# NYSE and the status of world markets



## DaveTrade

I’m starting this thread because my main interest is all things NYSE and the state of world markets and I hope that others share my interest. I don’t want this thread to be a place to copy and dump news stories from the internet but rather a place for opinions and evidence and questions. To be clear, often a news story is part of the evidence and that’s fine, politics and business decisions do influence the markets.

I’ll start by posting this link to a free resource that shows a point & figure chart of the NYSE Bullish Percent Index. If you’re looking at the S&P500 or any other part of the NYSE it’s relevant to have some context and that is what the NYSE BPI can give you.

The web link is: https://www.truemarketinsiders.com/bpi


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## DaveTrade

The NYSE BPI is in a sell signal but that alone does not mean that the S&P500 is going to have a big pullback or crash any time soon. When the NYSE BPI is over 70 the stock market as a whole is over bought but the market can stay at these levels and even go further for some time. A sell signal in the BPI at these levels though is a first piece of evidence in building a case for a major pullback that may be coming for the S&P500.

Another piece of evidence to add to the case is to look at what the real big money guys are doing. I’m talking about the buyers of High Yield Bonds, I’ve heard these guys are referred to as not just the smart money but the really smart money. To see what they are doing we can look at HYG.

So first we’ll take a look at the weekly chart;







We have a rising wedge in the price action which is a bearish pattern and recently price has broken sideways out of the pattern. Is this a bearish sign for the market ahead or just a Covid pause?






Zooming in to the daily chart, price is moving sideways and currently trading below the 50day moving average. Topping patterns typically take longer than bottoming patterns so this is a bit of a wait-and-see but for me the odds are not in favour of this being bullish. Another piece of evidence adding weight to the bearish side. Confirmation would come if it broke down through the 19 July low.


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## DaveTrade

I’ve had a few people viewing this thread and some of those have indicated that they like it so I’ll keep going further with this. Time to take a look at the S&P500 itself. Below is a weekly chart showing that the S&P has been powering up since the Feb/Mar Covid crash and it still looks strong. I’ll get to that vertical line in a minute.






Now look at a weekly chart of the same market but this time the equally weighted S&P500.






The two charts moved very similar to each other up until recently, after the 10th of May the EW S&P started to move sideways while the weighted revision that we commonly see on the news continued higher. I can draw the analogy of the S&P500 being a car running up a long covid hill with the engine losing power. Maybe the FED will send out one of it’s big trucks to get behind and give the car a push.

Looking at the daily charts below, the S&P is breaking out of a tight one week sideways range and looks to be going higher. The EW chart is also breaking out but it’s waffling around, not being very decisive about it.










I’m waiting to see what happens this week but I’m sceptical of just how far this breakout will go. We need lift the bonnet and look inside the S&P500 to see want’s happening.


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## DaveTrade

Looking at the sectors of the S&P500, the industrials sector shows the same sideways movement since the 10th of May, but at this time it’s showing no sign breaking out.









Another sector that has an association with industrials is the materials sector;




Materials has bounced off a minor support zone and come back strongly to the 50day moving average, that’s a good sign. If The S&P breaks up from here and these sectors don’t go with it then the car would have lost a couple of cylinders.

The strongest sectors are health care and services. Technology, finance, consumer discretionary, utilities and real estate still moving up but real estate looks to be softening.

The enery sector has been weak for a while now but it’s showing possible signs of a turn up. I monitor all these and more daily and some of the sectors that are moving up look like they are going to have a minor pullback before continuing up.

For the 2020 covid crash I didn’t know when it would happen until a day or two before it started. I did have help from someone on the internet to be on the lookout. I went to cash in my super and my wife’s super and avoided the loss, my brother lost $130,000 in his super. When the market fell I doubled my small trading account in 2-3 weeks and at that point all I knew about options was how to buy a call or put.

The time put into maintaining a situational awareness does pay off and don’t forget about politics.


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## DaveTrade

Senate Passes $1 Trillion Infrastructure Bill, Handing Biden a Bipartisan Win​The approval came after months of negotiations and despite deficit concerns, reflecting an appetite in both parties for the long-awaited spending package.


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## DaveTrade

Food for thought;


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## DaveTrade

All markets around the world look like they are starting to pull back or moving sideways, Russia and India look to be strongest. High Yield Corporate Bonds are heading down and I'll be looking to see if they blow through support tonight. There is so much government money in the world markets at the moment that I'm not as confident with what I'm seeing compared to Feb 2020. Give me some help guys.


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## frugal.rock

Most commodities are down to support levels, VIX up, but within range, for now.
Gold continues up,  giving it's own indications.
Was it any surprise to have a blow off? 
As you say Dave, it's about whether certain supports hold or blow out.

AUD down against the USD, I've got no idea what to think about that though? 

VIX (US) hitting upper ranges






WTI (a commodity example)
hitting support, but if it blows under 60, it may get pushed as low as 53 
I don't see any reason why it's dropping, apart from covid fears, which the data isn't really replicating, going by US crude figures (and related data)


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## divs4ever

DaveTrade said:


> All markets around the world look like they are starting to pull back or moving sideways, Russia and India look to be strongest. High Yield Corporate Bonds are heading down and I'll be looking to see if they blow through support tonight. There is so much government money in the world markets at the moment that I'm not as confident with what I'm seeing compared to Feb 2020. Give me some help guys.



 sorry i don't have a printing press ( cheap Fed joke )

  possibilities 

 1.  a taper tantrum ala 2018 

 2.  a new variant of QE ( since the latest attempts  , no longer boost sentiments )


KEISER REPORT | CHINA BURNING THEIR TREASURE FLEET AGAIN? | E 1738​


 maybe this article will give you other ideas 

 cheers


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## DaveTrade

Looks like the world markets are in a holding pattern so I'll just wait and see which direction each aircraft flies off too.

Re China, my read of them is they are well aware of why they lost the title of 'world power' and they are not going to make the same mistake again. I don't know the details of their plan but I think they have a long term plan to be the 'world power' again. It's interesting to see what they do and a bit scary at the same time.


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## DaveTrade

I'm short term bullish (cautiously bullish) at the moment but this article from Bill Poulos explains very well an upcoming bump in the road that I'll watch very carefully. Another thing to watch is what comes out of Afghanistan. Anyway see the article below;

*How the Debt Ceiling Could Crash Stocks*






Another day, another new all-time high.

Stocks gained this morning as Big Tech led the way. Amazon (NASDAQ: AMZN) and Google-parent Alphabet (NASDAQ: GOOG) were among the top performers on the day.

Rising Chinese stocks helped lift shares, too, following last week’s major regulatory crackdown by Beijing. Ark Investment Management announced that it bought shares of JD.com (NASDAQ: JD), China’s largest first-party e-commerce company. JD shares surged at the open as the Hang Seng Index (located in Hong Kong) rose as well.

The question now is whether the general market can keep climbing after notching yet another record high. MKM Partners chief economist Michael Darda thinks it’s not only possible but probable for three main reasons.

“The first one, that's extremely low discount rates. The 10-year Treasury yield is barely off the August lows," he said.

“So, all things equal, if interest rates are low, if discount rates are low, valuations will tend to be higher because of a lack of competition."

