The Morning Call
5/24/21
The
Market
Technical
The S&P had a
see saw week, (1) trading down early and finishing below the lower boundary of its
short term uptrend on a gap down open, (2) it then rallied hard on Thursday,
filling that gap down open and settling right on that lower boundary, and (3)
ending the week on a soft note, back below the lower boundary of its short term
uptrend. My trading discipline holds that
a close below that boundary today will reset the trend to a trading range. However, the challenge in the prior week was
marginal, the subsequent rally was marginal and the retreat on Friday was
marginal---which all says that this latest break is anything but a strong
signal. Although if we see a big down
day today or tomorrow, I will feel a lot better about a trend reset. As you know, my Market assumption that: ‘I
can’t see an end to this uptrend as long as the money keeps flowing with
abundance and in the absence of any major negative exogenous event.’ However, the ‘thinking about thinking about tapering’
narrative in the latest Fed minutes released last week may now have investors starting
to realize that this may be the beginning of the end. Stay tuned.
The long bond appears
to be developing a very short term trading range---it could not make a new high
two Monday’s ago and has been unable to trade down through that 133 level. This suggests that the bond investors are
adopting a ‘wait and see’ approach until there is more clarity to ‘transitory’
and ‘thinking about thinking about tapering’ issues.
The golden age for
bonds is over.
https://compoundadvisors.com/2021/the-golden-age-for-bonds-is-over
GLD investors are exhibiting
a bit more certainty about ‘transitory’ inflation, to wit, they do not believe
it. Last week, gold blew through its 200
DMA, resetting it to support. The green
line is the upper boundary of its very short term uptrend. I would expect some resistance at that
level. But if it manages to push through
it, the next stop is GLD’s 20 year high.
Like GLD, the
dollar seems tilted toward the ‘non transitory’ camp. That said, it is bumping up against support
that goes back to January. Let’s see how
it handles the 24 level this time.
For the pessimists.
https://www.zerohedge.com/economics/fed-has-lost-control-john-williams-warns-hyperinflation-2022
As a final note, I
believe that the pin action in the long bond is a better predictor of future
economic activity than either gold or the dollar. Meaning in this case, I will go with the
uncertainty in the TLT chart versus the clearer indication of ‘non transitory’
inflation in GLD and UUP charts
Friday in the
charts.
https://www.zerohedge.com/markets/crypto-crushed-commodities-crumbled-crappy-stocks-soared-week
Fundamental
Headlines
The
Economy
Review of Last Week
US statistical
releases were pretty evenly matched, though the primary indictors were two to
one on the negative side. That is three
weeks in a row of subpar performance.
While a couple of
weeks of datapoints doesn’t make a trend, those numbers suggest that consumers
have already satisfied all that pent up demand from the lockdown and blown
through the free money from the government.
If so, then this economy is a lot weaker than even I thought. On the
other hand, inflationary pressures may just be ‘transitory’ as the Fed has
forecast.
But again, while three
weeks of numbers don’t make a trend, they are getting close.
Overseas, the data
flow was also balanced. However, unlike
the US, that follows three upbeat weeks. So, the rest of the world is starting
to catch up to the US.
Bottom line. ‘As
you know my opinion is that following an initial snapback (which may already
be over), the US economy will likely return to its former subpar secular growth
rate, stymied by irresponsible mix of fiscal/monetary policies.’---which are only
getting more irresponsible.
US
The April Chicago Fed national activity index
came in at .24 versus the March reading
of 1.71.
International
Other
The Fed
The Fed prepares
to go direct with liquidity (must read).
https://www.zerohedge.com/economics/fed-prepares-go-direct-liquidity
Biden’s Plan
Biden proposes reducing infrastructure spending
to $1.7 trillion.
Inflation
Expecting inflation (must read).
https://www.advisorperspectives.com/commentaries/2021/05/21/expecting-inflation
Counterpoint.
The coronavirus
Take off the political masks.
https://americanconsequences.com/buck-sexton-america-take-off-the-political-mask/
News on Stocks in Our Portfolios
What
I am reading today
For
those who want to get depressed.
Quote
of the day.
Inside the military’s secret
undercover army.
https://www.newsweek.com/exclusive-inside-militarys-secret-undercover-army-1591881
Bitcoin under attack.
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