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The bulls responded with an upswing, which I saw as probable to happen. Is the sharp correction over now? Thus far, my answer remains the same as yesterday - in terms of prices, the worst is likely behind us, in terms of time, we have a way to go still.

So, what about the key juncture stocks are at? Let's get and feel the pulse via a few selected charts.

As for narratives, the tensions around China are back in the spotlight. Otherwise, my yesterday's comments still apply:

(...) Unless the Democrats raise up a notch their existing calls for Biden not to concede defeat under any circumstances, unless rioting ramps up, unless the Fed takes away the punch bowl, and finally unless Americans happily march into another lockdown that who knows when it would really end and on what terms (Cuomo's conditions serve as a great, sorry, terrible example), the stock bull run can go on in September before meeting the October headwinds.

S&P 500 in the Short-Run

I'll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

The rebound from the proximity of 50-day moving average came yesterday, yet with an upper knot and lower, but still respectable volume. That's not entirely bullish, also given the fact that the upswing stopped at the Feb highs level approximately. More work ahead for the bulls.

The Credit Markets' Point of View

Yesterday's upswing in high yield corporate bonds (HYG ETF) is more optimistic - the lack of upper knot and sizable volume bring about a more bullish interpretation than has been the case with the S&P 500 rebound.

The investment grade corporate bonds (LQD ETF) performance is a mixed bag - all intraday gains were erased. That takes away from the HYG ETF bullish performance unless Treasuries are considered.

Long-dated Treasuries (TLT ETF) keep on trading sideways to down in recent weeks. Clearly no margin call here, and instead the realities of a slow economic recovery and the aftermath of Fed's move on inflation, rule.

As stocks found themselves at the rock bottom relative to the high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio, their rebound followed yesterday. The overextension in the runup to the Fed inflation announcement, has been "worked off" entirely, and the stock upswing can continue on less mouth salivating hype now.

Metals, Oil and Technology

Gold is holding up still pretty well. I view its latest white candle as a sign of support for risk-on assets. Should the bearish implications of relatively low volume overpower the bulls and sink the yellow metal to levels below the September intraday lows, that would change the short-term outlook.

Copper keeps its breakout above $3 alive, and the chart posture remains bullish. Again though, the low volume is a sign of short-term caution.

The oil ($WTIC) chart looks distinctly bearish, and the downswing has gathered steam over the recent sessions. Yesterday's reprieve looks as a short-term pause, and doesn't appear to dent much the selling pressure. Black gold's prices look to be underperforming stocks early on (canary in the coal mine) - just as they were at the beginning of 2020 - which highlights the very real possibility of a stormy not merely September, but also October.

Technology (XLK ETF) rose, but not before having to defend against selling pressure first. The upswing could have been stronger, and the fact that it wasn't, highlights the relatively weakening position of this leader as other sectors experience growing interest, relatively speaking.

Yes, that's what rotation is about, and the fact that it's happening, and money isn't moving out of tech to the sidelines or into Treasuries, but instead to value plays, attests to the stock bull being alive and well.

Summary

Summing up, stocks sprang to life yesterday, and despite giving up quite some intraday gains, the advance-decline line moved strongly higher, in a testament to its Friday's relative strength. Volatility as measured by the VIX, relented yesterday, and a period of relative calm and base building (also in the 500-strong index) could be ahead.

The missing piece of the puzzle is the financials (XLF ETF) performance as they "should" have taken kindly to rising yields, yet they continue struggling due to hefty bad loans provisions (anticipated corona fallout). This effect could be gone once meaningful stimulus is in. Technically speaking, financials remain more likely to break above their 200-day moving average than to break below their 50-moving average next, but the move is likely to take quite some patience to see.

Thank you for reading today's free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

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The bears retook initiative yesterday, twisting the hands of weak longs. Where is the usual buy the dip mentality, and all the complacency that is part and parcel of bull markets? It's not just stocks that are at autumn crossroads, and attract extensive comments and discussions (thank you all the commenters!).

These comments are so important that they can't go into the From the Readers' Mailbag section. Instead, I'm featuring them (marked as C) before the technical part of today's analysis.

