The financial markets – what’s occurring
These are unusual times, the normalisation of Monetary Policy and the absence of Fiscal stimulus will lead to disruption.
I don’t like saying, I told you so but – “I TOLD YOU SO”!!!!!
Selling begets more Selling.
The main Macroeconomic Themes are FED rate increases, halting of Bond buying, Inflation, overvalued Tech stocks (in a reopening economic phase) and the threat of war in Eastern Europe. The more positive themes are, a growing economy- good retail sales for Jan, improving employment….. However, a 3.8% increase in sales against a 7.5% inflation backdrop is not wild growth!!!
IMHO the Ukraine/Russia tensions are not the big influence. Local conflicts rarely affect the progress of global commerce and capitalism. However, fear motivates investors, will the local squabbles lead to a wider conflict? A wider war in Europe would be catastrophic for economies and markets. Imho the conflict will not expand, and the Geopolitical concerns will dissipate.
The technical analysis issues are – recent rallies have failed, and prices are below the important moving averages. Stock indices and single stocks below their 200 day moving averages are in Bear Markets. In Bear markets one sells rallies. Buy the dip has been over for the past 8 weeks. Do not sell the lows of the day, wait for rallies. The T in Trading -TIME is vital. The time you trade (noon to 3pm ish and 7pm -9pm) helps one go with the trend.
Do my Advanced Trading Course to refresh your Investing/Trading.
Economy
PPI was high again. It is not just supply chain bottlenecks. Pricing power has returned, and the consumer cannot say no.
Retail sales in US rose more than expected, however not so much if you consider the 7.5% inflation rate.
The big economic puzzle to be solved is, is the US heading for recession (lack of fiscal stimulus, consumer confidence, both negative guides. Good Employment stats are pointing to no recession.
Fed watch
Don’t. Fight. The. Fed.”
Lots of Fed speakers out last week all indicating that interest rates will go up and that they will likely reduce the size of their balance sheet (QT), never mind not provide liquidity anymore(QE)
They are “behind the curve”. That means the bond market has already increased longer term rates considerably in response to rising inflation and the Fed have not moved their Fed Funds rate at all.
16 March is the date of their next Monetary Policy announcement.
Economic theory says the way to control inflation is to reduce money supply (Too much money chasing too few goods/services= Inflation). Also, by putting up the price of money one reduces demand.
It is all a timing thing; the FED are hoping Inflation will ease due to supply chain improvements and basing effects (less high compared with 12 months ago). The big dog in inflation is employment costs which can feed on themselves. Inflation expectations drove wage demands and for the first time in 20 years the employee seems to have bargaining strength.
Bonds
Yields on the 10-year rallied above 2% mid-week but reversed on their safe haven characteristics in front of the Geopolitical news and lower stocks.
Gold rallied and broke out of its range. Gold is a hedge against Inflation and the safest of safe havens.
I do not see it going to the moon in the face of higher interest rates.
Economic news due – Presidents Day on Monday, cash markets closed. A quiet enough week for economic stats news.
https://www.investing.com/economic-calendar/
Stock market
ALL INDICES ARE BELOW THEIR 200 DAY MOVING AVERAGES AND PRICE NEEDS TO RISE ABOVE THE 200DMA FOR THE BULL MARKET TO BE RESTORED.
In the Chart Module of our Investing course, I point out the importance of the moving averages in single stock investing. Using them as your risk managment tools can save money and bad investing decisoins.
Markets are going lower because the valautions of tech were exaggerated due to- too much money in the system(money flows around stock markets like water), competion for funds from higher returns from safe investments like US treasurys and proft taking.
Technical Analysis
My Chart Guy says
This week, #ES_F broke down major triangle pattern & failed to reclaim its 200dma. All eyes now on big H&S everyone sees Next week: Looking to test neckline at 4280-4260. Bounce there but unless bulls clear 4395 (bottoms in), 4160s coming. Detail below $SPX
IMO
The Jan low on S&P500 was 4220 but the low close was 4300, it becomes the big support. Markets can continue lower, however betting against capitalism has not got a sucessful long term outcome. Bear markets will rally dramatically so be careful but for me the big Macro issue will be the lack of Quantitive Easing will not be compensted by a posible recovering economy (if economy goes into recession, nothing will save the stock markets)
It is about handicapping the likelyhood of future events.
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Colin 01-6644034 0851722729