Darda continued, adding:

“In addition to that, we have a very high liquidity environment [...] and earnings have been incredibly strong. Typically when long-term interest rates are falling, earnings or the economy is faltering. In this case, the earnings have been quite robust, really historic. So, we're really going to need to see one of those three pillars disturbed in some fashion for a big decline in equity prices.”

Yields aren’t expected to erupt higher in the coming months. And with earnings more or less locked in until the next batch of quarterly results, Darda’s second “pillar” shouldn’t crumble any time soon, either.

That leaves the “very high liquidity environment” being provided by the Fed through its bond-buying programs, otherwise known as quantitative easing (QE). The tapering of QE would very much disturb this last (and certainly most important) economic “pillar” Darda identified. That’s part of the reason why whenever the Fed or Treasury hints at quantitative tightening (QT), stocks dip rapidly.

And that’s also why investors are anxiously awaiting Fed Chairman Jerome Powell’s speech this Friday at the Jackson Hole conference in Wyoming. If Powell engages in bearish taper talk, expect the market to react poorly.

But even without an official declaration from Powell, QT is still very much on its way. It’s just that it will start to happen under the surface. More importantly, it won’t be announced in a post-FOMC meeting press conference like a taper warning would be.

Here’s why:

Congress needs to raise the US debt ceiling, which hit its limit back on July 31st.

For those that aren’t acquainted with the US debt ceiling, it’s the maximum limit to how much the US government can borrow to pay its debts and obligations. Whenever that limit is reached, the US Treasury can’t issue any more notes, bonds, or bills. What it can do, however, is pay for debts and obligations with tax revenue or the Treasury’s saved-up cash balance.

As of July 31st, that cash balance was just $442 billion. That’s a low number historically speaking. From June to July, it plummeted by $398 billion. It now sits somewhere around $309 billion.

Typically, the US Treasury never needs to draw from its cash balance to pay the bills. It just issues new debt to meet its financial obligations.

For the US economy, the practice of issuing new debt usually doesn’t have any significant impact. The amount of money the Treasury spends (which adds cash to the economy) is offset by the debt issued (which removes cash from the economy).

As a result, no liquidity is added nor removed.

But more recently, the Treasury has run into a bit of a problem with this model due to the debt ceiling. It ended up slowing down debt issuance as the debt ceiling rapidly approached, which forced the Treasury to draw from its cash balance to pay for things instead.

And because less debt was being issued (while the cash balance was being spent), this acted as QE. Cash was effectively being injected directly into the economy by the Treasury without the issuance of debt to soak it back up. This has applied serious pressure to short-term rates and is to blame for the negative rates in the repo market.

In October or November of this year, Congress is expected to raise the US debt ceiling. And when it does, the Treasury will issue hundreds of billions of dollars in new debt (which sucks liquidity out of the economy), almost certainly outpacing spending (which injects liquidity into the economy) by a wide margin.

This will result in a significant source of QT, right around the same time corporate earnings hit and just one or two months after Powell is expected to make his taper warning on September 22nd, following September’s FOMC meeting.

So, even if Powell says that tapering isn’t coming until Q1 2022, the truth is that the raising of the debt ceiling will induce QT several months before that. This would completely obliterate Darda’s liquidity “pillar” holding up the bull market. And, if corporate earnings miss analyst estimates, that second “pillar” could simultaneously crumble as well.

That means while the going seems good at the moment, everything could come crashing down when the debt ceiling is raised later this year. Buy and hold investors need to be wary of this as they approach the holiday season, which has historically been a good time to be a bull.

This year, however, it could be a bloodbath as the market’s worst nightmare – QT – becomes a reality via the raising of the debt ceiling.


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## divs4ever

i expect a LOT of theatrics and crocodile tears  ( there is a 2022 mid term election coming )

 probably a government shut-down to help force vaccine uptake  in Government employees

 but expect the can will get kicked as long as there is a leg attached to a torso 

 ( it is basically the end of life as you know it if they don't  )

 BTW i STILL have a plan B if i am wrong about this 

 good luck


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## StockyGuy

Genuinely hoping the inevitable regression toward mean for the important markets is triggered by something like debt ceiling argy-bargy.  Even better would be a general cynicism about sky high share price valuation, even with all the extra cash around, enveloping world markets.  A nightmare bubble-burster would be something along the lines of about 100k Chinese troops spilling onto streets of Taiwan, a frantic call for help made by Taiwan's president to USA's, call from the latter to our PM for coalition support, much "hilarity" ensues...

The very best we can hope for is a nice generalised market slowdown, basically trading sideways for a few years.  Historically that's not how it normally goes down; it literally normally "goes* down*"


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## DaveTrade

DaveTrade said:


> The time put into maintaining a situational awareness does pay off and don’t forget about politics.



I've taken this line from a previous post to highlight it for the newbi's that may be reading. The article below is a part of situational awareness;

*Kabul Bombings Rocks Stocks, but Will They Fall Further?*





Stocks opened slightly lower today before quickly plunging in intraday trading. Initially, investors seemed ready to drag their feet in anticipation of tomorrow’s speech from Fed Chairman Jerome Powell.

But then suicide bombers attacked Kabul airport around 10:20 am EST, causing stocks to fall in a near-instant. US officials reported multiple US and civilian casualties as a result of two separate explosions. One occurred at the Kabul airport gate, and another came from a car bomb. 3 US Marines were injured while 12 civilians were confirmed dead, some of which were children. More accurate casualty information is forthcoming as first responders scramble to save victims.

ISIS-K, the Afghan affiliate of the terrorist group ISIS, claimed responsibility.

“Every day we’re on the ground is another day we know that ISIS-K is seeking to target the airport and attack both U.S. and allied forces and innocent civilians,” warned President Biden yesterday.

And though the bombings had little to do with equities, the uncertainty they caused was enough to provoke some knee-jerk selling. The CBOE Volatility Index (NYSE: VIX) spiked alongside gold prices. Bitcoin, on the other hand, slid with US stocks.

The dip likely confirms what investors already know by now:

This is a market that’s unable to handle bad news.

For much of the current year, negative headlines have contributed to sudden, short-lived corrections. Stocks always came charging back in the days that followed, but in general, it’s been a gut-wrenching affair.

Today’s attack was certainly abhorrent. There’s no doubt about it.

But should it really impact share prices? And will it prevent another recovery rally?

The answer to both questions is a resounding “no.”

Biden says the US will be out of Afghanistan completely by August 31st – a date imposed upon US forces by the Taliban. Critics have argued that it’s a nearly impossible timeline to follow. Instead, some experts believe a full withdrawal could happen by mid-September.

Regardless of what happens, will either outcome hurt or help stocks? There may be some intraday selling or buying like we witnessed this morning.

Overall, though, the situation in Afghanistan is unlikely to have a profound impact on stocks. What we’re seeing today stems from how tightly wound the market currently is as Powell’s speech on the economy approaches.

“Expect investors to keep an eye on the Fed’s symposium the rest of this week for any comments about tapering or timing for interest rate hikes,” said Leuthold Group strategist Jim Paulsen.

“Either unexpected commentary from the Fed or a failure or success in scaling 4,500 could bring additional volatility to the stock and bond markets.”

