The Morning Call
2/22/22
The
Market
Technical
The
S&P dumped and pumped its way through the Russia/Ukraine news flow last week.
It successfully reset its 200 DMA from support to resistance, marked a lower
low and remains in a downtrend off its January high. On the other hand, it also
challenged the lower boundary of its short term trading range as well as the
23.6% Fibonacci retracement levels, then bounced hard, voiding both challenges.
So, we have some good news and some bad news. This week may not be too
different since (1) the Russia/Ukraine situation remains fluid and (2) Powell
will be testifying before congress. My conclusion is unchanged---keep your directional
expectations on hold.
Technically, the
bond market’s current state did not change last week. Despite an attempt to
break above the upper boundary of that well-defined two month downtrend, it was
unsuccessful. However, it also remains above the lower boundary of its short term
trading range. So, we continue to have the same near-in directional markers---the
upper boundary of the very short term downtrend and the lower boundary of the
short term trading range. As with equities, keep your directional expectations on
hold.
Like everything
else, gold had a wild ride last week, especially on Thursday in which it
experienced a four percent intraday price swing. However, it was unable to push
through former highs. Nonetheless, it remains above both DMAs and in short term
and very short term uptrends. Meanwhile, that huge gap up open still needs to
be filled.
The dollar remains
in a nine month uptrend and continues to negotiate its way through the volatile
headlines. Those headlines were clearly manifest in last week’s pin action. But
UUP remains above both DMAs and in a short term uptrend---the one negative
being the gap up open that needs to be closed. My assumption remains that irrespective
of what happens, investors continue to believe that the dollar is a safe place
to be.
Friday in the
charts.
https://www.zerohedge.com/markets/war-news-good-news-stocks-end-historic-week-higher
How geopolitics impact the Market (must read).
https://ritholtz.com/2022/02/markets-geopolitics-1941-2021/
The S&P around war time.
https://www.zerohedge.com/the-market-ear/ccct1sz731
This
is how stocks bottom.
https://theirrelevantinvestor.com/2022/02/25/this-is-how-stocks-bottom/
This low is
different from the last.
https://allstarcharts.com/this-low-is-different-from-the-last/
Fundamental
Headlines
The
Economy
Review of last Week
The economic stats
were mixed in total last week. However, the primary indicators were three to
one to the positive. Overseas, the numbers were also mixed.
Of note is that
all the gauges of inflation both in the US and abroad were higher than
anticipated. That combination of so so economic performance but rising
inflation 'only the aggravates the worries about an ever tighter monetary policy. Not
that higher rates and Quantitative Tightening aren’t needed to correct the
gross distortions in the pricing of risk and the income inequities caused by
perpetually low rates and QE. But, as I have constantly reminded you, it should
have been done years ago; and now a retreat from the extremes of overly
expansive monetary policy will unfortunately impose maximum pain on the economy
and the Markets. Of course, the Fed could always chicken out and retreat; but
then it will have inadequately dealt with inflation who’s impact on the economy
and Markets will worsen. As I have said, the Fed has painted itself into a corner
from which there is no easy escape.’
Of course, all
this could be made moot if the Russian incursion into Ukraine really gets ugly.
As I have argued for some time, the economics for the US and EU of whether Ukraine
is a satellite of Russia or a member of NATO is largely irrelevant. It is how
we get there that can be the problem.
https://www.morningstar.com/articles/1081251/5-charts-on-markets-response-to-the-ukraine-invasion
For the really pessimistic.
Roubini’s nickname is ‘doctor doom’ so I would consider this a worst case
scenario not the most likely.
Here is another
downbeat view but it is a lot more specific about how the negatives are
created.
https://www.zerohedge.com/markets/rabobank-russia-showing-us-new-kind-war-two-ways
The toughest
sanctions would also hurt the EU.
https://www.nytimes.com/2022/02/25/business/economy/russia-europe-sanctions-gas-oil.html
The Russian invasion
scrambles the prospects for the global economy.
https://www.wsj.com/articles/russian-invasion-scrambles-prospects-for-global-economy-11645699066
Russia keeps the
natural gas flowing through Ukraine.
https://www.zerohedge.com/commodities/european-natgas-prices-plunge-russian-flows-ukraine-soar
How much of a
safety net are all those Russian gold reserves?
Finally, this was
the second week in a row that the primary indicators performance has been
better than expected---which does not comport with my current economic outlook.
So, while I am not going to alter my forecast at this moment, I am on alert: it remains that the economy is struggling to
grow, hampered by irresponsible monetary and fiscal policies, getting no
support from the global economy and threatened by (1) seemingly mounting
inflationary forces and (2) a more severe than anticipated retreat in economic
activity.
US
January wholesale inventories were up 0.8% versus estimates of +1.9%.
Other
Update on big four economic indicators.
The latest Q1 nowcasts.
https://www.calculatedriskblog.com/2022/02/q1-gdp-forecasts-around-2.html
The
Fed
Sanctions may trigger central bank liquidity flood.
Geopolitics
What provoked Russia to invade Ukraine?
https://townhall.com/columnists/patbuchanan/2022/02/25/did-we-provoke-putins-war-in-ukraine-n2603764
Bottom
line.
Market pullback or
bear market?
https://www.advisorperspectives.com/commentaries/2022/02/25/market-pullback-or-bear-market
News on Stocks in Our Portfolios
Altria (NYSE:MO) declares $0.90/share quarterly dividend, in line with previous.
What
I am reading today
Quote
of the day.
https://cafehayek.com/2022/02/quotation-of-the-day-3814.html?utm_source=feedburner&utm_medium=email
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