USDJPY finally tagged our 132.22 target overnight…
…a target we set over six months ago [see: Update on Currencies Nov 17, 2021]:
Ordinarily, this might be a good thing for stocks. Not this time, as it echos the dollar’s strength against the euro.
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Futures have bounced about 1% overnight, retracing a Fibonacci 61.8% of the losses from Thursday’s highs.
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Per our analog, today is the next significant turning point – important in terms of confirming the direction and distance of the market’s next move. It has done an excellent job of forecasting the reversals, rallies and drops since we first posted it on May 13 [see: Analog Watch.] 
The first time I came across one of these, it worked out spectacularly. I started noticing in May 2011 that the turning points and rallies/declines which had been occurring at that time very closely matched those of the 2007 top.
Just after Day 32 in late June [see: Deja Vu All Over Again] I began laying the entire roadmap which would presumably end with a very sharp drop of around 20% by Day 70. As it turned out, the S&P 500 plunged 19.6% by Day 69. Details are available HERE.
The current analog is different in terms of how quickly things will play out. If it plays out, however, the market is in for much greater losses in the months ahead.
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The first quarter decline in non-farm productivity was the largest since 1947. The chart below from briefing.com shows the 7.5% plunge, contrasted with an 11.6% increase in unit labor costs. If the country had locked down during this time, you might be able to make an argument that a recession isn’t necessarily coming. 
But, this slowdown came courtesy of a 2.4% output decrease. In other words, it’s another reason to believe a recession is here and a soft landing ain’t in the cards.
Futures have been all over the map overnight, but are currently hanging on to the channel bottom from May 20. Note that we finally got that 10/20 cross and are nearing a backtest of the 50-day moving average – just in time to set up a nice trap.
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Futures are moderately higher this morning as algos respond enthusiastically to Salesforce’s earnings and ignore the ongoing meltdown in mortgage applications and uptick in COVID cases. Here’s a snapshot of testing results at my daughter’s college, which finally reinstated a mask mandate after the positivity rate reached 10%.
I think they could use a primer on chart reading…
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It’s been a little over two weeks since our analog was unveiled [see: Analog Watch.] So far, so good. Friday’s high came within 6 points of the next upside target – just a few days ahead of schedule.
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PCE comes out later this morning, providing the most up-to-date picture of the challenge facing the Fed. Judging from yesterday’s 2% pop, investors are hopeful that inflation might be leveling off. 
Futures are off very slightly.
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The Information reports that Sequoia Capital has issued a warning to its startup founders, detailing a series of moves that should be taken to avoid a “death spiral.”
“Its latest warning to its portfolio companies takes the form of a 52-slide presentation, a copy of which was viewed by The Information. Sequoia described the current combination of turbulent financial markets, inflation and geopolitical conflict as a “crucible moment” of uncertainty and change. Sequoia told founders not to expect a speedy economic bounceback akin to what followed the start of the pandemic because, it warned, the monetary and fiscal policy tools that propelled that recovery “have been exhausted.””
Sitting here in Silicon Valley today, where one bedroom shacks still fetch $1.5 million despite sliding tech stock prices, it’s not hard to imagine that the worst is yet to come.
Futures are up modestly this morning, with our analog still on track.
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Today’s miss came in April Durable Goods orders: 0.4% vs 0.8% consensus (0.3% vs 0.6% for ex-transportation.)
But the real miss on everyone’s minds is the parents of those 19 children who were struck down in Uvalde, TX yesterday. Those parents will have no one to get out of bed this morning. No one to cook breakfast for or bustle off to school. No one to kiss goodbye.
I’m struck as I watch the moment of silence at the NYSE…why silence? What the companies represented in this great American institution should really do is announce that they’ll withhold all political contributions to any candidate for national, state or local office who doesn’t vote for gun reform.
I grew up in Texas where many families I knew had hunting rifles – typically a .30-06 for deer hunting, a .22 for target practice or varmints, or a 12 or 20-gauge for dove hunting. I never heard of anyone wanting or using an assault rifle or a high capacity magazine for hunting – or for defensive purposes, for that matter. It’s just plain stupid.
In a country with more guns than people, our gun problem is a needless tragedy.
And, it’s coming soon to a town near you. In fact, good luck finding one that hasn’t had a violent gun death so far just this year. By the end of 2022, this map will have more than twice as many red dots, each one representing one or more lives, often children, taken by gun violence.
It’s inescapable. Except for the fact that we have an election coming up – a chance for every American to break their silence and fire the politicians, bought and paid for by the gun lobby, who drone on and on about the sanctity of life but do nothing to prevent these senseless deaths. They are complicit. It’s time for them to go.
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It’s a big week for economic data, with earnings and outlook announcements already setting a bearish tone. First up this morning is April new home sales, which came in at 591k units – a 16.6% drop from March and a 32.9% plunge from April 2021. It barely beat the 2020 pandemic lows.
As everyone now knows, this is a direct result of the sharp rise in mortgage rates which is a direct result of the sharp rise in inflation resulting from the Fed’s policy mistake: driving rates much too low for much too long as discussed last July [see: Time to Sell Your Home?]
Over the past month, it has seemed that the old “bad news is good news” meme which played such an important role during ZIRP had been sidelined. Based on recent Fedspeak, however, it’s probably better characterized as being in cold storage. The Fed’s determination to reduce inflation will be sorely tested in the days ahead.
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