The Morning Call
6/13/22
The
Market
Technical
Given the pin action
on Thursday and Friday, it seems highly likely that the S&P will at least re-challenge
its 5/20 low and perhaps go on to test the lower boundary of its intermediate
term uptrend (~3709) and the 50% Fibonacci retracement level (~3507). But
notice the major gap down open on Friday. The question is, when does it get
filled---sooner or later. I am waiting to see how the S&P handles the aforementioned
5/20 low, and the ~3709 and
~3507 support levels before taking any action---I still have lots of cash left.
While the long
bond was down on Friday, it certainly wasn’t with the ferocity of equities. That
suggests that the bond guys are a lot less worried about inflation, a more
hawkish Fed, etc. than the stock jockeys. Another challenge of the lower boundary
of its intermediate term trading range may still be in the cards but odds of
success seem a bit lower to me.
GLD reacted as you
would think it would on a hotter
inflation number, bouncing hard on elevated volume. I said last week that I thought
the worst might be over; and this pin action just reinforces that notion. Gold
and silver are worth a look here.
The
dollar spiked on Friday as would be expected. Everybody on the globe wants it
to go down, which is probably why it won’t as long as the investors believe
that the Fed will hang tough on raising rates and QT. (as a reminder, I think
that it will fold like a cheap umbrella).
Friday in the
charts.
https://www.zerohedge.com/markets/soaring-cpi-crushes-peak-inflation-narrative-sparks-global-turmoil
Sentiment and
positioning do not suggest a bottom.
https://www.zerohedge.com/the-market-ear/bottom
Not
enough signs of a bottom.
https://www.zerohedge.com/markets/not-enough-signs-major-market-bottom
Fundamental
Headlines
The
Economy
Review of last Week
Last week’s economic
dataflow was very meager. What there was, was negative---with, of course, the
hotter than anticipated CPI number on Friday. Overseas stats were actually
positive.
As I noted, the big
kahuna was the inflation stat. Not only because inflation is not healthy for
the economy but also because it suggests that, if the Fed sticks to its guns,
then we will likely have tighter monetary policy for longer than hoped---which
not just a negative for the economy (i.e., it increases the odds of recession) but
also for the securities’ markets.
So, it looks like
my ‘no recession’ forecast took another one in the chops---though am going to
hold out for another week or two.
‘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.
So,
the question here is that once the Market believes a recession is coming and
starts fully pricing it in (which it is CLEARLY
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?’
Do I
believe history? Or do I believe Powell? I side with history; meaning the Fed
chickens out and if we get a recession, it will be a mild one.
US
International
April UK GDP
growth was -0.3% versus estimates of +0.1%; April industrial production was down
0.6% versus +0.2%; the April trade balance was L-8.5 billion versus L-11.8
billion.
Other
Geopolitics
More sanctions on Russia.
https://www.zerohedge.com/markets/how-new-eu-sanctions-russia-will-shake-global-energy-trade
Bottom
line
This week from BofA.
https://www.zerohedge.com/markets/worse-anyone-realizes-dire-outlook-wall-streets-biggest-bear
News on Stocks in Our Portfolios
What
I am reading today
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