St. Louis Fed President Jim Bullard, meanwhile, did little to help calm investor fears in an interview this morning.

“I think we want to get going on the taper. Get the taper finished by the end of the first quarter next year,” Bullard said.

“And then we can evaluate what the situation is and we’ll be able to see at that point whether inflation has moderated and if that’s the case we’ll be in great shape. If it hasn’t moderated, we’re going to have to be more aggressive to contain inflation.”

If the tapering’s going to end by Q1 2022, it may have to start sooner than many economists predicted. Bullard has pushed for aggressive tapering over the last few months. He also doesn’t have Fed voting rights, which makes his opinion significantly less potent.

 Voting Fed members maintain a far more dovish stance by comparison. When Powell speaks tomorrow, he’s expected to take a “best of both worlds” approach, acknowledging economic progress while still explaining that the US has further to go before making a full recovery.

That could ultimately help stocks and even launch them to new highs. Alternatively, a hawkish tone could lead to additional selling.

No matter what happens, though, it’s become abundantly clear that the taper is coming. It’s just a matter of when, and more importantly, how far stocks will fall when the reduction in bond-buying hits.


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## DaveTrade

*Will the Fed Crash Stocks in September?*





	

		
			
		

		
	
The market hit yet another new all-time high this morning as Friday’s bullish enthusiasm carried over through the weekend. The S&P, Dow, and Nasdaq Composite all enjoyed significant early gains, led by surging tech shares.

And today’s strong morning session was largely driven by Fed Chairman Jerome Powell’s recent speech. Last Friday, Powell went unexpectedly dovish with his remarks on the US economy. A meltdown from the dollar and a meltup in assets resulted.

“The fact that the Fed did not give a definitive timetable for tapering on Friday gives stock and bond ‘bulls’ a needed boost of confidence,” wrote Bankhaus Metzler analyst Sebastian Sachs in a note.

“As long as accommodative monetary policy remains in place, investors’ fear of missing out is greater than their fear of losing money.”

It’s been said that all markets are motivated by two things, and two things alone:

Fear and greed.

In this case, Metzler correctly identified that the fear of missing out (FOMO) has protected bulls. The Fed put an ever-rising floor under the market via its bond-buying programs, which meant it's never been safer to add equity exposure to portfolios. Both Wall Street and Main Street traders took advantage of this over the last 18 months.

Powell’s excuse for his persistent dovishness has been a sluggish US labor market. Earlier this month, investors anticipated a far stronger than expected July jobs report. That contributed to a rapid one-day dip, as traders assumed the report would accelerate the Fed’s taper timeline. Thankfully for bulls, July provided a “Goldilocks” set of data. Payrolls beat analyst estimates while wage growth wasn’t as hot as expected.

And with the August jobs report approaching on Friday (September 3rd), the market may be gearing up for a similar move. Don’t be surprised to see a quick but temporary dip sometime this week in response.

"A strong payrolls print could instigate a debate for a September tapering start," said Rodrigo Catril, senior FX strategist at NAB.

Most Wall Street analysts believe a taper _warning_ will emerge from the September FOMC meeting, set to wrap up on the 22nd. Catril (and a few other strategists) are starting to wonder if the tapering will instead _begin_ in September without any formal warning.

“The Fed is going to have to taper sooner rather than later,” said Ironsides Macroeconomics’ Barry Knapp in an interview this morning.

“I think they’ll do it in September after a stronger than expected employment report. And, again, another round of very strong house prices […] which is one of the real reasons they should be tapering.”

Knapp raised a very good point that’s been lost in the “taper talk” shuffle:

The US housing market could be headed for a grim conclusion.






The National Association of Realtors reported this morning that pending home sales fell 1.8% month-over-month (MoM), missing the +0.3% MoM estimate badly.

Frenzied buyers filtered out of the housing market as prices climbed to prohibitively high levels.

Tapering sooner would help in this regard.

And though analysts are starting to join “team September taper,” the market has yet to react. The majority of investors believe there won't be any actual tapering until October or November at the earliest.

Regardless, even a September 22nd warning would likely gouge equities. It would also hit just a few trading sessions after September’s monthly options expiration date (9/17). Options expiration dates have provided traders with major dip-buying opportunities over the last year.

Will another one arise in the coming weeks? It seems likely, especially with a much-feared FOMC pow-wow approaching.

And no matter what Powell decides to announce in his post-meeting press conference.


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## DaveTrade

*Watch: "Credit Spreads: See What the Canary Says Now About the Stock Market 'Coal Mine'"*


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## DaveTrade

I’d like to outline my big view at this time because it’s important to be aware of the environment in which you’re trading. Afghanistan, Iran, China, Russia and Nth Korea don’t pose any near term risk in my opinion but long term, into next year and beyond, these should be watched. Between now and the end of the year, the Covid effect on world markets is the background environment and the pimple on the tip of the S&P500’s nose is Quantitative Tightening (QT). So to stay up-to-date with this I post another article from Bill Poulos and follow that with a read on the current S&P500 market;

*Will a Jobs Report “Miss” Cause a Crash?*





	

		
			
		

		
	
Stocks climbed slightly higher this morning despite a major private payroll “miss.” The ADP employment report, which is released several days before the jobs report each month, revealed that the US economy only added 374,000 jobs in August.

And while that’s an improvement over July’s 326,000 payrolls add, it’s also well short of the 638,000 job consensus estimate.

“Our data, which represents all workers on a company’s payroll, has highlighted a downshift in the labor market recovery. We have seen a decline in new hires, following significant job growth from the first half of the year,” said ADP chief economist Nela Richardson.

“Despite the slowdown, job gains are approaching 4 million this year, yet still 7 million jobs short of pre-COVID-19 levels. Service providers continue to lead growth, although the Delta variant creates uncertainty for this sector. Job gains across company sizes grew in lockstep, with small businesses trailing a bit more than usual.”

It shouldn’t surprise economists to see that small businesses struggled to hire new workers. Strong government stimulus and unemployment programs have caused a major US labor shortage.

Businesses with less than 50 employees were the most affected over the last few months.

In August, most of the jobs added came by way of the leisure and hospitality industries (+201,000), which made up for more than half of the total monthly payroll gain. Education and health services trailed at a distant second (+59,000) while construction was third (+30,000).

“The delta variant of COVID-19 appears to have dented the job market recovery,” explained Mark Zandi, chief economist at Moody’s Analytics.

“Job growth remains strong, but well off the pace of recent months. Job growth remains inextricably tied to the path of the pandemic.”

For what it’s worth, ADP has underestimated the monthly nonfarm jobs report five out of the last seven months. If ADP's findings from August are accurate, though, the Fed will be faced with a far more complex situation in terms of tapering.

Fed Governor Christopher Waller said in early August that the Fed should taper in October if the next two jobs reports showed employment rising by 800,000 to 1,000,000.

"We should go early and go fast, in order to make sure we're in position to raise rates in 2022 if we have to," Waller said in an interview.

"There's no reason you'd want to go slow on the taper, to prolong it. You want to get it done and get it over."

Again, if ADP’s estimate is close to the Bureau of Labor Statistics’ (BLS) official tally, that means the US economy will have to add 426,000 jobs in September to hit the low end of Waller’s range at 800,000 payrolls.

