The Morning Call
4/20/26
The
Market
Technical
Another spectacular week for the S&P. It has
now made a new all-time high resetting all three DMAs to support. As you know, I
approached this upside move cautiously---which couldn’t have been more wrong. Nonetheless,
I am loath to chase this upswing, especially with (now) three gap up opens
sitting below. The only good news in this trading error is that a number of
stocks on my Buy List have remained within buying parameters. So with any
retreat, I can make a delayed entry.
Mean reversion is faster now.
https://trendlabs.com/volatility-mean-reverts/
Insiders have stopped buying.
https://talkmarkets.com/article/when-insiders-stop-buying-should-you-worry-1776386275
Risk is back on.
https://www.stockmarketmedia.com/2026-04-17/risk-back-offense
We overshot the
mark.
(3)
We've Overshot The Mark: QTR With Michelle Makori
Summary:
There’s a growing sense that we’ve moved past the major risks—that geopolitical
tensions will fade, growth will hold up, and central banks will remain
supportive—but I don’t think that confidence is grounded in reality.
TLT was up slightly
on the week and appears to have found at least a temporary bottom at the lower
boundary of its very short term trading range. However, it remains below all
DMAs and in downtrends across all major timeframes. With stagflation the likely
result of the destruction wrought on the oil infrastructure, I am hard pressed
to think that bond prices are going to improve markedly.
Gold continued its
comeback. But it still in a very short term downtrend marked by the top and the
lower high. The good news is that (1) it has reestablished its 100 DMA as
support, (2) it remains in uptrends across all time frames and (3) still has one
gap down open overhead that needs to be filled. I will likely rebuild my GDX
position when it breaks through that very short term downtrend.
The dollar broke that very short term uptrend marked by
series of higher lows. In addition, it is now reset all its DMAs to resistance.
But as you can see there is near in support lower at the lower boundary of its
short term trading range and the lower boundary of its intermediate term
uptrend. Still, the macroeconomic backdrop of the US economy (slow growth and
rising inflation) suggests a low to lower dollar.
Friday in the
charts.
Summary:
Today reminded us of the days of yore when politicians and policymakers did
(or said) "whatever it takes" to keep the dream alive and "baffle
'em with bullshit" was the methodology. Despite, conflicting/confusing
headlines around opening the Strait and de-nuclearization (Trump
extremely enthusiastic that a deal is imminent), markets moved first before
thinking with oil crashing (dragging bond yields and the dollar down) while stocks,
gold, and bitcoin all ripped higher and rate-cut odds improved. The
first green Friday since the start of the war. The betting folk don't
seem so enthused...
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
Monday morning
setup: Futures are lower, but well off session lows, after a weekend of chaos
in the Strait of Hormuz cast doubt over US-Iran peace talks ahead of Tuesday’s
ceasefire expiration. On Saturday, Iran said the Strait will be closed until
the US blockade is lifted, with ships reporting attacks. The US then fired and
seized an Iranian-flagged ship on Sunday. Both headlines point to a
re-escalation, as Iran military has now vowed to retaliate. It remains unclear
whether the peace talks will continue ahead of the April 22nd deadline:
POLITICO yesterday reported that Trump will continue peace talks with Iran in
Pakistan on Monday, while Iran said in a news conference that they have “no
plan” for next round of negotiation (here),
although subsequent reports from AP indicated
the opposite. There’s a big earnings week ahead, and top Wall Street
strategists expect resilient numbers to support equities. As of 8:00am ET,
S&P futures are down 0.5% following a succession of record highs; the
Nasdaq is down 0.4% and set to end a near-record stretch of 13 consecutive
gains. Pre-market, Mag 7 are all lower with NVDA (-1.2%), MSFT (-1.0%)
and META (-1.0%) being the notable laggards. European stocks slid
1.1% while Asian stocks rose in a delayed catch up to the Friday melt up
in the US. Bond yields rose sharply in Europe, whereas the moves in Treasuries
were more modest. The dollar was little changed, erasing an earlier gain. WTI
crude oil jumped $4.6 (or 5.5%) to $88.5; both base metals and precious metals
are lower with gold briefly dropping below $4,800 an ounce, before recovering.
