pebblewriter

Tag: DXY

  • Winners and Losers

    Watching WMT this morning and wondering what it all means?  After surging nearly 7% on blowout earnings, the stock has given up all its gains after the company’s commentary confirmed the obvious: there are winners and losers in a pandemic.

    Unlike many of its general retailer competitors…Walmart sells groceries, meaning they were allowed to remain open even during the worst of the virus’ spread. They also have a substantial online business, helping them offset the slowdown in in-store shopping. Last, customers who might otherwise have run out of money when laid off received checks from the government which allowed them to continue shopping for low-priced essentials.

    The problem WMT faces, of course, is what happens now that these checks have stopped. Will the stock recouple with the economy? Moreover, will the overall market recouple with the economy?

    The old adage that “the market is not the economy” has never been more true. Pundits and politicians see major indices push to new highs and declare that the worst is over. The reality is that the AMZNs and WMTs of the world are simply taking market share from the millions of small businesses that couldn’t stay alive for the past five months.

    For all the major retailers which have declared bankruptcy so far this year…

    …there are hundreds of thousands which have done so with no fanfare nor headlines in the WSJ. They slip quietly away into insolvency as their PPP money (if they were able to obtain it) runs out and the bank account runs dry.  They’re not publicly traded, so they don’t affect the market. But, the effects will be felt sooner or later. And, more will join their ranks as the country continues to fail the coronavirus marshmallow test.

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  • New Highs Inevitable?

    The algos are still threatening new all-time highs, this time egged on by the “wonderful” news that only 963,000 new unemployment claims were filed last week and only 15.5 million Americans are currently drawing unemployment.

    It didn’t hurt that VIX made several sudden plunges in the past hour and that the USDJPY is threatening to break out again.

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  • PPI’s Big Beat

    PPI was expected to tick 0.3% (0.1% core) higher in July. Instead, headline PPI soared 0.6% and core popped a stunning 0.5% – the highest since October 2018.

    The impact on stocks has been muted so far, as the market is still giddy over the potential release of what is essentially a Phase 1 vaccine out of Russia. The impact on bonds, however, has been significant. 10Y yields have broken out of a long, slow decline.

    When you’re piling on debt (with record-setting duration) the way the US is, higher interest rates are not good news.

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  • NFP Beats

    NFP increased by 1.76 million in July, beating estimates of 1.48 million. Futures popped on the news, almost turning green before deciding it was a non-factor – perhaps as Trump had already spilled the beans earlier in the week. Or, perhaps it was due to most of the job gains coming in food service and retail – categories which are susceptible to large downturns if slowdowns and shutdowns continue to make a comeback.

    The unemployment rate dropped from 11.1% in June to 10.2% in July, while U6 dropped to 16.5% – still a stunningly large number of unemployed Americans whose benefits have plunged in the past week.

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  • Crossing the Rubicon?

    ES has reached the top of the falling white channel we added a couple of months ago.  At 76 points below all-time highs, a 2.2% move higher would make quite a statement about the integrity of the S&P 500 – essentially that a connection between equity prices and macroeconomic conditions is no longer a reality, nor even a consideration in investing. Imagine future FOMC press conferences and the derision that pretenses to the contrary would invite.

    Is the Fed ready to cross the Rubicon? Or, could this finally be the end of the road?

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  • Thinking About…a Correction

    Will the addition of another “thinking about” keep stocks aloft until the next FOMC meeting?  Futures aren’t looking so hot, perhaps because WTI has now joined RBOB in breaking trend, 10Y yields have gapped lower, and VIX broke out of its falling wedge. The algos are not happy.

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  • A Failure to Capitulate

    Futures have given up all their Tesla gains and are pointing to a slightly lower open for the S&P this morning.Apparently, a threatened breakdown in VIX just isn’t as effective as it used to be.

    What we have here is a failure to capitulate (apologies to Cool Hand Luke for the cheap rip-off of a great movie.)

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  • Currencies: A Turning Point

    Lots going on this morning, with currencies joining VIX in leading the equity circus. EURUSD smashed its March highs and is closing in on one of two levels of overhead resistance as DXY tests an important channel bottom. The next moves for each will have important implications for the economy and for algo-driven equities.

    ES has recovered 23 points of its overnight losses after failing to hold our .886 Fib target.  It’s one vaccine headline away from recovering 3258.

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  • Shades of 2015

    SPX reached our Fibonacci .886 retracement target yesterday. It’s a level I never imagined seeing after stocks reached important support back on March 23. But, then, I never imagined $5 trillion in liquidity  – equal to the nation’s Q2 economic output according to the Atlanta Fed – being pumped into the economy in the second quarter.

    We’ve always known there would be a fundamental battle between another round of QE (remember when Powell insisted it wasn’t QE?) and the realities of the worst pandemic in over 100 years, spawning unemployment that would exceed the GFC and deaths in the hundreds of thousands if not millions. But, this market cares little about fundamentals. It cares about liquidity and a steady diet of the right signals being fed to the algos.

    Central bankers and governments have delivered on both counts – with WTI having risen $59/barrel and VIX plunging 72% and with liquidity injections purportedly intended to bolster employment which, in many cases, went into stock buybacks.

    Nevertheless, here we are. In Harmonics, the .886 Fib represents an 88.6% retracement, or rebound, of a significant drop.  It’s typically as large a rebound as you’ll see unless stocks test their former highs (a potential double top) or push past them to new highs. Unfortunately, it’s not always clear cut.

    In May 2015, SPX tumbled 12.5% after coming within 3.32 points of our 2138.04 target. By Nov 2, it had retraced 88.6% of those losses, at which point we looked for a pullback. Instead, it spent the next several sessions pushing above the .886, no doubt stopping out plenty of shorts before finally succumbing and making new lows – the 1.272 Fib extension at 1823.42.With the pandemic picking up steam – at least in the US and many lesser developed countries – the fundamental picture is looking iffy at best. The technical picture, on the other hand, is flashing plenty of warning signals. Can we count on it mattering?

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  • Frontrunning the Fed

    Ultra low interest rates don’t do much for traditional banking earnings, but they’re pretty fantastic for highly leveraged banks such as Goldman that are only too happy to front run the tsunami of Fed liquidity injections.

    Between GS and more positive vaccine news (Moderna) the futures have pushed to higher highs, settling the question as to which of the deep retracements is the ultimate upside target.  Note that the yellow channel midline served as a springboard yet again… …as did VIX’s daily drop to/through trend line support.continued for members… (more…)