pebblewriter

Tag: fed

  • The Pandemic is Still With Us

    ES is now off 9.3% from its recent top (-7.8% from our Correction Warning), nailing our 3253 target overnight.  The decline has broadened from the overpriced tech stocks to include banks, energy and cyclicals.

    The factors we’ve been watching for the past three weeks are all bearish now, and bulls are starting to acknowledge the fundamental risks inherent in the economic and political landscape – not to mention an obvious uptick in coronavirus cases in many significant countries around the world. Contrary to politicians’ cheerleading and assurances of a successful vaccine just around the corner, the pandemic is still very much with us.

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  • Charts I’m Watching: Sep 15, 2020

    The great thing about channels is that they tell you quite precisely when a trend change has occurred. The falling white channel seen on ES was tested just prior to the open yesterday. A simple smackdown on VIX and it was off to the races.

    As we noted at the time, ES’ 10-DMA had dropped to the level of its 20-DMA. Despite a huge ramp job, a bearish cross has indeed occurred.

    On the other hand, we have both an FOMC meeting and OPEX this week.  On top of the bullish channel breakout, these events seldom fail to produce a rally.

    Which will prevail?

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  • Inflation Tops Estimates…Again

    Let’s talk about inflation. At 0.4%, both headline and core handily beat consensus of 0.3% and 0.2%. Why?

    This morning’s CPI release is a treasure trove of information regarding price action in the general economy.  On an annual basis, energy tanked and food soared. MoM, food was still strong while energy and used cars soared in value.

    So far, the market isn’t concerned. It should be.

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  • Core PPI Tops Estimates

    Maybe the Fed had it right, leaving the door open to higher inflation. Though August headline PPI came in slightly higher than expected at 0.3% vs 0.2%, core PPI rose 0.4% versus 0.2% expected.

    S&P futures sold off 8 points on the news, but the algos had other ideas. As is often the case, “someone” hammered VIX and it tumbled back below its 200-DMA at 8:39. The algos were only too happy to oblige, breaking ES out of its latest falling channel.

    Honestly, who needs economic data? Why not just have the Fed trading desk announce the day’s high, low and close every morning?

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  • Changes in Attitudes

    It’s those changes in latitudes,
    changes in attitudes nothing remains quite the same.
    With all of our running and all of our cunning,
    If we couldn’t laugh, we would all go insane.
    ~Jimmy Buffett

    As expected, yesterday’s Fed minutes disappointed and the market was none too pleased. Turns out the Fed isn’t quite as optimistic as the market; or, maybe they just feel like they’ve done enough in driving stocks back to their February highs.

    ES came within a few points of our initial downside target before beginning its obligatory bounce.

    With initial and continuing jobless claims coming in higher than expected and Philadelphia Fed coming in below expectations, the futures are under additional pressure and should test important support.

    Should that support fail, our six-month forecast becomes more ominous.

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  • 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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  • Not a Breakout

    Yes, it was impressive. AAPL, FB, GOOGL and AMZN delivered big time. Yet, AMZN, the one that was best positioned to clean up, hasn’t yet broken above a key Fib level, let alone the top of the 20-year old channel which marked the July 13 reversal.

    If it does, fine, bears should prepare for a long, long winter. But, until it does, this remains a dangerous moment for the recovery’s poster child.

    While we’re at it, did anyone notice that after tagging yesterday’s downside target, futures bounced only to the .886 Fib?  Or, that SPX is poised to pop and drop at its own .886 Fib?

    Again, not a breakout.

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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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  • 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…)

  • PPI Disappoints

    The producer price index missed this morning, coming in at -0.2% versus consensus and prior read of +0.4%. Core also missed at -0.3% versus consensus of +0.1%. Although the market has certainly staged a V-shaped recovery, someone forgot to check with the economy.

    Not to worry, because Gilead was quickly out with a press release reiterating the virtues of Remdesivir. The algos like this kind of stuff, especially when faced with otherwise depressing headlines.

    More importantly, VIX took a well-timed dive to just below its 10-DMA. The algos love this kind of stuff, and suddenly futures are back in the green.

    Don’t get too excited. It won’t last.

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