Stocks and Commodities Hunt for Direction

Published on July 5, 2017 @ 8:53am

Hope your 4th was well spent. We've got a little strength to kick off trading on the day, but it's not how we start these days, it's how we finish. With volatility continuing to plague the markets in recent weeks, the equity landscape still isn't out of the woods quite yet - despite the DOW making a new intra-day all-time high on Monday.

After starting the day to the upside on Monday, the markets gave it all back by day's end with the NASDAQ once again leading the charge lower. More importantly, it still looks like the tech heavy index wants to find its way down to at least 5,900 before we'd start getting even remotely excited about various buying opportunities out there.

What's been happening of late appears to be far more technical than fundamental, as we've got no real change on the economic front, while the upcoming earnings season is still expected to be pretty good across the board. We'll see, but at this point there still doesn't appear to be anything out there to suggest investors should start getting concerned on a long-term basis.

As a matter of strong opinion, we'll continue to view any potentially deep pullbacks as buying opportunities if we can get them. No guarantee we'll get one yet, but all it would take is one more sharp down day, and that would likely give the short-term bears the fuel they need to work these markets lower.

Not only does the 5,900 level on the NASDAQ Composite represent a key gap, it also represents a fairly key long-term retracement level - one that should end up serving as a backstop should the index inevitably find its way down around that level.

With respect to any short-term trading ideas, we're still convinced oil and gold are both headed lower, which still puts SCO, DGLD and DUST in play - all primary bearish leveraged ETF's tracking oil and gold respectively.

Although oil has found some relief over the last several days, we pointed to the strong possibility on Monday of a resumption of its longer-term downtrend any day now - and it appears oil has run into some resistance once again.

The daily chart of the price of crude below includes some key expansion levels - assuming of course Monday's top isn't breached. As you can see, we've got a key expansion level down around that $37 and change level here. Not only would $37 and change represent a potentially key pivot point, a move to that level would also wash out a lot of stops around $40 a barrel.

It would be at that point we'd start getting bullish on oil, as well as suggest some quality names in the energy space in anticipation of a big reversal - one that could put several quality energy names in a position to outperform the major indices on a go-forward basis.

As for gold, it still remains to be seen if the precious metal will inevitably hold its 2015 low, and then its higher low late last year. However, from purely a technical perspective it does appears gold wants to find its way down around 1,200 per ounce - or slightly below - before it too could be in a position to resume its longer-term trend higher again.

The weekly chart of GLD here, the primary ETF tracking the price of gold, shows you the type of volatility it has experienced throughout the first half of the year, but a move to the key retracement level you see here around $113 and change would likely create the same type of washout we'd see if oil gets to the $37 and change level.

Not only would these type of future anticipated reversals likely trigger more upside across the major averages - with the potential for energy to finally lead a little - if the major indices could end up down around some key levels at the same time gold and oil achieve the above mentioned levels, it could make for a pretty bullish equity landscape across the board.

Not that gold should move higher in tandem with stocks, but once commodities do start to get a lift, it would put the reflation trade back in focus - something we do expect to take place in the back-half of this year.

We'll continue to stand pat for now with an eye toward lower levels ahead for stocks. A little patience right now could end up going a long way if we can get the NASDAQ down around that 5,900 level.