But what if both the August and September jobs reports come up short? That would put the Fed in a very difficult position. A deceleration in the labor market alongside persistently high inflation might mean the US is headed for a “stagflationary” finish to the year.

If that’s the case, the Fed may decide to taper, regardless of how the employment situation looks. And if Fed Chairman Jerome Powell chickens out? Inflation would undoubtedly run rampant, potentially squashing demand further while prices remain elevated.

That means investors are approaching a “bad news is bad news” scenario should the jobs report fall short of analyst estimates. Hopefully, for bulls, ADP underestimated the BLS’s official data.

Because the alternative could result in dire consequences for the economy in the coming months. And, by proxy, the never-ending bull market.


Now a look at the current market. The S&P500 is currently moving up but it is weak and this bull run is extended. QT or news related to QT will most likely be the thing that starts a pullback, hopefully a 10-20% pullback and not a crash. I’d like to show you an interesting correlation that’s playing out between HYG and the S&P500 since the HYG broke out of it’s up sloping wedge and started moving sideways. Note the vertical lines marking the lows in the S&P500.


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## DaveTrade

*Does the August Jobs Report Even Matter?*





	

		
			
		

		
	
Stocks jumped to a new all-time high this morning following slightly better than expected weekly jobless data. First-time unemployment filings tallied 340,000 for the week ending August 28th, beating the consensus estimate of 345,000 by a slim margin.

Apparently, that’s all it takes these days to nudge the market higher. Some analysts called it an overreaction, but really, it had less to do with the actual jobless claims than it did the upcoming August jobs report.

“With jobless claims hitting a pandemic low, there’s definitely some optimism as we look ahead to the full jobs picture tomorrow,” explained Mike Loewengart, managing director of investment strategy at E-Trade.

“We could experience a bit of a tug and a pull — on one hand a solid jobs report is a positive indication of economic recovery, and on the other it backs up the Fed’s case to begin tapering.”

Loewengart continued:

"The private payrolls numbers have been all over the map during the pandemic," he added.

"But with so much pressure on improvement on the labor market front coming from the Fed, this could send a signal that jobs growth is stagnating. That’s likely a good thing for the markets, though, as it means easy money policy continues."

Alternatively, a bad jobs report could put the Fed in a tough situation as “stickier” sources of inflation – home values, rents – continue to rise. ADP’s private payroll data suggests that a major “miss” is coming (374,000 jobs reported vs. 638,000 expected).

If that’s the case, the bull market may react poorly when investors realize that the US could be headed for “stagflation” by year’s end.

An ideal August jobs report would be “not too hot, not too cold,” complete with a strong payrolls number that falls somewhere near the consensus estimate. The July jobs report provided this in early August and helped the bull market rip to new heights in the weeks that followed.

Credit Suisse believes bulls will get a repeat performance, regardless of how US labor looked last month.

“The relentless march higher on low volatility in U.S. equities continues and with breadth, volume positioning and sentiment measures all positive in our view we look for the rally to extend further into new highs yet,” wrote Credit Suisse analysts in a note.

Elsewhere on Wall Street, banks have slashed their Q3 GDP forecasts. Goldman shocked investors two weeks ago when it cut its Q3 growth projection to 5.5%, down from the bank’s initial 8.5% estimate. Today, Morgan Stanley joined Goldman by slashing its own Q3 forecast as well.

Morgan Stanley now believes the US economy will only grow by 2.9% in Q3. Several weeks ago, the bank projected 6.5% quarterly growth by comparison.

If both Goldman and Morgan Stanley are correct, Q3 earnings could very easily dent market valuations. And though that may seem like bad news for investors, Morgan Stanley argues that Q4 would see a major rebound.

“We have anticipated slower growth in 2H21, but it has been greater-than-expected, concentrated in the third quarter. August is the month when we think broad activity slowed the most, which will be reflected in data reported throughout the month of September,” wrote analysts from the Wall Street bank.

“We expect momentum to then rise again heading into 4Q with a more supportive base effect.”

Ultimately, this could materialize into yet another significant buying opportunity for traders. The data could also hit when the market’s most vulnerable as the Fed contemplates tapering its monthly bond purchases.

So, even though stocks seem to be in a precarious spot at the moment, the truth is that bulls simply do not care. They assume that equities will never stop rising. Tomorrow’s jobs report release, weak or strong, is unlikely to matter two weeks from now as bulls attempt to push the broader indexes to higher highs.

Until, of course, the Fed spoils the party with a taper warning later this month. Or worse, an official taper announcement.


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## DaveTrade

*Can the Market Recover From This Shocking Report?*

Goodbye taper. Hello inflation.





	

		
			
		

		
	
Stocks opened lower this morning after a downright grim August jobs report was revealed pre-market. ADP predicted a paltry 374,000 job gain (vs. 638,000 expected) with its August private payroll data, released Wednesday.

And though ADP underestimated the Bureau of Labor Statistics’ (BLS) official tally five out of the last seven months, this time around, the data analysis firm actually overshot the real jobs report total.

Only 235,000 jobs were added last month according to the BLS, falling well short of the 725,000-payroll consensus estimate. It was the weakest jobs report since January and represented a massive drop in hiring compared to July’s upwardly-revised gain of 1 million jobs.

Both Wall Street and the mainstream financial media were quick to blame the Delta variant for the major nonfarm payrolls “miss.” Most surprising of all was that no jobs were added in the leisure and hospitality category, which most analysts assumed would see a continued bounce back following the industry’s impressive hiring blitz in July.

And though the Delta variant may have impacted the August jobs data in some capacity, two much larger issues likely had a far greater influence:

A slowing US economy, coupled with a full-blown labor shortage.

Small businesses are still struggling to find help amid strong unemployment programs and a consistent stream of government stimulus, the latter of which has finally tailed off. Businesses with less than 50 employees have lagged larger companies in terms of hiring for months. If nothing changes, this trend could only intensify heading into Q4 if the economy slows.

Wall Street banks are also coming around to the idea that US GDP growth will decelerate in Q3. Just yesterday, Morgan Stanley revised its Q3 GDP growth projection to just 2.9%, down from its original 6.5% quarterly estimate. Morgan Stanley joins Goldman Sachs, which shocked investors with its own downward Q3 GDP revision from 8.5% to 5.5% two weeks ago.

In the grand scheme of things, Delta hasn’t really dented the US economy. Most states remain fully open, which has allowed businesses to operate unimpeded.

What has changed, however, is inflation. Surging input costs skewered earnings for American manufacturers last quarter. Consumer sentiment has plunged, too, while inflation expectations skyrocketed.

This is the kind of thing that can be solved by fighting inflation head-on through tapering and the raising of rates.

But following the release of a disastrous August jobs report, the Fed’s initial plan of attack may no longer apply.

“A surprisingly low jobs number this morning clouds the tapering outlook considerably as only 235k jobs were added in August, likely giving the Fed pause and pushing out their plans to announce their bond taper plans,” explained Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in a note.

“Many people believed that the Fed would announce their taper plans at this month’s FOMC meeting and that is no longer likely.”

We suggested over the last few days that a bad jobs report would be met with some selling from investors. Throughout most of the pandemic, that wasn’t the case. Bad news was good news, as it allowed the Fed to keep monetary policy dovish.

