The Morning Call
4/3/23
The
Market
Technical
The S&P was on
a moonshot last week, in the process voiding a very short-term downtrend. Throughout the week, I linked to a number of
articles on sentiment, breadth and from traders from various firms all pointing
to improving investor psychology. My
only (weak) counter is Wednesday’s gap up open which needs to be filled. Other than that, from a technical standpoint,
I don’t see arguing against more upside, at least until the S&P starts a challenge
of the 50% Fibonacci retracement level (~4200).
I still believe
that we have not seen the worst regarding the economy or inflation. But clearly, at the moment, I am on the wrong
side of the trade.
Update on investor
sentiment.
https://www.bespokepremium.com/think-big-blog/sentiment-still-bearish-or-is-it/
Bears beginning to
pivot (remember this is from a trading desk).
The stormy bull.
https://www.zerohedge.com/the-market-ear/stormy-bull
Could there be a squeeze?
https://www.zerohedge.com/the-market-ear/could-there-be-squeeze
The long bond basically
made a round trip last week, ending roughly where it started and on Friday closing
Monday’s gap down open. Longer term, it
remains in short and intermediate term downtrends; and it will have to make a
serious advance before it challenges either, leaving plenty of room for a further
move to the upside. That would fit with the Goldilocks scenario now being
priced in the stock market. Of course,
it would also comport with (1) more bank failures and (2) a recession.
Are bonds about to
break out?
https://allstarcharts.com/bonds-break-out-heres-what-it-means/
I pointed out last
week that GLD was in the process of challenging a 20 year high. Usually, a resistance level with that kind of
longevity either holds or requires a period of backing and filling before
breaking through that barrier. The pin
action last week was pretty good, that is, after a gap down open on Monday, it spent
the rest of the week working its way back to that resistance level and closing
Monday’s gap down open while doing so.
I continue to believe those huge gap up opens that occurred two and
three weeks ago will act as restraint.
So, my bottom line is that if I
wanted to own gold, I would wait to see how it handles that all time high
(~185.20).
The dollar traded
down again, starting a new challenge of the lower boundary of its short term
uptrend. It is hard to reconcile a weak
dollar with the upbeat storyline being peddled by the stock boys. So, my assumption is that the short-term
uptrend will hold.
Is the dollar
losing its sway?
https://www.zerohedge.com/markets/pozsars-warning-dollars-waning-sway-comes-true
Friday in the
charts.
https://www.zerohedge.com/markets/eod-2
Fundamental
Headlines
The
Economy
Last Week Review
There
were few US stats last week. What there
was, was balanced, though the positive primary indicators outnumbered the
negative two to one. So, the macro data
continues to point to a flat to slightly improving economy. One of the primary
indicators was the February PCE index which showed a drop in the rate of
inflation. No wonder investors are
getting jiggy---no overwhelming evidence of recession or rising inflation.
This
analyst doesn’t believe it: No soft landing.
https://www.zerohedge.com/economics/dr-doom-nouriel-roubini-warns-stagflationary-megathreat
While
I am not yet willing to alter my forecast, I have to respect the current
dataflow as well as the Market’s discounting mechanism. So, if we get a couple more weeks to generally
upbeat numbers or the Fed starts pushing a dovish narrative, I will have to alter
my outlook.
Lance
Roberts hasn’t given up yet either.
For
the moment, my forecast: Regrettably,
years of fiscal profligacy have left us with a debt to GDP ratio far in excess
of the boundary marked by Rogoff and Reinhart as the level at which the
servicing of too much debt negatively impacts the growth rate of the
economy. And years of irresponsible
monetary expansion have led to the misallocation of resources and the
mispricing of risk.
Correcting those self-inflicted wounds won’t be easy. It will take years
of fiscal and monetary restraint to do so. And that would mean less fiscal
stimulus and interest rates staying higher for longer than many now expect.
Headlines
The
Economy
US
International
The March German
manufacturing PMI was 44.7 versus estimates of 44.4; the March EU manufacturing
PMI was 47.3 versus 47.1; the March UK manufacturing PMI was 47.9 versus 48.0.
Other
Update on big four economic indicators.
The
Fed
The ineffectiveness of the Fed.
The Fed is doing too much all at once.
https://www.nytimes.com/2023/03/31/business/federal-reserve-inflation-banks.html
Is the Fed done?
https://www.zerohedge.com/markets/morgan-stanley-friday-finish-do-data-matter-now
Inflation
EU core inflation hits record high.
https://www.wsj.com/articles/eurozone-core-inflation-hits-record-high-6f2032b9?mod=economy_lead_pos1
The Banking System
Bank borrowing from the Fed declines.
https://www.barrons.com/articles/bank-fed-discount-window-deposits-runs-9ddc9478
Flood of money
into money market funds could add strain to banking system.
https://www.ft.com/content/c16a62e3-5a6e-4b09-9bd1-72a7e4c787cb
Fixing the banks; it is not complicated.
https://www.zerohedge.com/markets/fixing-banks-its-not-complicated
Bottom line
Stocks bullishness
is increasingly on thin ice.
https://www.zerohedge.com/markets/stocks-bullishness-increasingly-thin-ice
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What
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