U.S. Stock Market - Postponing The Inevitable

Given yesterday’s thrashing, today’s recovery was nothing short of miraculous. Bullish stock market investors just seemed to have unlimited firepower, and single-day sell-offs like Monday are easily shrugged off. Monday’s Boston bombings could easily have triggered a tsunami wave of selling among stock investors, but instead buyers prevailed and the 4-year bull market seems back on track.

Here are today’s closing marks, with changes from Monday’s close:

                                                                                    Tuesday’s Closing Prices                   

Dow Jones Industrial Average                       14,756.78        +157.58           +1.08%

S&P 500 Index                                                  1,574.57        +  22.21           +1.43%

NASDAQ Composite Index                               3,264.63        +  48.14           +1.50%

Russell 2000 Index                                               923.30        +  16.12           +1.78%

Dow Jones Transportation Average                  6,041.34        +131.48           +2.22%

After record single-day absolute price declines on Monday, Gold and Silver attempted a form of “dead cat bounce” today; emphasis on “dead cat”. Many Gold/Silver mining shares actually finished down on the day despite decent rebounds in each of the underlying precious metals. It’s not hard to guess that there will be more than a few downgrades in this sector by many analysts who have perfect vision in their rear view mirrors. However, credit should be given to SoGen, Deutsche Bank, and Goldman Sachs who all made great calls early last week with their bearish turns on gold. While the only way to describe my view of this market is “long and wrong”, I remain convinced that the next 25% swing in precious metals prices will be to the upside. Computer-generated sell signals have now been triggered on the daily, weekly, and monthly charts in the U.S. Dollar Index. Can a sustained advance in precious metals price be far behind?

Bottom Line: In the U.S. stock market, I don’t see much upside follow-through potential to today’s recovery. The nightmare in Boston added just one more element of negativity to an already fragile marketplace. The collapse in Gold/Silver prices could easily be viewed as a bearish liquidity measure for stocks. The general plunge in commodity prices over the last couple of days has a distinct deflationary message behind it, and that message is not favorable to general equity prices. Three months from now, when the S&P 500 Index is 10% to 20% lower, many will look back at these mid-April highs and point to the “obvious” signals of an important turning point.