The Morning Call
4/6/26
The
Market
Technical
Talk about being right on the edge. The S&P
closed (right on the downtrend line of lower highs) and right on the closing
price of the last lower high. In addition, the prior Friday’s gap down open has
been filled, so no upward pull from that factor. Today’s pin action will be
enlightening; but I not doing anything until I know how stocks close---and if
they finish lower, I am still not doing anything. Meanwhile, I am making my
list and checking it twice.
Bottoms come when everything looks terrible.
TLT managed to
bounce off the lower boundary of its very short term trading range and hold. Nonetheless,
it remains below all DMAs and in downtrends across all major timeframes. With
oil six feet high and rising and the increasing likelihood of a stagflation economic
environment, I am hard pressed to think that bond prices are going to improve
markedly.
Bond market
volatility just collapsed.
https://www.zerohedge.com/the-market-ear/bond-vol-just-collapsed-now-watch-squeeze
Summary: Yields tested 4.4% and failed. At the
same time, bond volatility has quietly collapsed, removing a key headwind for
risk.
The
oil–rates relationship is also starting to crack. Bond vol had been moving
almost one-for-one with crude, reinforcing the inflation narrative, but that
link is now weakening as MOVE rolls over despite elevated oil levels. Markets
spent weeks pricing stress. Now the mechanics are shifting: bond vol is
resetting, positioning is light, and key macro relationships are starting to
flip. The setup is no longer about downside, it’s about whether this turns into
a squeeze.
Gold continues to
try and stabilize after that vicious sell off. But it has been too short a time
span to have confidence that the worst is over. The good news is that (1) it is
attempting to reset its 100 DMA to support [if it remains above it through the
close Tuesday, it will reset], (2) it remains in uptrends across all time
frames and (3) still has those two gap down opens overhead that need to be
filled. I continue to hold a one half trading position in GDX.
I think it unfortunate that dollar regains some strength on
bad news (war, credit crisis) as opposed to good news (strong economy, lower
inflation). But that is the scenario we got. Like every other index, its
current trend is highly dependent on the length and outcome of the war. Absent
that, the macroeconomic backdrop of the US economy (slow growth and rising
inflation) suggests a lower dollar.
That said, UUP has
reset all three DMA’s to support, negated a short term downtrend, and
established a very short term uptrend---which it unsuccessfully challenged last
week. I expect it to stay this way at least until the cessation of hostilities.
Friday in the
charts.
https://www.zerohedge.com/markets/crude-credit-crypto-crazy-usrael-iran-trade-threats-long-weekend
Summary:
Tl;dr: The overnight (correlated) panic after
Trump's disappointment (oil up, yields up, stocks down) saw the relationships
break amid chatter of Hormuz reopenings - with a toll - as
hyper-sensitive stocks rebounded (stocks up, yields down, oil meh). The dollar
rallied into the long weekend with bitcoin and bullion battered after trump's
threats. The market is still trading from tweet-to-tweet (desperate
hope) and not counting barrels (desperate nope)... with
the first up-week of the war in stocks.
Friday in the technical stats.
https://www.barchart.com/stocks/momentum
https://www.barchart.com/stocks/market-performance
https://www.barchart.com/stocks/sectors/rankings
https://www.barchart.com/stocks/signals/new-recommendations
Monday morning
setup: Yields tested 4.4% and failed. At the same time, bond volatility has
quietly collapsed, removing a key headwind for risk. The oil–rates relationship
is also starting to crack. Bond vol had been moving almost one-for-one with
crude, reinforcing the inflation narrative, but that link is now weakening as
MOVE rolls over despite elevated oil levels. Markets spent weeks pricing
stress. Now the mechanics are shifting: bond vol is resetting, positioning is
light, and key macro relationships are starting to flip. The setup is no longer
about downside, it’s about whether this turns into a squeeze.
Fundamental
Headlines
The
Economy
The
US stats were slightly positive last week with one upbeat inflation stat and three
primary indicators (all plus). Overseas, the numbers were upbeat, which included
two positive and one neutral inflation reading.
We still aren’t seeing any economic effects of the Iran war and the turmoil
in the private credit market in the data (I know; it is starting to sound like
a broken record---but it is going to happen [I think]]). With respect to the
dramatic rise in oil prices, it has been four weeks since the war began (and it
looks like we have a couple more to go---barring another Trump turnaround); and
it takes time for its inflationary impact to work its way into the system. Frankly,
I don’t’ see how we escape the fallout from the massive destruction of the
Mideast oil production infrastructure. And while we are seeing it real time at
the pump, higher oil prices have yet to work their way into the macroeconomic
numbers about which the pundit class is busy arguing about the size and
duration thereof. Clearly, it will have some effect, but it is way beyond by
level of expertise to forecast it magnitude.
The
private credit problem just keeps getting worse. Before attempting to judge the
impact of the present circumstance, we need the answer to two questions: (1)
how many of the private sector loans are trash and (2) how large is the
exposure of the banking and insurance industries.
And
speaking of getting worse.
However,
a new study last week pointed out that (1) while magnitude of the ultimate
damage is still an unknown, we do know that private credit has produced no ancillary
derivatives securities/markets and (2) during the great financial crisis,
derivatives risk was sixfold greater than that of the underlying securities. So
whatever the risk today, it is considerably less than it was during that
episode. Which eases my concern with regard to the viability of our financial
system.
Here
is the link to that study:
The difference between the current private credit crisis and the GFC.
https://www.zerohedge.com/markets/subprime-crisis-20-will-private-credit-be-trigger
So
what do we know?
(1)
we know how the economy responses to war (Vietnam, Iraq, Afghanistan, Ukraine)
and despite some initial hiccups, all was well.
(2)
we now have a solid reason to believe that risks associated with poor lending practices
in the private credit market will likely not lead to the kind of financial
devastation experienced during the great financial crisis and finally
(3)
we know that earnings estimates just keep going up [I review the financials of
a portion our investment universe weekly and I am struck by how earnings forecasts
from the Street keep rising despite the potential inflationary fallout from rising
oil prices].
So,
as you might guess, I am feeling a little more optimistic about the economy. I
am not reinstating my ‘muddle through’ scenario, though the odds of it
materializing are going up. On the other hand, as you know, I did reaffirm my
‘inflation is as good as its going to get’ forecast. Which means my focus is starting
to shift from worries about recession to those of stagflation.
https://www.zerohedge.com/economics/services-sector-contraction-march-screams-q1-stagflation
US
International
Other
More positive news on the employment front.
https://bonddad.blogspot.com/2026/04/jobless-claims-continue-near-historic.html
Update on Q1 GDP nowcast.
https://mishtalk.com/economics/gdpnow-forecast-for-first-quarter-gdp-sinks-to-1-9-percent/
Details on Friday’s blowout nonfarm payrolls
report.
Investing
Could
a bear market be starting?
https://www.carsongroup.com/insights/blog/no-fooling-could-we-go-into-a-bear-market/
Latest from BofA.
Earnings forecasts up, stocks down.
https://www.ft.com/content/f2694c02-1f02-4bae-9d89-f1591f75e2db
Spring snapshot of S&P market cap.
https://politicalcalculations.blogspot.com/2026/04/spring-2026-snapshot-of-s-500s-market.html
Q1 earnings expectations.
https://talkmarkets.com/article/sp-500-earnings-dashboard-26q1-1775148517
For the bears.
https://www.zerohedge.com/markets/cash-king-dowd-sees-10000-gold-credit-market-starting-end-party
What
I am reading today
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