Here are a few quotes in response to yesterday's "Correction Or Reversal? Cast Your Votes" article.

Market-Related Comments

C: Correction, reversal comes closer to elections. It just feels like a 3 day bleed!

A: I'm still of the opinion that it's a sharp short-term correction, that the bull remains intact, that this is not a reversal. It's a sharp correction to scare the bulls out, and will bring in fresh blood to the bull run before October uncertainties strike in earnest. Media are talking prospects of a contested election, possibility of a Trump landslide before, you know, all those mail-in ballots come in trickling... Given what we have seen as regards rioting so far, having a clear winner right away would be the best present for the country and its stock market.

C: 3307 sp cash will be the target zone. but if cash gets below 3280 then probably 3206-3050 may be seen.

A: I agree with your assessment, but see those figures as applying not to cash, but to futures. And indeed, we saw the daily chart's 50-day moving average (3305) hold in the overnight trading.

C: AU showed the same institutional buying pattern as well on Friday. Considering the extent of this correction, I will say this is our last up before heading into the real correction starting early October. We have also not seen the Institutional liquidity swap usually seen on a trend reversal either. Further strengthening a last bull run. Patience is definitely a virtue to get the most profit out of this great opportunity.

A: Exactly, the advance-decline line behavior on Friday revealed accumulation. This was a sharp selloff as tech momentarily collapsed under its own weight. I agree that the table is set for stocks to recover.

C: The bottom of the Bollinger Bands is 330. A break below that would bring 320 into play; and in the most extreme case, 300. While 300 would arguably invalidate Monica's thesis, I think a bounce off 320 could still leave the bull intact if there is follow-through. Support is strong there and even stronger at 300, though if we reach the latter I might suggest reevaluating where things could head in the coming months.

A: These SPY values are quite in tune with where I have drawn the line for the new stock upleg hypothesis. Look at yesterday's SPY volume drying up - I think we have seen the local low. The most probable scenario remains a renewed upswing before the real October storms arrive.

C: You were mistaken Monica however. You said such a sharp correction will not come before October. And here we are. From the way it looks, this could be a reversal.

A: I called for a rather shallow correction in September, and this is what we got right at the start of the month instead. Higher volatility is here, and earlier than I thought judging by the 2016 precedent. That doesn't take away from the very real possibility of seeing a similarly sharp (or sharper) downside move in October.

The point is to be adaptive in adjusting one's views, to account for new realities. The great strategist, Helmuth von Moltke the Elder said that "No plan survives contact with the enemy." Very true, and applicable to trading as well.

The key takeaways are that thus far, the bull run is alive and well, that we have seen a correction and not a reversal, and that the worst of the downside is in all likelihood in the rear view mirror.

Corona-Related Comments

Yes, they belong to the stock market analysis given the tremendous importance of keeping the economy open for business, job market, consumer confidence, retail sales, you name it. The economy doesn't exist in a vacuum and needs a healthy society, not one cowering in fear while Rome burns.

C: I am a Professor of Medical Genetics. Professor Lipsitch a Harvard epidemiologist documented that with in the coming year, some 40 to 70 percent of people around the world will be infected with the virus The emerging consensus among epidemiologists is that the most likely outcome of this outbreak is a new seasonal disease. The problem is that compared to the FLU mortality 0.1% COVID has 3-20% mortality dependent on age. It is rapidly mutating and each year ,like with the flu, a new vaccine will be needed. It is a new disease that ultimately result in the evolutionary outcome of survival of the fittest, and combined with the Flu mortality rates are still to be grasped The world and world economy will never be the same any time soon. Hedge fund CEO and short term speculators Just don't understand the writing on the wall-this is a health crisis not a monetary one as before.

A: I've been extensively writing on corona. People, check my articles such as July 20 - S&P 500 Is Knocking on the Doors of Early June Highs , Aug 20 - S&P 500 Downswing Staring Us in the Face? , and July 09 - The Renewed S&P 500 Upswing Is Coming . That's just a few. I am no fan of Neil Fergusson style fearmongering.

