Stocks were boosted by falling producer price index (PPI) growth, which indicates low CPI readings are likely later today. Gold continues to test resistance at $2,475 per ounce, boosted by falling long-term Treasury yields and a weaker Dollar.
Stocks
The S&P 500 broke resistance at 5400 and is headed for a test of the descending trendline at 5500. The Trend Index is rising but below zero, warning of longer-term selling pressure.
The Russell 2000 Small Caps ETF (IWM) is testing resistance between 210 and 215, with the Trend Index indicating secondary buying pressure.
Stocks will likely receive a further boost if we get low CPI growth for July, as expected.
Financial Markets
Bitcoin retraced to test its new support level at $60K [red line]. Respect of support is likely and will confirm rising liquidity in financial markets.
Treasury Markets
Ten-year Treasury yields are falling, headed for a test of support between 3.7% and 3.8%. Low Treasury yields are bullish for stocks, bonds, and especially gold.
Dollar & Gold
The Dollar Index is testing support at 102.5, while a Trend Index peak below zero indicates long-term selling pressure. A weak Dollar is also bullish for gold.
Gold continues to test resistance at $2,475 per ounce, while rising Trend Index troughs above zero signal long-term buying pressure. A breakout is likely, offering a target of $2,600.
Silver remains in a downtrend because of weak industrial demand from the Chinese solar industry.
PPI Inflation
The producer price index (PPI) dipped to 2.27% growth for the 12 months to July.
Monthly growth collapsed to an annualized rate of 1.2%.
Services inflation tends to be the most persistent, so a fall to 2.56% annual growth in services PPI is encouraging.
Monthly services PPI contracted at an annualized rate of 1.9%, which flags a slowing economy.
Low PPI inflation is encouraging and increases the likelihood of low CPI readings later today. Negative services PPI warns that the economy may contract, increasing the probability of a Fed rate cut in September.
Energy
Nymex WTI crude respected resistance at $80 per barrel.
Brent crude similarly found resistance at $82 per barrel.
Low crude prices are expected to ease inflationary pressures, increasing the likelihood of a Fed rate cut in September.
Conclusion
We expect low CPI readings later today to further boost stocks. Falling long-term Treasury yields are bullish for stocks, bonds, and especially gold. The weakening Dollar is also bullish for gold, which continues to test resistance at $2,475 per ounce. A gold breakout is likely and will offer a target of $2,600.
Acknowledgments
- CoinDesk: Bitcoin Prices
Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.