pebblewriter

Tag: stocks

  • A Turning Point

    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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  • Productivity: Worst Since 1947

    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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  • Economic Data Deluge Begins

    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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  • The Big Picture: May 12, 2022

    SPX closed below important support yesterday, suggesting that the current leg down isn’t yet over. Indeed, things could get worse.continued for members… (more…)

  • Bitcoin’s Meltdown

    BTC reached our next downside target at 28,600 last night, then dropped as low as 25,401 before bouncing back to current levels.

    It’s not unusual for BTC to overshoot important support. And, this .618 Fib level is theoretically important support. But, it’s also important to remember that a bounce is sometimes just a backtest of newly formed resistance before another leg down.

    We’ve been bearish on BTC since 66,432 in October 2021. We were a little early, but maintained our posture ever since with with the exception of the Dec 2021 and Jan 2022 bounces – a stance which has produced exceptional gains.

    We’ll take a fresh look at BTC and whether it’s worth trying to catch this falling knife.

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  • A Swing and a Miss

    ES spent 11 hours hanging around our next downside target yesterday.  While the session had many characteristics of capitulation, the fact that SPX didn’t quite reach significant support (3956) suggests that the overnight ramp is a head fake.continued for members… (more…)

  • A Failure to Communicate

    Remember that scene in Cool Hand Luke where Paul Newman mouths off to the Captain after a failed escape attempt? He doesn’t initially appreciate the gravity of his situation. He is soon reminded.

    That’s what yesterday’s post-Fed presser felt like. Powell was trying to convey the sense that the Fed means business. It is going to get serious about escaping the inflationary mess it has stepped in.

    The market (well, the algos) didn’t hear that. They heard Powell say exactly what they expected and, spurred on by the huge bets lined up on the bearish side of the ledger, decided to mouth off.

    Clearly, they don’t appreciate the gravity of the situation, as we were reminded by this morning’s labor productivity report – the worst in 75 years.

    We would do well to remember that we’ve had these moments of euphoria before. The carefully curated decline which began in late March…

    …has seen more than a few deviations of late.

    But, facts are still facts. Inflation – especially very sticky labor costs – is still a problem, and the Fed waited so long that they now have no choice but to tighten into a recession. There was a time when they could have engineered a soft landing. But, that opportunity was, dare we say, transitory.

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  • FOMC Day: May 4, 2022

    Today’s FOMC meeting is one of the most anticipated and consequential in years. It’s difficult to overstate its importance in terms of economic impact and, perhaps more importantly, Fed credibility.

    Yes, we care about whether the Fed hikes 50 or 75 basis points – though either is unlikely to put a dent in inflation. The bigger question is what the Fed does with its $9 trillion balance sheet.

    Futures are up modestly.

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  • The Market is (Still) Broken

    Futures came roaring back into the falling white channel yesterday, revealing what many know but few say out loud: the market is broken. When expectations of a 1% quarterly rise in GDP yield, instead, a 1.4% decline, stocks should decline. Plain and simple.

    The old “bad news is good news” argument doesn’t work any more because the Fed no longer has the ability (at least this coming meeting) to ease in response to a slowing economy. Perhaps they would have if they hadn’t squandered the opportunity to taper months ago, but that’s water under the bridge.

    Instead, we get this massive disconnect which is, at the end of the day, a means of ramping stocks in advance of the bad news we all know is coming via the Fed’s meeting next week: a 50+ bps rate hike. Beyond monetary policy, which is now a headwind instead of a tailwind, we see more and more indications of tough times ahead. As Bill Blain (a treasure) sums it up:

    The world is not what we think it should be. It is what it is…and that is getting less pretty.

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  • Update on Currencies: Apr 28, 2022

    The dollar index continues its tear, surpassing both its 2017 and 2020 highs this morning. This is consistent with our forecast [see: Apr 11 Update on Currencies] that the Fed would need help from a rising dollar to attack inflation without having to resort to sky-high interest rates that would further accelerate the growth of the country’s national debt.At 103.928, DXY hasn’t seen these levels since 2002 in the midst of the 54% dot com crash. While beneficial to the inflation outlook, the dollar’s strength hasn’t been very healthy for alternatives such as silver, which just reached our next downside target.continued for members… (more…)