The economic headlines are ugly this morning, with durable goods off 0.4% versus the 3-4% gain expected. The chief culprit, of course: trade. Funny how no one wants to buy US goods and services when the dollar is higher than it’s been since 2002 — oh, and we’re launching a trade war against the rest of the world.
The last time exports stumbled this badly was the second quarter of 2010, which was also in the wake of a rapid run up in the USD.
This certainly reinforces our stagflation case, as both higher oil prices and higher USD, which have been used so effectively to prop up stocks, have painted the Fed into an ever tighter corner.
Let’s see… That leaves body-slamming VIX as the sole means of averting a strong sell-off today. Prepare for it to reach new lows in 3-2-1…
continued for members…
Our downside targets from yesterday appear safe for the moment. I’d be hopeful for more than a test of the SMA5 200 at 2293ish or the gap close at 2284.63, but…
TPTB knew this data was coming, as USDJPY already broke out yesterday afternoon.
VIX might actually experience some buying pressure from real, live investors/traders. But, it’s not even close to breaking out (11ish.)
And, CL has been building a TL of support ever since the rising purple channel broke “down.” This, in addition to the SMA10 and SMA20 at 52.86.
If SPX can break down through 2284, the next support is at 2273.82 — the .618 of the latest meltup and just a smidge below the SMA10 at 2276.02. Until then, and especially as I expect CL to start down next week, I’d maintain a bias to the short side.
UPDATE: 9:57 AM
First target in the bag, but we very frequently see a bounce here at the SMA5 200… 
…especially when VIX is body-slammed the way it just was. That’s right, new lows. Sheesh…
In a rarity, SPX’s and ES’ SMA10s are about the same distance away. It somewhat strengthens the case for a backtest.
UPDATE: 11:02 AM
SPX just broke below the little white TL and is trying to make its way south. But VIX continues to be forced lower. Note that ES just reached itty bitty channel support at its .236, so we’ll continue to watch for intervention.
UPDATE: 11:26 AM
More of the same. VIX gapping lower in order to get SPX back above its SMA10/20. How low can they go? I don’t know. But, if they can get SPX back above the SMA5 200, it probably makes sense to take profits on the short and move to the sidelines.
UPDATE: 12:04 PM
SPX is back to the SMA5 200. Again, a push through these levels on continued VIX shorting means it’s time to step aside.
Comments
3 responses to “Economics: No Free Lunch”
This morning a guy a CNBC has a target for the S&P at 2650 based on the Hoover rally in 1928/1929. That level is close to your 2704 target. After the Hoover rally ended in Sept 1929, markets dropped 48% from the high. Hoover was very anti-trade, GOP passed a huge tariff bill in 1930. Stocks crashed 89% from the1929 high towards the end of Hoover’s term in 1932. It would seem that stocks face a possible death sentence over Trump’s term, especially with massive trade wars ahead.
yeah but the rule of thumb is different this time, till its not.
Good points, Tim. The ramp that has occurred since Nov 8 has been driven by factors that, in themselves, aren’t sustainable. Can TPTB find another tool to drive stocks higher, or will the expectation/reality of higher interest rates limit the upside? We’ve had inflation and higher rates before, but never while servicing $20 trillion in outstanding debt. My gut tells me they’ll find a way to keep prices rising, even as the risk also increases. But, I’m very open to the idea of an unraveling at any time.