Now, though, bad news is most certainly bad news, simply because the Fed is running out of time. Back in June, we warned that the US could be headed for a “stagflationary” collapse (stagnating demand, high inflation) by year’s end.

The August jobs report may have just sealed the economy’s fate in that regard if the Fed uses it as an excuse to delay a much-needed taper.


----------



## DaveTrade

I've talked about being aware of the environment in which your trading before and there are a number of ways to do that but a picture is worth more than a thousand words. Just look and compare the normal rate that the $SPX moves up to what has been happening recently;


----------



## DaveTrade

This article is relevant to equities as well as crypto;

*The "Real Reason" Crypto Is Crashing?*






 Crypto and stocks tumbled this morning as a number of bearish forces converged on market sentiment. The first of which being yet another economic downgrade from Goldman Sachs following a previous GDP forecast reduction, issued two weeks ago.

The Wall Street bank trimmed its US GDP outlook, citing “fading fiscal stimulus” and the Delta variant as contributors to a slowed post-Covid recovery.

Goldman economist Ronnie Walker said that there would be a “harder path” forward in a Monday note to clients before revealing a 5.7% GDP growth forecast for 2021, down from Goldman’s already-reduced 6% estimate.

Last week’s disappointing August jobs report caused the bank to shift its labor projection, too. Goldman now expects an unemployment rate of 4.2% (vs. its prior 4.1% prediction) by year’s end.

“The hurdle for strong consumption growth going forward appears much higher: the Delta variant is already weighing on Q3 growth, and fading fiscal stimulus and a slower service sector recovery will both be headwinds in the medium term,” wrote Goldman analysts.

Morgan Stanley also issued a downgrade of its own this morning, classifying U.S. equities as “underweight.”

“We see a bumpy September-October as the final stages of a mid-cycle transition play out,” explained Morgan Stanley strategists.

“We continue to think this is a ‘normal’ cycle, just hotter and faster, and our cycle model remains in ‘expansion’. But the next two months carry an outsized risk to growth, policy and the legislative agenda.”

To add insult to injury, cryptocurrencies crashed shortly after stocks opened for trading. Bitcoin, Ethereum, and virtually all other digital currencies fell double digits shortly before noon. Crypto has more or less tracked the S&P 500 ever since the Covid pandemic began. Today’s selling may have been sparked by a poor morning trading session for stocks.

But the majority of the crypto losses that followed were likely caused by something else, as equities didn’t drop nearly as much as crypto.

The market’s “smart money” – investors armed with inside information – could be dumping their crypto portfolios in anticipation of another financial crisis. This time around, though, it’s not an American company (like Lehman Brothers) causing problems.

Evergrande, China’s second-largest property developer, is to blame.

In addition to being a major real estate developer, Evergrande is also China’s largest issuer of commercial paper (very short-term corporate bonds). It earned this title after the Chinese government banned the company from issuing longer-term debt.

Normally, this wouldn't be an issue. But Evergrande is now well on the path to bankruptcy. Creditors have pooled their resources, taking the company to court in an attempt to settle their debts – something that often precedes a bankruptcy declaration. Evergrande has liquidated assets, even selling its corporate headquarters, to pay said creditors.

Sadly, Evergrande’s efforts will be in vain. The company is essentially doomed to default with billions in debt coming due within the next year. Evergrande’s CEO recently held a press conference in which he projected supreme confidence and insisted that the company was doing just fine.

Lehman’s CEO, Richard S. Fuld Jr., made similar statements prior to Lehman’s epic $600 billion collapse.

The difference now is that everyone can see the Evergrande bankruptcy developing. A bailout from the Chinese government will be required to save the company, which owes roughly $305 billion in debt. As of August 31st, Evergrande only had roughly $355 billion in total assets. That’s enough to pay creditors if it’s able to liquidate everything.

Keep in mind, however, that Evergrande just sold its headquarters for a 66% loss. The reality is that the company won’t be able to liquidate enough assets in time nor for what they're currently valued at.

Bankruptcy looms as a result.

I know what you're asking:

"But what does this mean for crypto?"

Tether, a Hong-Kong based cryptocurrency that tracks the value of the US dollar (called a “stablecoin”), is backed by a significant amount of Chinese commercial paper. In fact, Tether claimed earlier in the year that 50% of its reserves come from commercial paper. How much of it is Chinese or specifically from Evergrande is unclear.

But the team at Tether has been very tight-lipped about the origin of the commercial paper. If it’s not from Evergrande, it’s safe to assume that the Tether execs would’ve said so.

Instead, Tether has kept quiet during Evergrande’s descent into insolvency. CNBC’s Jim Cramer went so far as to call Tether a “ticking timebomb” after anonymous “Chinese sources” told him most of the commercial paper was in fact Chinese.

This matters because Tether accounts for almost 80% of the volume of all crypto transactions. If the commercial paper that backs Tether fails, the actual value of Tether (USDT) could plunge below its 1-to-1, 1 Tether-to-1 US dollar ratio. In addition, the Tether team could also dump its sizable crypto holdings (including Bitcoin) to cover its commercial paper losses, hastening a massive crash as liquidity simultaneously shrinks.

This outcome assumes that China allows Evergrande to bankrupt.

If the Chinese government bails out Evergrande instead, Beijing would become the company’s newest business partner. Recent private sector crackdowns by the CCP suggest that the government would more than happy with this outcome.

Should this happen, China would need to settle those debts with US dollars, not Chinese yuan. This is important as Beijing would then be forced to buy over $300 billion dollars, spiking the value of the dollar in the process.

That could then lead to an overnight “haircut” for all asset classes as the dollar surges, including both crypto and equities. In addition, a bailout may reveal a deeper “shadow banking” industry that involves other major Chinese corporations. There very well could be more companies like Evergrande out there (albeit smaller ones) that have yet to hit critical mass with their toxic debt issuances.

So, either by way of bankruptcy or bailout, 2021’s speculative mania has officially entered hazardous territory. Let’s not forget that a Fed taper is coming down the pipe in the near future as well.

“Smart money” investors could be trying to exit early, prompting this morning's correction. Or, it could simply be a case of waning bullish enthusiasm.

Regardless, Evergrande still poses a significant threat to nearly all investors if it's the latter. And not just those involved with crypto.

Bottom line:

A major reckoning is developing in the Far East and the mainstream financial media hasn’t given Evergrande the emphasis that it deserves. This will all change, of course, when China steps in to save the company and asset values hit a sudden “air pocket.”

But until then, the market will remain focused on the numerous Covid variants threatening to reactivate lockdowns.

Even though a lack of government stimulus has had a far more profound effect on bogging down the US economy, which Goldman (and others) finally admitted this morning despite a far bigger story - the Evergrande bankruptcy - simmering beneath the market's surface.


----------



## Dona Ferentes

DaveTrade said:


> Below is a weekly chart showing that the S&P has been powering up since the Feb/Mar Covid crash and it still looks strong.
> 
> View attachment 128763
> 
> 
> I’m waiting to see what happens this week . We need lift the bonnet and look inside the S&P500 to see want’s happening.




