Weaker breadth, small caps outperformance, inflationary pressures, silver

Weaker breadth

The stock market’s breadth has weakened a little, which is no surprise given the stock market’s recent pullback. The % of NYSE Composite members at a 52 week high dipped below 1.5% for the first time in over 2 months:

The recent historical cases of a pullback after strong breadth (Feb 2018, October 2018, Feb 2020) saw stocks fall further in the weeks ahead:

This is a minor bearish concern.

Small caps outperformance

Small caps outperformed large caps for 5 months in a row:

Historically, this often led to more small caps outperformance over the next 6 months:

Inflationary pressures

The ISM manufacturing business prices index reached a multi-year high, indicating inflationary pressures and continued supplier pricing power:

Historically, such inflationary pressures were bullish for gold over the next 9 months:

Monday’s silver surge pushed the gold/silver ratio to its lowest level in over half a decade. Precious metals bull markets are signified by a falling gold/silver ratio since the more volatile metal (silver) outpaces the less volatile metal (gold):

Historically, this was bullish for gold over the next 9-12 months:

Conclusion

  1. Short term trend followers should continue to ride the bull trend because no one knows exactly when it will end.
  2. Medium term traders should go neither long nor short.
  3. Long term investors should be highly defensive right now. This speculative bull market may last another 6 months or even 9 months, but in 2 years time, long term investors will be glad they did not buy today.

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