August Stock Market Trading Not For The Faint Of Heart

The article outlines the typical August market weakness driven by diminished liquidity and increased volatility. The author predicts a continued drop in yields, potentially benefiting TLT, and a weakening dollar below 98, which is seen as bullish for commodities, particularly energy, gold, and silver, with gold poised for new highs. While the S&P 500 currently shows 'risk on,' the confluence of a weakening dollar, lower yields, and rising gold is generally considered a 'risk off' environment, though the author maintains a bullish stance on gold's outlook.

Analysis

The analysis centers on the seasonal weakness typical of August markets, characterized by diminished liquidity and higher volatility, setting the stage for a technical outlook across major asset classes. A core thesis is the expectation of falling U.S. Treasury yields, which is seen as a catalyst for the 20 Year US Treasury ETF (TLT) to establish a base, with a potential breakout above the $90 level signaling further upside. Concurrently, the U.S. dollar is observed to have failed at the key 100 resistance level, with a break below 98 anticipated to trigger a new leg down. This currency weakness is presented as a primary driver for a bullish outlook on commodities, specifically noting that Natural Gas may have bottomed and that precious metals are technically well-positioned. Gold is highlighted for its potential to reach new all-time highs above the $3450 level (October contract), while Silver's breakout is contingent on clearing $40. In equities, the S&P 500 (SPY) currently demonstrates 'risk on' strength, though a 'Real Motion Indicator' has issued a mean reversion sell signal, counteracted by a bullish divergence. The analysis posits a scenario where a weakening dollar and lower yields, traditionally 'risk-off' signals, could coexist with a continued equity rally, creating a complex inter-market dynamic.

Key Decisions for Investors

• Monitor the 20 Year US Treasury ETF (TLT) for a sustained move above the $90 level, as this would technically validate the thesis of falling yields and a significant rally in long-duration bonds.
• Consider the U.S. dollar's performance as a key catalyst for commodity exposure; a decisive break below the 98 index level could serve as a strong signal to increase allocations to gold, silver, and energy-related assets.
• Despite the S&P 500's current outperformance, the noted mean reversion sell signal warrants caution, and investors should watch for a potential performance shift away from equities and towards bonds or commodities if key technical supports in SPY fail.
• Pay close attention to the July 6-month calendar ranges across asset classes, as breakouts or breakdowns from these ranges will provide crucial confirmation of the market's next directional move amid the conflicting signals.