Those mortality figures are laughably inflated. Even the CDC said there were more suicides than corona deaths. The CDC's own report says less than 10,000 people have died exclusively from the coronavirus.

I don't buy professor's scaremongering of 60 million already infected as measured by very false positive prone PCR tests. Who measures viral load actually? That's (capability to infect) what should be considered instead. I expect powerful fear from the media over weeks and months to come - after all, they've been hinting at a Dark Winter for a long time. The impact on weakened immunity systems will be keenly felt, deaths will rise, but I still look at it to be adequate to a really bad flu season. Hint: if we were in a plague, there would not be that much debate around that. See how powerful actors are reshaping the narrative into a climate change agenda societal reset and away from liberty and capitalism.

Reason is what matters the most. Hospitals aren't overflowing, ventilators are in oversupply etc. Talking doctors, I suggest you search for America's Frontline Doctors - they have the solutions! Turn for real, pioneering medical inspiration to Dr. Didier Raoult, Dr. Stella Immanuel, Dr. Cameron Kyle-Sidell, or Dr. Alex Hakim. Even the CDC director has said there have been more suicides than death by corona.

C: Let's not forget CDC quietly updated their mortality figures and only 6% of total "Covid" deaths are from Covid alone. 9210 people. Hate the fear mongering that took over our country

A: I absolutely agree with you. You are rightly pointing at the same CDC methodical revamp as I were in the above post. I have been also pounding the same message: United States can't succumb to blind fear, the most primitive of emotions!

S&P 500 in the Short-Run

I'll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

A perfectly bearish chart at first glance, and the caption just asks what else could the bears wish for? The 50-day moving average is near, and I doubt that the sellers would be able to take prices there right now. In October, that would be another story for another day.

My Friday's thoughts on the upswing attempt are still valid today:

(...) the bulls will have to prove that it wouldn't turn out as a dead cat bounce.

The Credit Markets' Point of View

Yes, high yield corporate bonds (HYG ETF) declined, but not before putting up a fight first. And I think the upper knot highlights the very real possibility that a local bottom has been reached yesterday. Sign of accumulation.

The caption says it all. Relative to the high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio's daily performance, stocks are at short-term rock bottom comparative valuations. They don't seem to have much more room to decline vis-a-vis the key credit market ratio (unless the latter takes a dive, that is - but I don't see that as probable).

Treasuries, Gold and the Dollar

Long-dated Treasuries (TLT ETF) are not on an upswing. Quite to the contrary, they've been going rather sideways recently, which mirrors the economic recovery story (rising yields are in favor of it), and the increased inflation expectations also help drive yields down.

The key point is that there is no stampede into these debt safe haven instruments.

The liquidity squeeze indicator, the king of metals, is holding up pretty well. No, gold is not facing a margin call, and I view its latest candle as a sign of accumulation during the still bullish shape of the consolidation that I talked yesterday:

(...) it's my opinion that (gold) would attempt to extend the early summer gains once the floor in the U.S. dollar probes lower values again. This might take time though, as I look for USDX to spike higher first - quite a few bullish divergences have formed there, and will likely play out over the coming weeks.

And indeed, these divergences are getting resolved with greenback's upswing. Just as it has helped take oil ($WTIC) to the cleaners, other risk-on assets are suffering too. But if the dollar were serious about its rebound (i.e. it would have serious legs), Treasuries and various yield spreads would be rising alongside, which I don't see happening right now.

The dollar putting up an appearance of a fight, is the Occam's razor style, simplest logical conclusion for the coming weeks. Unless the Democrats raise up a notch their existing calls for Biden not to concede defeat under any circumstances, unless rioting ramps up, unless the Fed takes away the punch bowl, and finally unless Americans happily march into another lockdown that who knows when it would really end and on what terms (Cuomo's conditions serve as a great, sorry, terrible example), the stock bull run can go on in September before meeting the October headwinds.

Summary

Summing up, today's article is well worth the read in its entirety, but suffice to say that the bulls have the opportunity to retake initiative, and prove that this correction is over in terms of prices at least. With rejuvenated spirits, they can recover from the setback suffered, and push somewhat higher before elections start to bite.

