Stock market correction over

Summary

1. Stock market correction proved  short-lived

2. Gold price at a turning point?

3. Bitcoin price recovers

Quick Recap: The Previous Week

Last week, the Kvarn Pulse newsletter was written in a rather cautious mood. After a fierce rally, the S&P 500 index had turned downwards, and we prepared to assess how the depth of the decline should be interpreted. Our primary expectation, however, was still clearly optimistic.

Stock Market Rally Continues

Looking back a week later, we can conclude that our primary expectation of a healthy "pullback" following a fierce rally seemed to be correct. The S&P 500 index turned back to an uptrend already by the end of the week. On Monday, this rise gained additional momentum from news reporting that significant progress had been made in negotiations related to the Middle East conflict.

Next, attention turns to whether the S&P 500 index will rise above 7,600 points and its previous record highs, or if it will fall back below its 200-hour moving average (around 7,450 points). The latter case would force a shift back to a slightly more cautious stance, but currently, our primary expectation is clearly positive.

Last week, we examined the internal dynamics of the stock market by plotting the technology sector (XLK) against the rest of the S&P 500 index (SPXT). From the chart below, we can see that this ratio fell sharply but found support at its 200-hour moving average and has turned back to an uptrend. As long as this situation persists, it clearly supports the expectation that the stock market rally will continue.

Although the stock market is still heavily technology-driven, we have been pleased to see other sectors also on an uptrend over the past week. This "broadening" of the rally is reflected in the growing proportion of stocks trading above their 50-day moving average.

The broadening of the rally is also visible in the equal-weighted S&P 500 index climbing to new record highs.

Currently, the outlook is therefore quite bright, and we see no reason to expect an immediate new correction.  VIX index, which often indicates market nervousness, has returned below its 200-hour moving average.

MOVE index, often called the "VIX of the bond market," has also returned below its own 200-hour moving average, thus indicating no heightened nervousness in the bond market either.

Thematic Idea: Gold

For this week's thematic idea, we are highlighting the precious metal gold.

First, we note that the price development of precious metals has been weak in recent months, and we have not yet seen their downtrend convincingly break. It is still entirely possible that we may be a bit early and the time for a precious metals rally is not here just yet.

However, we want to bring this theme to the attention of our Kvarn Pulse readers already this week, as we see a fairly good chance that confirmation of a comeback for precious metals could be received during the upcoming week, before the publication of our next Kvarn Pulse newsletter. We want our readers to be able to monitor the situation over the coming week and react to it in a way that suits their own investment strategy.

The ounce price of gold has risen sharply over the past week and climbed back above its 200-hour moving average. However, it is worth noting that this sharp rise was preceded by a sharp drop, and there is still some way to go before a true trend reversal. Gold's price rising above $4,600 would be a very promising sign. Currently, this watershed level is about five percent away.

Looking somewhat stronger than the gold price itself are the stock prices of gold-mining companies. The price of VanEck Gold Miners ETF (G2X) appears to be rising above its local top from early June, which could be the first step in a trend reversal.

For example, the share price of Newmont Corporation (NEM), one of the largest U.S.-listed gold mining companies seems to be giving strong indications of an approaching trend reversal. The share price has climbed 15 percent in just a few days. If the price rises above $120 over the next week, our baseline expectation is that Newmont's stock is on its way toward new record highs.

Crypto market bounces

The price of the largest cryptocurrency, Bitcoin, is in quite an interesting situation. Following a sudden drop in early June, the price retested the $60,000 area and found support levels there once again.

Bitcoin's price has now made a "double bottom" pattern, which gives room for the hypothesis that there could continue to be enough buyers around the $60,000 mark and therefore we wouldn't see the price fall below this level in the future either.

At the same time, it is worth keeping in mind that in the bigger picture, Bitcoin's price is still in a clear bear market, with the price tracking deep below the downward-sloping 200-day moving average.

On the other hand, if we plot Bitcoin against the S&P 500 index (IBIT/SPX), we can see that this ratio drew a clear "lower low" in early June.

This means that even though Bitcoin's price decline in dollar terms might be leveling off, it has still continued to lag behind the stock market's development. To be convinced of a new uptrend for Bitcoin, we would want to see its development stabilize against the major equity indices as well, which we have not seen signs of yet.

Within the crypto market, however, it can be seen that the ratio of altcoins to Bitcoin (TOTAL3/BTC) has recovered slightly and returned above its 200-hour moving average. We always consider this a promising sign, and as long as this state of affairs persists, we view the crypto market with cautious optimism.

Perhaps the most positive interpretation from the crypto market's perspective could be this:

Whereas the first phase of the spring stock rally was extremely AI-driven, the rally has now begun to broaden to include other sectors as well. This could create the conditions for capital to start finding its way not only into other stock market sectors but also into the cryptocurrency market.

There are still many hurdles to clear for this hypothesis to materialize, but we are following it with interest. In light of previous relative valuations, it is possible to see substantial upside potential still remaining for Bitcoin. Bitcoin's price ratio to the S&P 500 index is now roughly at January 2024 levels and about 55 percent below the peak readings of summer 2025.

While the price development of the largest cryptocurrency, Bitcoin, does not yet indicate a bull market, the situation for the crypto market's bright spot, HYPE, is quite different. HYPE's price has already recovered from the correction and has even set a marginally higher high this week.

We are living in interesting times in the financial markets right now. The stock market appeared to try turning into a correction, which, however, ended up being just a shallow pull-back. The stock market rally seems to be broadening beyond the technology sector, and at the same time, we are seeing the prices of both gold and Bitcoin starting to recover from their drops. Hopes of de-escalation in the Middle East conflict provide a new catalyst for optimism, and new opportunities are continuously appearing in the market.

Wherever the market goes, we will continue to monitor the situation, so stay tuned!