The Morning Call
11/21/22
The
Market
Technical
The S&P had a
relative quiet week, closing down only slightly. As you can see, it made an attempt to
challenge its 100 DMA (now support) but failed.
The minor uptrend off its 10/13 remains intact and with it the likelihood
of a Santa Claus rally. Although as the
links below suggest that window may be closing.
Still, my attention is on resistance not support. Specifically, (1) its 200 DMA [~4067], (2) the
upper boundary of its short term downtrend [~4147] and (3) the initial 23.6%
Fibonacci retracement level [4200]. I
think that we are now too late in the rally to attempt to trade it.
On the other hand.
https://www.zerohedge.com/the-market-ear/cywpdmsgtr
BofA
and Morgan Stanly see the rally fizzling.
The
technicals suggesting a rally are fading.
https://www.zerohedge.com/the-market-ear/fewshorts
Stay patient.
The long bond continued
its rally, in the process, making yet another gap up open. So, at this point,
TLT has a lot to overcome to maintain its upward momentum: (1) the magnetic
pull of those gap up opens and (2) resistance from both DMA’s as well as the
upper boundary of a very short term downtrend.
My assumption remains that ‘if he (Powell) means what he says, I can’t
think of a reason for bonds to trade higher, at least until/if higher rates
tank the economy. Further, there continues to be signs of extreme stress in the
credit markets’.
That said, there
are a lot of very smart bond guys that are already starting to discount a
recession (i.e., lower interest rates).
Foreign
central banks continue to dump Treasuries.
https://www.zerohedge.com/geopolitical/foreign-central-banks-continue-dump-us-treasuries
Gold has (1)
broken to the upside out of that pennant formation and (2) reset its 100 DMA
from resistance to support, keeping its intermediate term and long term
uptrends intact. The strong bounce off
that long term trend certainly suggests that the worst is over for GLD and more
upside is to be expected. Nevertheless,
before that goes too far, those two gap up opens need to be filled. So, if you want to own GLD, you might want to
wait for the backing and filling that would occur in closing those gaps.
The bad news is
that UUP (1) voided its very short term up trend and (2) reset its 100 DMA from
support to resistance. The good news is
that it remains (1) above its 200 DMA, (2) within short, intermediate and long
term uptrends and has (3) made three huge
gap down opens which need to be filled. So,
while the strong upward momentum in the dollar has clearly been broken, I don’t
think that it is clear that it has made a trend reversal.
Friday in the
charts.
Fundamental
Headlines
The
Economy
Review last week
Last week the US stats were mixed (primary
indicator were two plus, one neutral, two minus); though as I have said repeatedly, any good news is
bad news as far as the Fed is concerned.
To that point, several Fed governors spoke last week and reiterated the
prevailing hawkish narrative.
That
said, it does appear as though inflation is peaking, leaving us with the two
macro questions: (1) how deeply embedded is inflation? and (2) how determined
is the Fed to bring inflation back to the 2% level? I have no clue on the first
question and you know my opinion on the second:
If
we use history as a guide, …... 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 that it stays too tight for
too long resulting in a severe recession. And two, it will chicken out before
inflation is squelched---which is its historic modus operandi---leaving us in
the 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.
I don’t think that the Fed has
the fortitude to hold firm in the face of a faltering economy and plunging asset prices.
Of
course, the assessment of how restrictive to keep monetary policy for how long
is still far in the future (but as I have pointed out, the Fed has consistently
failed miserably at this decision and will likely do so again). Right now, the Fed is dealing with the issue
of when to slow the tightening process (the ‘pivot’) in order not to push the
economy into recession. Here too the
Fed’s track record leaves much to be desired.
Jeffrey Snider
explains why (must read).
Bottom
line: inflation may have peaked, but Fed rate hikes likely have not. We are still faced with the twin risks of the
Fed staying too tight for too long (recession) and/or the Fed halting rate
hikes before inflation has returned to the 2% level (i.e., higher inflation for
longer).
US
International
October German PPI was -4.2% versus estimates
of +0.9%.
Other
LA port traffic down in October.
https://www.calculatedriskblog.com/2022/11/la-port-traffic-down-sharply-in-october.html
The Fed
Lagarde says that the ECB may have to stay tight to restrict inflation.
This analyst
argues that inflation is more deeply embedded than many believe and hence rates will need to stay higher for
longer in order to bring it down.
https://www.zerohedge.com/markets/same-ship-different-day
Fiscal Policy
British Chancellor
says higher taxes and lower spending are needed to quell inflation.
https://www.bbc.com/news/uk-politics-63665271
Recession
JP Morgan joins the crowd calling for a
recession in 2023.
Inflation or recession?
https://www.zerohedge.com/markets/inflation-or-recession
Bottom line
The latest from
BofA.
News on Stocks in Our Portfolios
FedEx (NYSE:FDX) declares $1.15/share quarterly dividend,
in line with previous
What
I am reading today
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