pebblewriter

Tag: Yen

  • A Look Ahead at 2024

    To quote the great Yogi Berra, “it’s tough to make predictions, especially about the future.”

    But, there are a number of important themes that should drive markets in 2024. The elephants in the forecasting room are the so-called Magnificent Seven (AAPL, GOOGL, MSFT, AMZN, META, TSLA and NVDA) which soared 105% in 2023 versus the S&P 500’s 24%.

    These seven stocks make up roughly 30% of the S&P 500, so even that index’s returns are suspect. Without the Mag 7, SPX gained only 9.94%. So, don’t chastise your investment manager if they returned only 10% last year by exercising prudent diversification.

    Will the rest of the market catch up to the Mag 7 or will the Mag 7 “catch down” to the rest of the market? Investors tempted to join the party and pile into the Mag 7 should remember that, in 2022, these same stocks plunged 40% compared to the rest of the market’s 12% losses.

    From a fundamental standpoint, their price to earnings multiples are historically quite high, meaning that any disappointments will be dealt with harshly. We saw this last week with AAPL.  While SPX fell as much as 2.2% from its highs, AAPL was off a whopping 9.7%.

    We’ll spend the next several days examining the equity charts for clues as to what to expect in the year ahead. We’ll also zero in on the currencies, commodities and interest rates which greatly influence equity values.

    As always, our goal is to get most them right most of the time, as we did in 2023 [see: The Year in Review – 2023.] Chart patterns and technical analysis are great tools for doing so. We’ll start with a very obvious chart pattern for SPX which should make all the difference between a stellar year or a slump. It ties in with another chart pattern dating back to the Great Depression.

    The most important chart pattern for SPX is the large Inverted H&S Pattern which completed on Dec 11.

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  • Charts I’m Watching: Jun 9, 2023

    The prop job continues, with VIX reaching a lower low and the DXY still under pressure.

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  • FOMC Day: May 3, 2023

    Futures are essentially flat ahead of today’s pivotal FOMC decision and press conference.  This follows a day that saw stock prices plunge below our initial backtest target……as VIX actually broke out – at least for a few hours. The banking crisis obviously hasn’t gone away. How many more First Republics or Silicon Valley banks are out there – clicks away from a bank run? Even those banks which aren’t already in trouble will most certainly cut back on lending, which will certainly raise the odds of a (worse) recession.

    Will the FOMC take that into account as they contemplate future actions?

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  • Contagion

    How bad will it get? That’s the question slamming markets this morning as Credit Suisse is again in the headlines for all the wrong reasons: The Saudi National Bank has cut them off from further financial assistance. The CDS have soared and the stock is getting ever closer to zero.

    Futures were essentially flat after a very nice rebound yesterday – until the news hit.  Now, they’ve given up essentially all of yesterday’s gains and some important technical support.

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  • The Big Picture: Feb 27, 2023

    Last week completed the backtests we’d been expecting, with ES, SPX, COMP, DJIA and NKD all holding important technical support.While the fundamental picture might not justify these prices, the algos are satisfied. And, until price discovery reemerges (if it does), the algos are all that matter.

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  • Charts I’m Watching: Feb 24, 2023

    Futures have dropped back through the 50-day moving average, putting the 200-day back in focus after yesterday’s near miss.

    We’re essentially in the same situation as yesterday except that we’re jumping off from a much lower level.

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  • Fed Whispering

    The FOMC’s meeting gets underway today. Like most, this one seems very consequential. The Street is divided on whether or not the Fed has done enough to combat inflation as well as the necessity of a recession.

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  • Bulls: Throwing in the Towel?

    As expected, Powell and Co. were not amused by the market’s recent exuberance and decided to take things down a notch.

    The algos haven’t yet given up, though, with VIX still under pressure and DXY remaining oversold.The reversal is working just fine so far. But, with OPEX tomorrow and two weeks left in the year, we’re left to wonder whether the bulls are ready to throw in the towel.

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  • Japan’s Runaway Inflation

    Japan’s inflation hit a 40-year high in October, driven by a policy of placing stock market gains above all else.

    When Japan first adopted negative interest rates, the argument was that it would help end the country’s deflationary spiral and return inflation to a 2% goal. Now that inflation is nearly twice as high as the goal, one might expect rates to move at least a little higher.

    Although the BoJ has allowed the 10Y to rise to 0.24%… …they have held short-term rates at -0.1% since 2016.The BoJ’s utter lack of candor is nothing new.  Forget about FTX. Japan’s markets are the biggest Ponzi scheme on Earth. Since the Fukushima disaster in 2011, Japan’s stock market has been driven principally by the yen carry trade which relies on an ever-cheaper yen to attract capital into the stock market.The obvious limit to this scheme is that as the yen depreciates, imports become more expensive. And, since Japan imports all of its oil and most of its food, it was simply a matter of time before inflation bit Japan in the お尻.

    Luckily for Japan, they have no bond market per se. The entirety of Japan’s borrowings are purchased by the BoJ. This monetization of debt has gone on for years without repercussions – until now.

    The Nikkei was locked in a falling price channel between Feb 2021 and Mar 2022, when the decline finally reached -20.7%. At that point, it was less than 1% away from its pre-pandemic highs of 24,140.It was no coincidence, then, that USDJPY picked that specific moment to break above both the midline of a channel and a trend line at least 50 years old.Subsequent rises in the USDJPY (declines in the yen) have acted to lift NKD above its SMA200 and out of its falling channel. Everything’s going great – unless you consider rising taxes and plunging consumer confidence problematic.

    Come to think of it, the US faces similar problems.

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    In other news, VIX has sent the all-clear to algos to rally at least a little further – this being OPEX and all.continued for members… (more…)

  • Charts I’m Watching: Oct 17, 2022

    Pretty standard fare for an OPEX week…futures have ramped 1.6% higher on a bounce in USDJPY and CL and a trounce in VIX.

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