S&P500 with 50, 100 and 200 day lines


----------



## DaveTrade

*Today’s Big “Miss” Just Shocked the Market*





	

		
			
		

		
	
Stocks dropped again this morning as the major indexes retreated further from their recent highs. The Dow, S&P, and Nasdaq Composite all fell while tech stocks took the brunt of the damage. Some Wall Street analysts believe there could be more selling in the weeks to come.

“We see a bumpy September-October as the final stages of a mid-cycle transition play out,” said Morgan Stanley strategist Andrew Sheets in a recent note.

“The next two months carry an outsized risk to growth, policy and the legislative agenda.”

Equities initially opened trading for only a small loss. But at 10 am EST, the Job Openings and Labor Turnover Survey (JOLTS) was released, cratering tech (and the rest of the market) in the process. The Bureau of Labor Statistics (BLS) revealed a massive 10.934 million job opening print for July.

The data blew away the FactSet estimate of 9.9 million openings after the US economy added 4.2 million of them over the last seven months. Healthcare (+294,000), finance (+116,000), and food services (+115,00) saw the largest job opening gains in July. One could speculate that Covid vaccine mandates potentially chased otherwise willing workers away from both the healthcare and food services industries.

More shocking than the number of openings, though, was the discrepancy between those openings and continuing unemployment claims. Analysts expected openings to outpace continuing claims by 1.7 million.

Instead, there were a record 2.232 million more job openings than unemployed Americans (8.384 million) in July. Worse yet, the quit rate – the percentage of private-sector employees leaving their jobs to move to new ones – ticked back up to the all-time high of 3.1%. Historically, high quit rates have coincided with pressure to raise wages. This is because employers need to retain employees via wage hikes as quits climb. This, in turn, can cause inflation to rise.

The July JOLTS report supports the theory that the unemployed simply don’t want the jobs that are available. As a result, it’s highly unlikely that the Delta variant caused the major August jobs report “miss” – something the US government (including President Biden himself) said last week.

Emergency unemployment benefits mercifully expired on Monday, which should help fill millions of those openings in September. Small businesses (those with less than 50 employees) have been hit the hardest by the labor shortage and could spur on a “hiring blitz” by month’s end.

Critics of the decision to not renew unemployment benefits have cited studies suggesting that the elimination of benefits doesn’t necessarily lead to job growth. This argument is principally flawed for the current situation, however, as the problem with US labor has nothing to do with job growth. It’s all about unemployed Americans not wanting to work.

Thankfully, now that the majority of benefits have expired, the labor recovery should see a nice bump to finish out the year. Wage growth may even recede as well, limiting its impact on inflation. So, even though the August jobs report was a bit of a disaster, investors could be treated to a true “Goldilocks” September jobs report in October.

July’s jobs report delivered a big payrolls “beat” while wages refused to budge. It was exactly what bulls wanted to see. Come October 8th, the BLS should unveil a similarly bullish data set just a few weeks after the Fed is expected to speak on tapering (or a lack of tapering) following its September FOMC meeting.

Which, ultimately, could spark another market-wide rally right on through to the holiday season.


----------



## DaveTrade

*Will Powell Actually “Do It” on September 22nd?*





	

		
			
		

		
	
Stocks traded flat this morning as tech recovered slightly from yesterday’s big losses. Equities ticked higher (albeit barely) after the latest batch of weekly jobless claims data rolled in. Initial claims clocked in at 310,000 last week, officially bringing the number of Americans on jobless benefits below 12 million.

This may have shifted sentiment in a more positive direction. Most unemployment benefits expired on Monday, which should improve the US labor situation moving forward.

Whether or not that impacts the Fed’s taper timeline, however, remains to be seen. Last Friday’s dismal August jobs report had analysts questioning when Fed Chairman Jerome Powell would issue an official taper warning. Prior to the jobs report, Wall Street assumed there would be a warning declaration on September 22nd following the next FOMC meeting.

But in light of the August jobs “miss,” some strategists believe Powell could instead announce a taper delay.

“A surprisingly low jobs number this morning clouds the tapering outlook considerably as only 235k jobs were added in August, likely giving the Fed pause and pushing out their plans to announce their bond taper plans,” explained Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in a note last Friday.

“Many people believed that the Fed would announce their taper plans at this month’s FOMC meeting and that is no longer likely.”

If weekly jobless claims continue to sink, though, Powell might go on ahead with his taper warning anyway.

Regardless, the European Central Bank (ECB) beat the Fed to the punch this morning when it announced its own plans to reduce asset purchases.

“Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases under the (PEPP) than in the previous two quarters,” said the ECB in a statement.

European stocks, rather than sinking, pared-back their initial losses following the ECB’s press release. A taper warning from the Fed would undoubtedly have the opposite effect on US stocks when it arrives.

Much of the blow to European equities was softened by ECB President Christine Lagarde, who insisted that she “[wasn’t] tapering.”

“We are recalibrating, just as we did back in December and back in March. We are doing that on the basis of the framework, which is a joint assessment,” Lagarde said.

“We looked at the financing conditions and we concluded that they remain favorable, and we do that on the basis of the inflation outlook.”

The ECB said it would raise rates if inflation hit 2% “well ahead of the end of its projection horizon and durably for the rest of the projection horizon.”

In other words, it won’t happen unless a sudden inflationary blast rocks the EU. That doesn’t change the fact that Lagarde did in fact issue a taper warning, even if she claimed it wasn’t one.

If Powell can deliver a taper warning with similar finesse, US stocks might not instantaneously crash. However, should he provide investors with a specific date on which the Fed plans to reduce its bond-buying programs, a major slump seems likely to follow.

Powell could also follow Lagarde’s lead and simply say “we’re not tapering” right after he says the Fed’s going to taper. It worked on European bulls. American traders would probably eat it up, too.

 But this level of uncertainty could contribute to an explosive monthly options expiration (OpEx) date, coming up on September 17th. The last few OpEx dates have seen rapid dips followed by even quicker recoveries to new highs. A correction this time around might last a little longer, though, with the FOMC meeting concluding five days later on the 22nd.

Nonetheless, the strategy of selling pre-OpEx and buying back in post-OpEx could still provide trades that outperform the major indexes, just like it has for most of the year.

Even with Powell hovering closely over the bull market, ready to unravel it at a moment’s notice after the FOMC meeting wraps up.


----------



## DaveTrade

*Did Biden Just "Kill" US Labor?*





	

		
			
		

		
	
The market opened for a significant gain today before economic uncertainty dragged equities lower. Apple (NASDAQ: AAPL) led the way down (-1.8%) as all three major indices remained on track to close out the holiday-shortened week for a loss.

Covid cases and a Thursday taper warning from the European Central Bank (ECB) weighed heavily on investors. But so too did inflation, which jolted higher again last month according to the August Producer Price Index (PPI).

Revealed this morning, headline PPI rose 0.7% month-over-month (MoM), surpassing the +0.6% consensus estimate. Core PPI (which excludes food, energy, and trade services), on the other hand, increased by just 0.3% MoM, well below the estimate of +0.5%.

This discrepancy was caused by major price gains in both trade services (margins for retailers) and logistics (transportation, warehousing). Trade services jumped 1.5% MoM while logistics surged 2.8% MoM.

