The Morning Call
6/21/21
The
Market
Technical
The S&P once
again successfully challenged its short term uptrend, resetting to a trading
range. Leaving the fundamentals aside
(which I will cover below), I will make two technical points: (1) as I noted
last week, as long as the S&P’s rate of ascent is slower than that of its
short term uptrend, I thought it likely that it would follow a pattern of
violating its short term uptrend, reset to a trading range, then make a new
high and reset the trend to up. It has
followed that pattern for a third time and, at this point, I see no reason why
it would not do it a fourth or fifth time.
In other words, I do not read a lot into this trend reset, at least for
the moment and (2) I also noted that Friday was a quad witching day and to
expect mucho volatility---which we got in spades. Again, I do not think that there is any long
term significance Friday’s pin action.
That said, we
can’t ignore the fundamentals; and Friday the Market got a lot to chew on in
the form of Fed member Bullard’s comments on inflation---which were quite
hawkish. They are being cited as at
least part of the reason for Friday’s sell off.
However, whether they have a long term impact on the Market is yet to be
seen. For the moment, I am sticking with
my premise: ‘I can’t see an end to this uptrend as long
as the money keeps flowing with abundance and in the absence of any major
negative exogenous event.’---with the caveat that even though the updated ‘dot
plot’ still has any tightening moves more than a year away, if investors decide
that the tapering process has really begun, so has the end.
Between the FOMC
‘dot plot’ and Bullard’s comments, the long bond exploded to the upside
following the prior week’s price action in which it negated a very short term
trading range and reverted its 100 DMA from resistance to support. Last week, I wrongly opined that the spike in
bond prices indicated that bond
investors were enthused about the lesser odds of tapering. Rather, it seems that what they were really
encouraged by was the prospect of lower inflation.
GLD got hammered
again, suffering a huge gap down open on Thursday and closing the week below
both DMA’s. If it finishes today below
its (1) 100 DMA, that MA will revert to resistance and (2) 200 DMA, that MA
will revert to resistance. The good news is that (1) that gap down open has to
be filled and (2) gold remains in uptrends across all timeframes.
The dollar’s short
term chart is almost the mirror image of GLD’s.
Last week, it soared creating two gap up opens and ending above both
DMA’s. If it closes above its 100 DMA
today, it will revert to support; if it close above its 200 DMA on Tuesday, it
will revert to support.
So, the theme this
week morphed from ‘inflation is transitory’ to ‘the Fed will act to be sure
that it is transitory’. As you know, I did
not think it likely that inflation is transitory; and if I am wrong and it is
transitory, I do not think that the Fed will have anything to do with it. So you can color me doubtful.
Friday in the
charts.
Fundamental
Headlines
The
Economy
Review of Last Week
Last week was
another negative for reported data as well as the primary indicators. That is seven weeks in a row now---remember
though that I score the numbers not absolutely but against estimates. So, in the mix are negative readings and
those that fell short of expectations. I interpret this to mean that the stats
continue to confirm that the post Covid burst of economic activity is slowing.
In addition,
several of the datapoints were price related; and they all ran hotter than
consensus.
Which brings us to
the Fed. As you know, the FOMC held
their June meeting last week and the bottom line outcome was a rise in the
committee members’ forecasts for inflation and a quicker anticipated start to
tapering. Naturally, that has the
Markets in a tizzy.
However, (1) I am
not sure the investors are truly convinced that the tapering process has
begun. If they are, then I expect the
discounting will begin soon [Thursday and Friday’s pin action doesn’t count
because of the massive volatility associated with the June quad witching], (2)
the Fed moved the goalposts on the unemployment trigger number three or four
times as the economy recovered from the financial crisis in order to avoid
upsetting the Markets. I see no reason
why they wouldn’t do the same with inflation and (3) even if the tapering
process has begun and the Fed doesn’t move the goalposts, it has never in its
history had the right policies in place at critical inflection points in the
economy.
And speaking of
always being wrong.
Bottom line, I
think it is going to take some time to figure out what the Fed is going to do
(if it even knows). In the meantime, the
risk to the economy is that it continues to slow, inflation continues to rise
and the Fed fumbles the ball again. In
short, stagflation.
Overseas, the data
flow was also quite downbeat. So, we continue to get little help on the
economic growth front from the rest of globe.
Bottom line. ‘As
you know my opinion is that following an initial snapback (which may already
be over), the US economy will likely return to its former subpar secular growth
rate, stymied by an irresponsible mix of fiscal/monetary policies.’
Will this time be
different?
US
International
Other
Too late to avoid another oil crisis.
https://www.zerohedge.com/energy/its-too-late-avoid-major-oil-supply-crisis
The
Fed
Did Powell just make a huge error?
Or two.
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