Investing for Survival: Monday Morning Chartology

7/29/24

The Market

Technical

The S&P suffered another painful week, Friday’s rebound notwithstanding. The bad news is that it made a lower high and voided its very short term uptrend. The good news is that it started the week with a large gap down open (which needs to be closed) and it unsuccessfully challenged its 50 DMA. I have no clue if the Market is about to fall off a cliff or stage and major rebound. Although we could get a hint from (1) a huge dataflow due out this week [FOMC meeting, heaviest reporting week of this earnings season] and (2) we are entering a season that historically renders poor Market performance. And lurking in the background is the election which will likely play an outsized role in determining investor sentiment this time around. So I wouldn’t be making any big bets.

The latest from Goldman’s trading desk.

https://www.zerohedge.com/markets/divergence-long-only-funds-are-liquidating-hedge-funds-buy-dip

The long bond, on the other hand, ended flat on the week. On the plus side, it is above all three DMAs, two of which are turning up. On the negative, it is in downtrends across all timeframes. Just to make things more confusing, it also seems to be forming a pennant formation which suggests a bit of directionless trading over the short term. On the fundamental side, the aforementioned FOMC meeting/ election will likely influence the path of rates/prices. Hence, I would expect more volatility in rates.

Three charts to watch.

https://www.zerohedge.com/the-market-ear/3-rates-charts-we-are-watching

GLD continued the slide (and volatility) that began the prior Friday. As I noted last week, it failed to hold above its all-time high the prior week, potentially creating a triple top. But then last week, it unsuccessfully challenged its 50 DMA. As with the S&P and TLT, I have little directional conviction. I retain my GDX position; but clearly, I am nervous.

In the midst of all the volatility in the above indices, the dollar was cool as a cucumber, trading sideways and skimming the 50 DMA the entire week---just the opposite of its volatile behavior in the prior week. The only explanation that I have for this is the dollar as a safe haven.

Friday in the charts.

https://www.zerohedge.com/markets/two-trillion-counting-mega-cap-meltdown-continues

Fundamental

Headlines

The Economy

Week in review

The stats last week were back in terrible territory (and the overseas numbers were equally as bad) as were the primary indicators (zero plus, two neutral, five minus). This is clearly not indicative of a ‘muddle through’ scenario, although the erratic nature of the overall trend in data over the last month or so is. Therefore, for the moment, I am leaving my forecast unchanged. That said, the extremely poor showing of the primary indicators lowers my conviction level.

For the moment, my prognosis remains:

(1) the economy ‘muddles through’ and (2) inflation has likely seen its lows. But my confidence in that outcome is low.

However, as I have previously noted (1) my original recession call may turn out to be correct and (2) while I continue to believe that profligate fiscal policy and an accommodative Fed will ultimately lead to higher inflation, a recession could work against that scenario in the near term.

And I would add that if (1) recession is the ultimate scenario and (2) the Fed maintains its tight money policy, then conditions could develop even worse.

International

Other

Inflation

Inside the latest PCE index number (must read).

https://wolfstreet.com/2024/07/26/large-upward-revisions-of-core-services-pce-inflation-pushed-six-month-core-pce-inflation-to-3-4-worst-in-a-year/

Recession

Monday, July 29, 2024

Monday Morning Chartology

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