pebblewriter

Posts

  • Update on Bitcoin: Jun 21, 2022

    My apologies for today’s post being so late. Our webhosting company just now fixed the “network connectivity problem in one of [their] clusters.”  I’d be very upset about it except for the fact that this is the very first time in over two years that they’ve ever let me down. This post will be a retrospective instead of a look ahead at today’s session.

    Bitcoin reached our next downside target over the weekend: the dual Fibonacci targets of 17,611/17,692. Like everything else over the holiday weekend, it bounced pretty strongly. And, just like everything else, it won’t last. As we detailed in our last BTC update [see: Bitcoin’s Meltdown] there is substantially more downside ahead.

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  • Charts I’m Watching: Jun 17, 2022

    Futures bounced over 1% overnight into OPEX, but are now flirting with negative readings.

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  • Don’t Forget the Dow

    I don’t usually pay much attention to the DJIA. It’s a nonsense index that’s manipulated six ways to Sunday and has little following in the investment community. Having said that, the financial press reports on it all the time and the average Joe, seeing this, seems to care.

    As a result, we often see weird things happen in the markets when the Dow reaches significant inflection points. The last great example of this was in the depths of the pandemic crash in 2020. President Trump, who frequently cited the Dow as a measure of his success, was understandably concerned as markets tanked.

    Tweets such as this took on an ever more anxious tone as the plunging Dow approached the level it was when he took office in 2016, with tweets alternating between cheerleading the markets and goading the Fed and Congress into taking action.

    When the Dow finally reached the levels at which it traded on election night 2016, the crash was miraculously over. From our March 20, 2020 post Time to Buy:

    As we all know, the market closed the following session at 18,591, a mere two points above its close on Nov 9, 2016. Some coincidence, huh?

    Why does any of this matter right now?  The Dow is closing in on another of those interesting inflection points: its 2020, pre-pandemic highs at 29,568.

    If the folks behind the curtain have decided that we can’t handle dipping below the “everything is alright” marker, then we could get a nice bounce here.

    If, on the other hand, this time really is different, that support will be breached and investors might just start panicking a little more, down to around 28,800 or lower by mid-July.

    Stay tuned.

     

  • No Pressure

    Futures are off about 2% following yesterday’s FOMC announcement and press conference – the closest we’ll probably ever get to a mea culpa – which was accompanied by the usual algo nonsense. Suffice it to say, traders have come to their senses and markets are once again reflecting the likelihood of the Fed tightening into a recession.

    Our algo remains on track, with much lower prices to come after whatever this bounce amounts to. Note that tomorrow is OPEX and Goldman estimates that options representing a huge $3.4 trillion in notional will expire ahead of a 3-day weekend. No pressure…

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  • Welcome to the Future

    Remember the post from last July [see: Time to Sell Your Home?] regarding the effect of rising interest rates on housing prices?

    With mortgage rates at 2.60% at the time, we did some simple calculations to show the impact of an increase in rates to as high as 6%. A $1 million house with a mortgage payment of $4,203, for instance, would need to drop to $667,733 in order for the payment to remain the same for a new buyer.

     

    With inflation spiking, we felt it was only a matter of time before interest rates shot higher too.Don’t look now, but the future is here. The pundits say that about one-fourth of all sales are to cash buyers, so higher rates won’t necessarily matter. Maybe. But, nearly every crash in the history of the markets has started with the words “this time is different.”

    Don’t say we didn’t warn you.

  • FOMC Day: Jun 15, 2022

    Algos have ramped almost 1% higher overnight on a modest but noticeable breakdown in VIX.

    All eyes are on the FOMC which is expected to announce a rate hike of anywhere from 50-100 bps at 2PM ET. Bulls are still clinging to the prospect of a soft landing, while bears see dark economic storm clouds approaching.

    Given this morning’s disappointing retail sales data, which saw spending slump 0.3% MoM in May (-0.7% exclulding gasoline sales), it is increasingly difficult to ignore the notion that the Fed is tightening into an economic slowdown.

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  • PPI Still Running Plenty Hot

    PPI dropped just a bit from last month, registering 10.8% YoY (unadjusted) for May versus 10.9% for April and 11.5% for March.  The MoM tally was +0.8% for May versus 0.4% for April.

    The very slight drop in the YoY data is unlikely to assuage the Fed’s fears about inflation being out of control. But, it’s enough to contribute to a slight bump in futures heading into the two-day FOMC meeting and OPEX.

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  • Charts I’m Watching: Jun 13, 2022

    ES dropped over 100 points overnight to tag our 3802 target.

    The other perhaps more significant target to be tagged is the 10Y. It topped our 3.248 target and is currently trading at 3.28.Our analog continues to perform beautifully.

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  • Inflation Reaches a New 40-Year High

    CPI soared to a new 40-year high: 8.6% YoY and 1.0% MoM. Core also exceeded consensus, coming in at 6.0%.

    Futures are not amused, as this takes anything less than a 50 bps rate hike next week off the table. A 75 bps hike is suddenly a real possibility.

    Needless to say, our analog remains very much on track.

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  • The ECB’s Fantasy World

    You can’t make this stuff up. With May inflation at 8.1% across the euro zone, the Governing Council is leaving rates unchanged with an increase of 25 bps to be unleashed in July to “ensure that inflation stabilizes toward its 2% target over the medium term.”

    Sigh…

    Futures continue forming their triangle with a denouement likely coming after US CPI tomorrow morning.

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