5000 mark.
$VIX maintains its low levels, yet another sign of overbought conditions. However, unless $VIX initiates an upward trajectory, its current state poses no threat to the stock market. The $VIX buy signal trend remains intact, standing firm until $VIX surpasses its 200-day Moving Average, currently at about 15.15.
Thus, our “core” bullish position endures, supplemented by prudent trades based on confirmed signals. As the market advances, we roll deeply in-the-money calls upwards, capitalizing on the upward momentum. Despite the historically negative seasonality of February, the market’s resilience remains evident. Nevertheless, should the tides turn, we stand prepared to adapt our strategy accordingly.
Once again, stocks and the market surged higher fueled by prevailing optimism, keeping sellers at bay. The S&P 500 breached the 5,000 milestone for the first time last Friday, poised to extend its gains this week. While the Dow slightly trailed behind Nasdaq and the S&P 500, the overall sentiment remains bullish, suggesting a reluctance for the market to decline. Implied volatility levels and option prices continue to decline as the market climbs.
While quarterly earnings are tapering off, the upcoming weeks will witness several retailers unveiling their performances. Economic reports on the horizon include updates on retail sales, CPI, and PPI figures. It’s crucial to allocate time for reviewing trades and refining trading strategies without excuses.
Wishing everyone a safe, healthy, and happy Valentine’s Day and week ahead! Here’s the schedule for upcoming economic reports:
– Feb 13: CPI
– Feb 15: Jobless Claims
– Feb 15: Import Price Index
– Feb 15: Retail Sales
– Feb 15: Production and Utilization
– Feb 16: Housing Starts
– Feb 16: PPI
– Feb 16: Consumer Sentiment
Here are some trade ideas this week:
– SPY: There’s no need to alter our approach when vertical debits, credits, and calendars have been performing exceptionally well. Anticipate similar trade strategies focusing on the ETF.
– NVDA: We’ve witnessed success with several bullish bull call spreads on this strong performer in recent weeks, prompting us to explore more opportunities in that direction.
– NFLX: Following its upward gap on earnings, NFLX has maintained a narrow trading range. We’ll delve into additional iron condors between support and resistance levels to capitalize on its stability.