The net effect of the hotter-than-expected PPI print was a continued slimming of corporate margins.






Margins for US corporations are now down by 2.4% year-over-year (YoY). This decline will either be absorbed by consumers via price increases or by corporations that decide to eat the costs instead of passing them on to consumers. The latter would ultimately trim share prices.

The former would cause CPI to spike. We’ll find out soon enough what most corporations decided to do when the August CPI is released next week. Investors have mostly been able to sidestep inflation this year. Eventually, however, persistent CPI increases should impact sentiment once the Fed attempts to limit prices through rate hikes and tapering – two things that could instantly wreck the long-term bull market.

What also could bring stocks lower is a blockbuster September jobs report, due out October 8th. Most unemployment benefits expired on Monday and as a result, some analysts expected a “hiring blitz” to take place over the next few weeks. A major jobs “beat” in September might be enough for the Fed to start tapering, especially if next week’s CPI reading overshoots the consensus estimate.

But that all changed following President Biden’s vaccine mandate from Thursday evening. Companies with more than 100 employees will be tasked with enforcing vaccine compliance. Any worker that remains unvaccinated past a certain date (yet to be determined) will cost these companies $14,000 per violation.

If the vaccine deadline lands somewhere in September, the odds of a strong jobs report will drop to near-zero. The July JOLTS report (released Thursday) showed that employees are voluntarily leaving their jobs at an unprecedented rate (3.1%). The number of quits and terminations is about to skyrocket in response to Biden’s new mandate.

This should effectively kill the post-Covid US labor recovery. What’s more, the already dire labor shortage could get a whole lot worse. The silver lining here is that small businesses that employ less than 50 workers could enjoy a hiring renaissance, as they’re not subject to the vaccine mandate.

It may only be a matter of time, though, until Biden targets these companies as well.

 Overall, the new vaccine mandate could very well cause unemployment to rise. Fed Chairman Jerome Powell said that the Fed wouldn’t taper until the US got back to “full employment,” or an unemployment rate of 3.5%. The August jobs report showed that unemployment dropped to 5.2% last month.

But in September and October, the unemployment rate could potentially tick higher as America is split into two camps: those who took the Covid vaccine and those who didn’t.

That may be evidence enough for Powell & Co. to delay the taper, which should make bulls happy.

Even if it ends up wounding the US economy’s longer-term potential as surging inflation rattles consumer confidence.


----------



## DaveTrade

*The following is my take on the S&P500*

The fundamental facts provide pressure to move the markets going forward and the charts show what the market is actually doing right now. I should say that the charts do give clues to the future movement of price.

Looking at the weekly chart of the SPY it’s still powering up from the march 2020 low and has now moved up by double the price range of the march 2020 covid crash. It needs a pullback to show investers it’s a healthy long term bull market.





On the daily chart it can be seen that it’s coming back off a recent 2/9/21 high but still trading above the important 50day SMA, so ‘steady as she goes’.





If it does break the 50sma this could signal a market pullback to the 200day SMA, this would be a normal pullback, if it turned higher before reaching the 200sma it would show that the market is extremely bullish. As you can see from the example of the Mar20 chart below, a crash would blow through the 200sma.





Looking through the sectors of the S&P500 the current downturn just looks like a normal easing back in some sectors. I think that the market has no power in it because the Industrial and Financial sectors are just moving sideways;









As far as major pullback goes I think the first level to watch is for a break of the 50 day sma, mentioned above is this post, and also watch the HYG for a break down through Zone A, this would be an alert, and finally a break through Zone B would signal a major pullback.






NOTE: All of the above post is only my best opinion at this point in time.


----------



## DaveTrade

Most of the word markets have been trading sideways or down lately, the stand-out being India which has been powering up at a good pace, see chart;





But now there is a new kid on the block making some very cool moves and demanding everyone’s attention. Japan has been moving sideways and drifting down for almost seven months now and has recently made a good move up, breaking through resistance;





The move up came at the convergence of the 50day and 200day SMAs and made the break through the resistance zone on high volume. This market has the technicals to move higher, it’s one to watch.


----------



## divs4ever

Is The S&P 500 Standing On A Trapdoor?









						Is The S&P 500 Standing On A Trapdoor? | Investing.com
					

Stocks Analysis by Jani Ziedins covering: S&P 500. Read Jani Ziedins's latest article on Investing.com




					www.investing.com
				




 DYOR


----------



## divs4ever

Investors Hold Record Allocations Despite Rising Warnings

https://www.investing.com/analysis/...allocations-despite-rising-warnings-200601611

DYOR

while i am not screaming sell , i strongly suggest a plan B just in case


----------



## DaveTrade

divs4ever said:


> Investors Hold Record Allocations Despite Rising Warnings | Investing.com
> 
> 
> Stocks Analysis by Lance Roberts covering: S&P 500, SPDR® S&P 500, CBOE Volatility Index, 10-2 Year Treasury Yield Spread. Read Lance Roberts's latest article on Investing.com
> 
> 
> 
> 
> www.investing.com




This was a good article, thanks for sharing it. I'd like to copy a section from it into this post as I think that it summarizes the situation very well;
*Beige Book Reveals The Fed’s Biggest Problem*​The most significant risk for the market is a change in investor psychology. As long as nothing disrupts that bullish bias, investors will continue to aggressively “buy dips.” However, that psychology is directly linked to the Fed’s ongoing balance sheet expansion. Thus, the potential problem for investors is inflation.

The Fed’s Beige Book is a summary of economic conditions in the 12 Federal Reserve Districts.


_*Boston: *“Inability to get supplies and to hire workers.”_
_*New York: *“Businesses reporting widespread labor shortages.”_
_*Philadelphia: *“Labor shortages and supply chain disruptions continued apace.”_
_*Cleveland: *“Staff levels increased modestly amid intense labor shortages.”_
_*Richmond: *“Many firms faced shortages and higher costs for labor and non-labor inputs.”_
_*Atlanta: *“Wage pressures more widespread.”_
_*Chicago: *“Wages and prices increased strongly”_
_*St. Louis: *“Contacts continued to report labor and material shortages.”_
_*Minneapolis: *“Hiring demand outstriped labor response by a wide margin.”_
_*Kansas City: *“Wages grew at a robust pace.”_
_*Dallas: *“Wage and price growth remained elevated amid widespread labor and supply chain shortages.”_
_*San Francisco: *“Hiring activity intensified further, as did upward pressures on wages and inflation.”_
*Inflation is becoming problematic for the Fed mainly if these pressures are not as “transient” as hoped.* Higher wages are corrosive to both earnings and margins. As shown below, strongly rising producer prices are initially good for profit margins until inflation can not get passed along to consumers. Such is the case currently, with the most significant historical spread between PPI and CPI.





Net Corporate Profit Margins Vs PPI CPI Spread
With supply chain disruptions looking to last longer than expected, the Fed is trapped between supporting a slowing economy and fighting inflation.

It’s a battle they are likely going to lose, no matter what they choose.

As for a plan B, I know what you mean but for some of the people just getting started with the markets I want to take this opportunity to stress a point. The most import part of trading or investing is risk management, i.e. setting your level of exposure to risk. It can be done in a number of different ways, you can have exit levels in place to go in and out of the market as required or if want to hold a position it must be hedged. learning how to manage your risk is the number one key to success.

