The last week’s correction has gone too fast for this week’s bull market to be resumed with the same speed and record highs. This week is expected to be pretty volatile due to the upcoming Jackson Hole Symposium that will happen this Thursday. The Jackson Hole Symposium is an annual event for the central bankers, where they discuss and announce their plans.

Of course, the most anticipated announcement is about the start of tapering the Fed’s massive Quantitative Easing (QA) program when the inflation is high and kicking in all the economy parts. 

However, according to the bank Goldman Sachs, this announcement will happen not earlier than the November Federal Open Market Committee meeting. So, if everything goes well, they will announce the start of tapering and will agree on 15 billion USD per meeting. 

There are still some doubts that the formal announcement about the start of taping won’t be delayed till December or even 2022. Goldman puts high odds on a delay beyond November because of the downside risk posed by the Covid Delta variant. It’s difficult to say how much of the actual tapering which has been priced in as volatility has returned to equity indices. Considering all this, the official announcement might be bullish and even a small delay in the taper may cause equities to jump high again. 

Another positive side of this is the weakening of the US dollar. The EURUSD pair has failed to drop below its support price of 1.17 which cause a massive falling wedge pattern on the daily chart. This is in fact a strong bullish formation, and it might provide a powerful bullish signal once the pair jumps above 1.18. 

It is expected that volatility will be very elevated on Thursday and Friday which is a sign for the conservative traders to stay out of the market until the Fed's message is clear.

Last week, the OPEC+ group had to start boosting oil production by the request of the White House. It was necessary to slow rising gasoline prices that could affect the economic recovery in the world. It resulted in a problem with oil commodity itself. The boosting of oil production was criticized by the president’s administration as it supports ecology friendly movements and mostly against oil production. However, it didn’t stop them to call for more oil production. 

According to the EIA predictions, crude oil production will keep on dropping over the next half a year or so. The demand for OPEC’s oil is expected to exceed production by 1 million barrels per day, but also is expected to drop to 300 thousand in the next quarter. It seems like oil most likely be supported during this inflation period simply because it remains one of the best inflation hedges. 

So, the expectation is that short-term declines in prices will be caused by investors while long and medium-term uptrends will stay intact. If oil stays above its support of 65.00 USD it’s going to be alright. But of the bulls push the price above the resistance level, it could increase toward 74 USD. 

However, oil needs to break above the short-term bearish trendline from previous highs and post new highs to confirm the bullish momentum. Alternatively, if the price drops below 65 USD, stop losses of long positions will be hit, which might push the black gold toward the 62.50 USD support in the initial reaction. 

This Monday gold has dropped to 100 USD per ounce and silver cratered 10% before recovering but was still down 3%. During this period around 4 billion USD worth of gold futures were sold. 

Since gold and silver crash regularly it is not something new to see here. However, the fact that gold has dropped below its long-term uptrend line only shows that things are only getting worse.

The situation with inflation stays stable, as it is not going anywhere and is kept quite high with no ease. There are still some chances that the Federal reserve (Fed) will start reducing its Quantitative Easing (QE) program by the end of the year which will result in a bearish trend for precious metals. As the EURUSD pair is trying to drop below July's highs it looks like the USD might be starting another leg higher. 

Those who bought gold in April 2020 are now up circa 5% and it’s not even higher that the official Consumer Price Index (CPI) inflation. That’s why they say gold is one of the worst inflations hedges ever. However, if we look at the SP500 index, it was up 70%, and West Texas Intermediate (WTI) oil is up 200%, when some of the crypto currencies were up 1000%. 

The times when traders were buying gold against inflation are left in the past and it means there is no reasons to buy the bullion except a good technical situation or just a global preference of gold over other assets. No one wants to buy and hold an assets that is so much affected by inflation and only drops in its price when you can buy stocks which tend to go uptrend. 

It is clear that the long-term uptrend is here as the equities started rising again after a brief correction including most of the US benchmarks that are very close to their record highs. Despite the fact that last week the Federal Reserve (Fed) had a meeting to discuss monetary policy, however, they implemented no changes, as expected. 

As the Consumer Price Index (CPI) states, it is the largest inflation gain since August 2008 and it has reached 5.4% in June. And as the prices continue to fly sky high, the CPI was recorded having its highest reading in four decades. Of course, the Fed is sure that this situation with inflation is temporary, when a lot of economists claim, inflation is going to stay here longer. 

“The path of the economy continues to depend on the course of the virus, Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain” stated central bank.  

Most likely there won’t be any changes until after the first term of Fed Chairman Jerome Powell's function ends in Q2 2022 and until that time the Fed is not going to alter its monetary policy. 

Additionally, we can see that the SP500 index is extremely overstretched and is circa 20% above that average which means stocks should decline notably in the near future. And this is the only time market has been this extended. So to conclude, it is still risky to buy when the uptrend remains this high and wait for correction before making any decisions. 

Since the begging of summer, the FX market volatility has calmed a bit with the EURUSD pair trying to find its direction for the next quarter. Last year the inflation expectation has been rising sharply as the USD dropped. However, it’s been a completely different story for 2021 as the dollar has been trying to erase those losses. 

The dollar index was falling starting from April and till the end of June which sent the index from 90 to 92.50. At the same time, the EURUSD pair dropped from 1.22 to 1.18, and the USDJPY pair rose from 108 to 111. The second half of the year could be even more interesting as the Fed is about to start tapering its monthly purchases. That is the consensus of market participants. The plan should be announced in August, and the actual taper is expected to begin in late 2021 or early 2022. 

There is some price tightening happening on the market with the Feds plan of hiking monetary policy in late 2022. However, it is far from being considered a "realistic expectation."

As for the USD, the current resistance is at April highs of 93.50 (for the EURUSD pair, the support is at 1.17). If the dollar strengthens above that level, another leg higher could bring the dollar index to 95 and the EURUSD pair to 1.15. Alternatively, if the USD comes under selling pressure, the support for the index is at 90, and the resistance for the EURUSD pair nears 1.22.

During the last few weeks, the S&P 500 and Nasdaq 100 indices have been pushing to new record highs, while the Dow Jones is lagging a bit. The S&P 500 index has not been this high in over the last 4 years. 

Historically, the market has only been more stretched than it is now, five times. And only once did stocks continue to rally by a lot - 36% at the height of the Tech Bubble in 1999. That’s when equities almost always correct 10%.

The chances are quite high that stocks will decline 10%. However, this time it may be different. It may be different due to the actions of the Federal Reserve (Fed) and other central banks that are pumping insane amounts of money into the markets each month. Additionally, between 1913 and 2020, the Fed never bought corporate bonds or corporate bond exchange-traded funds (ETFs). And yet, in 2020, the Fed did all of those things, and it continues to do so in 2021.

The current bullish momentum in stocks is powerful, and it would be unwise to start shorting the market because it is overextended and overbought. Stocks can rally another 5-15% without a problem, wiping the accounts of people who are short. 

For those who think that equity markets are in a bubble, it is better to wait for a reversal signal before executing short positions. Such a signal could be a bearish pin bar on daily/ weekly, a strong divergence between some indicators and the price, a double/ triple top pattern or just general exhaustion of the bull market when the price stops pushing to new highs. 

However, we haven’t seen such signals yet. Maybe there will be some positive changes in August at the Jackson Hole conference, where the Fed will announce its plans. Until then, the outlook remains bullish, and even though equities are in a giant bubble, it looks like the bubble will not burst anytime soon.