Thank you for reading today's free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Monica Kingsley
Stock Trading StrategistSunshine Profits: Analysis. Care. Profits.

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The bears pushed hard also on Friday, but couldn't close near the daily lows. Has the bid returned, and the correction is over now? Given Friday's lower knot and Monday's upswing, it might seem so. How does today's premarket downswing fir in the picture then?

But the key thing is that the bull is alive and well. As long as money will keep being redeployed into other stocks from those that take it on the chin during any correction (such as tech stocks during this one), the bull is far from a top.

That's the power of rotation, as money moves from red hot tech into value plays (with financials perhaps also springing to life at one point - when if not now as yields are rising).

Let's move to the charts.

S&P 500 in the Medium- and Short-Run

I'll start today's flagship Stock Trading Alert with the weekly chart perspective (charts courtesy of http://stockcharts.com ):

After breaking above the upper border of the rising black trend channel still in August, stock prices retraced that move all the way back. On increasing volume, the bears even pierced this level, but were rebuffed.

The daily chart appears constructive for the buyers in the short run. On rising volume, much of the downswing was erased, paving the way for the bulls to try their luck next. But I still see the bears as likely to return over the next few session, offering the bulls a better entry point than was the case at the very end of Monday (3440).

Such were my Friday's thoughts on the upswing attempt:

(...) the bulls will have to prove that it wouldn't turn out as a dead cat bounce.

The Credit Markets' Point of View

Stocks were not alone in seeing buyers step in - high yield corporate bonds (HYG ETF) did so too. But its lower knot could have been arguably longer, given the S&P 500 performance. Notably, investment grade corporate bonds (LQD ETF) didn't recover during Friday's session at all.

These factors point to a relative indecision in the credit markets as these are unwilling to jump the gun.

Both leading credit market ratios - the investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) and high yield corporate bonds to short-term Treasuries (HYG:SHY), keep pointing down, but most of their weakness appears to be over for now.

Of course, with the anticipated arrival of the October correction, that will change, but chop with a slightly bullish bias looks as the most probable scenario for September.

Relative to the high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio's daily performance, stocks have reached short-term comparative valuations making them rather attractive vis-a-vis the key credit market ratio.

Smallcaps, Tech and the Metals

Smallcaps (IWM ETF) mirrored the S&P 500 resiliency, and likewise erased much of the downswing. No sign of distribution here - and while underperforming, the Russell 2000 doesn't disprove the stock bull run.

Technology (XLK ETF) strongly rebounded off the deep intraday lows, and the volume shows the extent of the bulls' commitment. The sectoral correction has been healthy, and I expect tech to go on a slow recovery over the coming days and weeks.

Copper continues its own grind higher, and its chart is bullish. That points to the economy being in a recovery, however slow and uneven that is.

Finally, gold remains in its bullish consolidation, and it's my opinion that it would attempt to extend the early summer gains once the floor in the U.S. dollar probes lower values again. This might take time though, as I look for USDX to spike higher first - quite a few bullish divergences have formed there, and will likely play out over the coming weeks.

Given the weakening oil ($WTIC), that would be little surprising, and actually fitting the October correction hypothesis. No markets go up or down in a straight line, and neither the dollar nor the yellow metal, are an exception.

Summary

Summing up, the bulls' complacency was shaken to the core, and the extreme greed sentiment readings are history. The put/call ratio has though barely budged, which is hinting at the correction likely having a bit longer to run, at least in terms of time. The advance-decline line has ticked higher, pointing to a likely upswing attempt right next - and we saw that yesterday. The weekly advance-decline line though could still have a way to go before reaching the June extremes - but this can wait for October to happen.

The key takeaway is though that we have seen a sharp correction, and not a reversal. In such circumstances, trading decisions remain a question of the risk-reward ratio, and one's willingness to let the dust settle for a moment first.

Thank you for reading today's free analysis. If you would like to receive daily premium follow-ups, I encourage you to sign up for my Stock Trading Alerts to also benefit from the trading action described - the moment it happens. The full analysis includes more details about current positions and levels to watch before deciding to open any new ones or where to close existing ones.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

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