The Morning Call
10/10/22
The
Market
Technical
Last week the
S&P bounced hard off the 6/13 low, pushed higher toward the downtrend off
its 8/16 high, reversed itself and is now once again challenging the 6/13 low. I
posed the question last week, had the S&P made a double bottom? We now know
the answer to that. So, then the question is, will it make a triple bottom? The
strength of support at the 6/13 low suggests that it might well be. On the
other hand, technically, one rarely sees a triple bottom. Historically, the
pattern is to fall further. Which brings back into play the next levels of
support: (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]. The wild card is
those three gap up/down opens in the last couple of weeks. How many more of
those will we get before a firm trend is established?
I would do nothing
until the S&P breaks either the 6/13 low or the downtrend off the 8/16 trading
high.
Patience remains a
virtue.
The long bond is
in the midst of another challenge of the lower boundary of its long term uptrend.
I still 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. Stay tuned.
Gold retreated
from the downtrend off its 3/8 high, leaving it in a developing pennant
formation. That leaves GLD directionless until one of those boundaries are
taken out.
The dollar bounced last week, leaving it solidly in an upward trajectory across all time frames. I do think that the upper boundary of its intermediate term uptrend will act as a restraint on the
rate of its upward momentum. And as I noted last week 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. The assumption has to be that the trend remains up.
Friday in the charts
More on the
technical picture.
Still
more charts.
https://compoundadvisors.com/2022/10-chart-thursday-10-6-22
Fundamental
Headlines
The
Economy
Review last week
The
US data last week was positive (primary indicators were one plus, one minus). However,
with good news now being bad news that is a negative, at least with respect to
Fed policy.
Overseas
the stats were again horrible, especially in Europe, which likely means that
the mix of tight money, the energy crisis in Europe, the realigning of supply
chains have already pushed Europe into a recession (depression?). How much its spillover
effect combined with the strong dollar has on the rest of the globe, especially
the developing nations, has yet to be seen. But the current headlines are not
encouraging.
Of
course, we still don’t have the answer to my Number one question: how deeply embedded is inflation in our
economy? And investors seem to be vacillating with every
data point and Fed comment on the answer to questions two: how firm will the Fed remain in its policy
decisions to bring the inflation rate back to acceptable levels?
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. One is 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, the necessary creative
destruction needed to cleanse the system of the misallocation of assets and the
mispricing of risk incomplete and, hence, the need to ultimately have 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. That means
ever slowing secular economic growth, ever increasing income disparity, ever
increasing leverage in the financial system and ever increasing volatility in
the securities markets.
An
absolute must read from Jeffrey Snider.
Patience remains the better part of valor.
.
US
International
Other
The Fed
Money
supply growth plummeted to three year low in August.
The
sound that you hear is the Fed breaking something.
Bank
of England says rate hikes will continue.
Fiscal Policy
What
is this guy thinking?
Bottom
line
Q4 earnings
revised down.
https://www.zerohedge.com/the-market-ear/czou3d7q9z
The latest from
BofA.
Update on valuations.
https://www.advisorperspectives.com/dshort/updates/2022/10/07/p-e10-september-2022-update
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What
I am reading today
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