The Morning Call
5/16/22
The
Market
Technical
That
didn’t take long. Last week, the S&P’s follow through was to the downside. In
the process, (1) it reset its short term trend to down, (2) came within a short
hair of the 38.2% Fibonacci retracement level---the ~3800 level I referred to
in last week’s Monday Morning Chartology, and (3) bounced hard. However, with
respect to (3), it barely recovered to the lower boundary of its short term
downtrend and did so on poor volume. That suggests to me that at least a retest
of the ~3800 area will occur.
Capitulation?
Another analyst’s
thoughts on how low stocks can go.
https://theirrelevantinvestor.com/2022/05/13/how-low-can-stocks-go/
Mean reversion.
https://ritholtz.com/2022/05/occams-razor/
Inflows versus outflows.
https://www.zerohedge.com/the-market-ear/cfqryvbigt
The long bond
rallied a bit last week, bouncing off the lower boundary of its intermediate
term trading range. But it was weak, reversing itself mid-week and making a
seventh lower high---also on poor volume. So, like the S&P, I think that at
least a retest of the lower boundary of its intermediate term trading range is
likely. Needless to say, a break of that boundary would be quite negative
technically and would point fundamentally to higher interest rates. I continue
to pay close attention to the 111.53.
US junk bond
market starting to crack.
https://www.ft.com/content/f0f25ce5-1b13-4199-805a-33b5130c92ae
GLD resumed its
downward plunge. In the process, it reset its 100 DMA to resistance, challenged
its 200 DMA which will reset to resistance today if GLD fails to recover and
will likely challenge the lower boundary of its very short term uptrend in the
near future. Gold investors have apparently joined the higher interest rate camp.
The
dollar’s chart continues to be the healthiest of the lot. 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/terrible-week-ends-strong-dead-cat-bounce-bear-market-marches
Fundamental
Headlines
The
Economy
Review of last Week
Last week’s economic
dataflow was light but decidedly negative (one neutral, one negative primary
indicator). Overseas stats were balanced.
The numbers
continue to come in on the negative side, ever diminishing my conviction that
there will be no recession. That said, the key variable in this equation is Fed
policy, more specifically, how hard is it prepared to fight inflation? History
tells us that the most likely way of curbing inflation is through recession. History
also tells us that this group running the Fed now lack cojones.
https://www.nytimes.com/2022/05/12/business/jerome-powell-confirmed.html
So, the question
here is that once the Market believes a recession is coming and starts fully pricing
it in (which it is already starting to do), (1) will the Fed chicken out like
it has every prior time since the Volcker regime and begin reinflating the
economy or (2) has the recession already started? Another bad week and I will
likely go to a neutral stance.
For the moment my
current forecast is: the economy is
struggling to grow (but no recession), hampered by irresponsible monetary and
fiscal policies, getting no support from the global economy and threatened by
(1) inflationary forces and (2) continued supply chain disruptions because of
the conflict in Ukraine.
US
The May NY Fed
manufacturing index came in at -11.6 versus estimates of +17.
International
The March EU trade
balance was E-16.4 billion versus forecasts of E+19.8 billion.
April Chinese YoY industrial
production fell 2.9% versus expectations of +0.4%; April YoY retail sales were
off 11.1% versus -6.1%.
April Japanese YoY
machine tool orders rose 25.0% versus +26.0%.
April German PPI
was +2.1% versus predictions of +1.9%.
Other
Is economic growth in China bottoming?
The
Fed
The premium for cash is presently enormous.
Inflation
The new age of inflation.
https://brownstone.org/articles/aprils-cpi-codifies-the-new-age-of-inflation/
Signs of cooling in the housing market.
https://fortune.com/2022/05/11/housing-market-home-prices-something-is-happening-mortgage-rates/
Bottom line
Managing
expectations as the S&P tumbles.
https://www.capitalspectator.com/managing-expectations-as-the-sp-500-tumbles/
News on Stocks in Our Portfolios
What
I am reading today
Nobody knows anything.
https://ritholtz.com/2022/05/nobody-knows-anything-kentucky-derby-edition/
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