The mainstream media is focusing on the upcoming inflation report, which will be released Thursday. But, while this report can give you a general idea of the state of the markets, it won’t be the full picture.
That’s why I prefer to look at the “Four Corners.”
Here’s What’s Going On in the “Four Corners” of the Market
My favorite tool to track (and even predict) the markets is what I like to call the “Four Corners” — stocks, bonds, currencies, and commodities. This gives you a nice overview of what’s coming, and how to prepare for it.
And here’s what they’re saying…
The equities market had been on quite a bullish run this summer, with SPDR S&P 500 ETF Trust (SPY) climbing just under 20% from the March 2023 lows to its recent highs.
And while last week’s ratings cut from Fitch Ratings has caused a bit of a stall, it may be short-lived depending on the economic numbers that come in later this week.
However, it’s still prudent to be prepared should there be more of a pullback in the markets. The best way to do that is to monitor if SPY breaks its ascending support line and then watch if the security retraces to a Fib retracement level.
I’m not saying I’m turning bearish on equities — in fact, I’m bullish in the long term — but I want to be aware of what is possible.
I like to use iShares 20+ Year Treasury Bond ETF (TLT) as my representation for bonds. As we discussed last week, there tends to be an inverse trading correlation between equities and bonds, which means they trade/trend in opposite directions.
There are times when they’re correlated, but those are very uncommon.
That’s interesting because equities have dipped over the past week, but TLT is also lower.
In fact, during this dip, TLT broke to fresh yearly lows. That means one of two things are likely: There might be a bounce coming in TLT, or this stall in equities will be short lived. I’m still bullish on the market in the long term, so I’m leaning toward the latter.
If one wants to assess a directional trend for the Dollar Index Fund (UUP) for the year, it would be sideways.
Overhead resistance is emphasized in the chart image below (with the green horizontal line).
You can make a case that the support pivots are getting a bit higher over the year, but there is a support more so at 27.60.
Currencies and equities have an inverse relationship. Should UUP make it to resistance, I would anticipate the pattern repeating and trading lower from that point, which may result in equities (SPY) trading higher.
Gold prices have dipped some, but I’m still bullish. There are a few things I see going on in the SPDR Gold Shares (GLD) chart below that make me feel that way,
- The closing low to closing high over the year shows the 61.8% fib level was the most meaningful support level on the year for GLD.
- The dotted, green, horizontal line indicates a double-top resistance where GLD needs to breach for me to get more bullish on GLD.
- The dip it is going through now may find a bit of support as the price it’s at now has filled a gap up indicated on the chart.
To your continued success,