The US session is quiet for scheduled data, while Fed’s external
communications blackout period has now begun ahead of the April 29 policy
announcement.
Fundamental
Headlines
The
Economy
The
US stats were balanced last week with one positive (inflation) and one negative
primary indicator. Overseas, the data was also balanced including two downbeat
inflation readings.
We still aren’t seeing any economic effects of the Iran war and the turmoil
in the private credit market in the data but it takes time for their
inflationary impact to work its way into the system.
With respect to the dramatic rise in oil prices, it has been six weeks
since the war began and even assuming a positive outcome to Iran negotiations,
we have a couple more to go. Frankly, I don’t’ see how we escape the fallout
from the massive destruction of the Mideast oil production infrastructure. And
while we are seeing it real time at the pump, higher oil prices have yet to
work their way into the macroeconomic numbers; although the
anecdotal evidence pointing to higher inflation is arriving with increased
frequency. Clearly, it will have some effect, but it is way beyond my level of
expertise to forecast its magnitude.
https://www.capitalspectator.com/crisis-in-transit-wars-economic-fallout-is-only-beginning/
The private credit problem just keeps getting worse. However, several new
studies pointed out that (1) while magnitude of the ultimate damage is still an
unknown, we do know that private credit has produced no ancillary derivatives
securities/markets and (2) during the great financial crisis, derivatives risk
was sixfold greater than that of the underlying securities. So whatever the
risk today, it is considerably less than it was during that episode. Which
eases my concern with regard to the viability of our financial system.
Who
said that there were no derivative contracts?
https://giftarticle.ft.com/giftarticle/actions/redeem/29418ab1-3d35-4fa4-9c80-6e0fb840d6c7
As I
noted last week, I am feeling a little more optimistic about the economy. However,
I am becoming more convinced that we are facing an inflation problem that could
be worse than ‘inflation is as good as its going to get’. Which means my focus
is starting to shift from worries about recession to those of stagflation.
US
International
February EU construction output fell 1.9% versus
forecasts of -1.2%.
March German PPI was up 2.5% versus
expectations of up 1.4%.
Other
Update on business cycle indicators.
The housing bubble in major US cities.
Fiscal Policy
Tax myths that won’t die.
Investing
Yield curve rolldown.
https://bondvigilantes.com/blog/2026/04/a-dispatch-from-the-number-crunchers-yield-curve-rolldown/
The latest from BofA.
https://www.zerohedge.com/markets/hartnett-its-bull-trap
Summary: Sell US Dollar: tariffs, threats
end NATO, OPEC petrodollar recycling - there is a US dollar buyers strike as
low appetite for more US assets (foreigners own $20tn US
stocks, $10tn US Treasuries, $5tn US corporate bonds) to fund
$39tn of US debt and its $1.2tn annual debt servicing cost; Fed pressure to cut
grow; in sum, US policymakers will trade weaker dollar rather than
higher bond yields to attract foreign capital.
Buy Commodities (picking
up where he ended last week): commodities > stocks > bonds U S$ secular asset
return pecking order... commodities…risk hedge for allocators, inflation
hedge for allocators, US$ bear market hedge for allocators, plus geopolitics
now driven by need to monopolize commodities, or as Hartnett
put it, "who owns the chips, rare earths, minerals, oil,
wins the AI war."
Buy China: biggest
equity winners since Trump inauguration are US-China AI war winners (US
semis, Asia tech, Canada/LatAm materials), and here the China tech
stocks are catching up bigly: the ChiNext index is breaking out.
Buy Consumer: US consumer discretionary at Lehman 2008 & COVID 2020 relative lows
(equal-weighted); global consumer discretionary at 3-year lows vs energy
stocks; this suggests that the consumer has priced in stagflation more
than any other sector, which is why it is Hartnett's favorite contrarian
long to trade Trump post-war pivot to address affordability &
slump in approval ratings, and a great way to hedge H2'2020s electoral
shift from "populist capitalism" to "populist socialism".
What
I am reading today
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