The Morning Call
10/3/22
The
Market
Technical
I speculated in
Friday’s Morning Call that the S&P’s seeming inability to penetrate its
6/13 low could possibly mean that a double bottom was in the making. The index
promptly scuttled that notion closing Friday below that level. That said, there
is a time rule that must be met; so, it needs to remain there through the close
on Tuesday to confirm the break. But looking ahead, were that to occur the next
levels to watch are (1) the initial 50% Fibonacci retracement level [~3507], (2)
the initial 61.8% Fibonacci retracement level [~3198] and (4) the newly
established lower boundary of its intermediate term trading range [~2788].
From a technical
standpoint the S&P remains grossly oversold---but I have been saying that
for the last week and is now making a new low. Still, do not be surprised if we
get a short term bounce.
That said, patience
remains a virtue.
Who is left to
sell?
https://allstarcharts.com/the-bulls-have-left-the-building/
The tide in
liquidity is turning (must read).
https://www.ruffer.co.uk/en/thinking/articles/the-green-line/2022-07-the-green-line
Fed ‘put’ is
getting closer.
https://www.zerohedge.com/markets/fed-put-getting-closer-equity-market-says
The risk of a crash is rising.
https://www.zerohedge.com/markets/weve-crossed-rubicon-bear-traps-warns-risk-crash-rising
The long bond continued
its downward journey last week though it was unable to crack through the lower
boundary of its long term uptrend---which is not to suggest that it won’t. But
as I said last week, I think that this level will hold. On the other hand, it
is in an intermediate term downtrend, in a short term downtrend and below both
DMA’s; so, momentum certainly argues to the contrary. As I also noted last
week, I am not betting any money on my call. Stay tuned.
Bonds are having their worst year ever.
https://www.nytimes.com/2022/09/30/business/bonds-market.html
Gold rallied last
week, undoubtedly the result of the decline in the dollar and the slightly
better price performance of the long bond. Still, there is no reason to be getting
jiggy with GLD. However, as you can see, it is now in a developing pennant
formation that should give us some directional information when one of those
boundaries are taken out.
As I noted above,
the dollar backed off last week---not particularly surprising since it was
bumping up against the upper boundary of its intermediate term uptrend. Notice
that it is well above the lower boundary of its very short term uptrend; meaning
that it could drop almost five percent and not disrupt even its shortest term momentum.
Still, it is at a level at which markets are starting to break. That may or may
not mean a reversal; either way it is too soon to be making any bets on a lower
dollar.
Friday in the charts
More
charts.
https://www.zerohedge.com/the-market-ear/somethingwillbreak
Fundamental
Headlines
The
Economy
Review last week
The
US data last week was balanced, though the primary indicators were upbeat (two
positive, three neutral, one negative). However, as I noted last week, we are
in one those periods where some good news is bad news; and I think last week’s
stats fall into that category. Overseas, the numbers were quite negative; and unfortunately,
in this instance, bad news was bad news.
The
principal headline of the week was the Bank of England throwing in the towel on
QT. However, it was not just a case of another major central bank f**kup. It
was forced to respond to a seize up in the UK credit markets brought on by an
as yet unexplainable expansion of fiscal stimulus by the government. This
series of events resulted in an explosion of volatility in the global financial
markets though in the end it was directionless.
Note:
over the weekend, the government appeared to be reversing some of its stimulus
program.
In
the end, we still don’t have the answer to my Number one question: how
deeply embedded is inflation in our economy? But investors appear to the
assuming the answer to question two: how firm will the Fed remain in its policy
decisions to bring the inflation rate back to acceptable levels? Which is to
say, they expect the Fed to hang tough to the end, i.e., until it is sure that
inflation is or will return to the 2% level.
Unfortunately, that still leaves
us staring at history---the Fed has never, ever, ever successfully managed a
transition to normal monetary policy. So, we are faced with two scenarios
(three actually if you want to believe that the Fed will successfully negotiate
the return to stable monetary policy). One, it will stay too tight for too long
and plunge the country into a severe recession. And two, it will chicken out
before inflation is squelched---which is its historic modus operandi---leaving us the in same boat in which we
started, i.e., inflation above the Fed’s mandate and the need to repeat the
whole process.
You know my opinion: I don’t think that the
Fed has the fortitude to hold firm in the face of a faltering economy and
plunging asset prices.
As for the Market, patience remains the better
part of valor.
.
US
International
The final
September German manufacturing PMI came in at 47.8 versus estimates of 48.3;
the final September EU manufacturing PMI was 48.4 versus 48.5; the final September
UK manufacturing PMI was 48.4 versus 48.5.
Other
Update on big four economic indicators.
The
latest Q3 nowcast.
https://www.capitalspectator.com/expected-rebound-for-us-economy-in-q3-fades/
Fed
We haven’t yet seen as much tightening of
credit as Markets think.
https://global-macro-monitor.com/2022/09/29/the-great-reset-the-bond-yield-dollar-feedback-loop/
Debt and why the Fed is trapped.
https://www.advisorperspectives.com/commentaries/2022/09/30/debt-why-the-fed-is-trapped
The Fed is about to break the corporate bond market.
Fed pivot likely?
Geopolitics
Stockman slams Washington’s Ukraine policy.
https://www.zerohedge.com/geopolitical/stockman-slams-washingtons-pointless-war-behalf-fake-nation
Kissinger
agrees.
Bottom line
When slow and
boring is good.
https://allstarcharts.com/slow-boring-trading/
The importance of
diversification.
http://rogersplanning.blogspot.com/2022/09/the-financial-media-is-not-your-friend.html
The dangers in
averaging down in high growth stocks.
https://theirrelevantinvestor.com/2022/09/30/the-down-80-percent-club/
News on Stocks in Our Portfolios
What
I am reading today
We
all like a good story.
https://betterletter.substack.com/p/the-better-letter-the-map-is-not
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