I'm still learning, trading is like walking a very long highway, but if you don't learn this well you'll get hit by a car or truck.


----------



## DaveTrade

*This "Big Report" Could Change Everything Tomorrow*





	

		
			
		

		
	
A Dow bounce and a tech slump. The S&P, meanwhile, traded relatively flat.

That was the story this morning as bulls attempted to stage a comeback following Friday’s drop. We observed last week that a number of different forces were warping market sentiment.

As of today, nothing’s changed.

“With supply chain disruptions, COVID-19 variant risk, stickier than expected inflation along with other uncertainties that challenge the present recovery’s path toward a sustainable economic expansion, the age old adage ‘progress not perfection’ among current developments appears best suited for investors to focus on for now,” wrote Oppenheimer’s John Stoltzfus in a note this morning.

New Covid infections in the US seem to have peaked in late August when the 7-day average for new cases cracked 157,000. On Friday, that number was down to 137,000 cases.

But that doesn’t mean the Delta variant drama is even close to being over. Reuters reported that Pfizer’s (NYSE: PFE) Covid vaccine could be approved for children aged 5-11 years old by the end of next month. President Biden just issued a vaccine mandate last week that more or less seeks to force vaccination upon the majority of US workers.

A similar mandate may be coming for school-aged children should Pfizer’s vaccine get approval from the US Food and Drug Administration (FDA) in October. The resulting meltdown in both American schools and corporations could be epic as parents (many of whom likely work at large companies) resist the new mandates.

Whether or not the vaccines are truly effective – something that’s been called into question as international hospitalization data shows far lower vaccine efficacy than the data gathered from US hospitals – natural immunity plus seasonal changes in infection rates could see Covid dwindle.

“Vaccinations plus immunity should mean cases eventually fall. Full reopening and related spending has been pushed out,” explained UBS strategist Keith Parker. Parker sees an additional 4% upside for the S&P by year’s end.

Inflation, however, may be the largest barrier to Parker’s prediction coming true. Producer prices surged 0.7% month-over-month in August according to last Friday’s Producer Price Index (PPI) release. Annually, the PPI rose 8.3%. That’s the highest jump on record.

“Supply bottlenecks, inventory shortages, higher commodity prices, and higher shipping rates have all contributed to higher input costs,” said Allianz Investment Management’s Charlie Ripley.

″[Friday’s] data on wholesale prices should be eye-opening for the Fed, as inflation pressures still don’t appear to be easing and will likely continue to be felt by the consumer in the coming months.”

The Consumer Price Index (CPI) will be released tomorrow morning. If a worse-than-expected spike in consumer prices is observed, stocks could certainly dive lower once again. It’s becoming very clear that the Fed has a fight with stagflation (high inflation, stagnant demand) on its hands.

We predicted that this would happen earlier in the year when the CPI repeatedly came in far “hotter” than predicted. Rising input costs (via the PPI) hinted at this as well while the consumer confidence index (representing demand) plunged in historic fashion. Even worse was the consumer confidence index’s forward-looking readings, which showed that confidence could reach an all-time low around the holiday season.

Add into that an impending wave of layoffs thanks to Biden’s new vaccine mandate and you’ve got a very complex problem for which the Fed has no easy solution.

Much has been said about Fed Chairman Jerome Powell’s upcoming decision to taper the Fed’s bond-buying programs. A month ago, nearly everyone expected a taper warning following the September FOMC meeting, which ends on the 22nd. Some analysts predicted that Powell would skip the warning and announce a full-fledged taper instead.

Now, nobody’s really sure about what’s going to happen. A terrible August jobs report caused Wall Street banks to revise their taper timelines. Maybe Powell’s plans changed, too.

Until that becomes clearer, however, the next major market hazard is coming tomorrow morning upon the release of the August CPI, which should only further complicate the Fed’s decision to taper.

Regardless of whether consumer prices have risen faster or slower than anticipated.


----------



## DaveTrade

*Should Traders "Buy the Dip?"*





	

		
			
		

		
	
After opening for a moderate gain in response to better-than-expected inflation data, stocks fell shortly before noon. The Dow, S&P, and Nasdaq Composite all gave up their morning returns as bulls once again ran out of steam.

Dow stocks led the way lower due to concerns over an economic slowdown in the US. Financials and industrials had a particularly rough morning while Big Tech managed to tread water.

But the biggest revelation today had to do with the August Consumer Price Index (CPI), released this morning. Inflation jumped 0.3% month-over-month (vs. 0.4% expected), “missing” analyst estimates for the first time since October 2020. Year-over-year, headline CPI rose 5.3% (vs. 5.4% expected). Core inflation, which excludes food and energy, climbed just 0.1% month-over-month (vs. 0.3% expected).

The data was initially received as positive, and it’s not surprising to see why. This was the first time in almost a year that analysts overestimated how “hot” inflation was running.

It won’t be enough to get investors buying again, however, if future reports and corporate earnings fall short of expectations.

“What we need to see to be fundamentally markets supportive is a continued easing in the inflation piece without deterioration in the economic outlook,” explained Charles Schwab’s chief investment strategist Liz Ann Sonders.

“The next couple of weeks, economic data points become even more important to see whether it confirms the weakness that we saw on the August jobs report or starts to suggest that maybe we’re seeing an improvement.”

Rick Rieder, chief investment officer of global fixed income at BlackRock, also didn’t view the August CPI print as worthy of celebration.

"The modest slowing in the rate of growth for inflation should temper market and policymaker concerns somewhat, despite the fact that inflation is likely to remain on the higher side for a while and risks of sticky inflation remain," Rieder wrote in a Tuesday morning e-mail.

"That said, core CPI has already overshot its pre-Covid trend and still many economists are forecasting the highest levels of inflation in a decade, after having seen disinflation for years. The Federal Reserve may be declaring victory on its inflation mandate as a result of these recent price gains, but the U.S. consumer would appear to be less than thrilled about such 'success.'"

The August Producer Price Index (PPI), released yesterday, showed a worse-than-expected rise in producer costs. Producers can either “eat” those costs, slimming margins and potentially reducing share prices, or simply pass them on to consumers. Which, in turn, may also drive share valuations lower.

Despite the “gloom and doom” today, it still probably makes sense to be a bull in the short term. Every dip this year has been bought, resulting in new market highs often within a matter of days. And nearly every month thus far has given traders fantastic dip-buying opportunities.

Is the recent plunge yet another one? It certainly appears to be. With the Fed backstopping equities, there’s no reason to abandon the strategy just yet. It’s a proven winner that delivers market-beating profits with regular consistency.

That being said, buying the dip will eventually fail. A “black swan” will at some point occur, jolting the market out of its persistent uptrend. Dip-buyers will get burned in the process.

But those who do get caught in a downturn will have made larger gains than the folks that refused to buy each temporary setback. Yes, the losses will be significant should a major meltdown occur.

After more than a year of incredible post-pandemic gains, though, it will be much easier to stomach. Dip-buyers will also potentially get in at the bottom of the next significant selloff prior to its subsequent explosive rally.

Which, these days, can happen even faster than when the market initially fell.

*Michael James*

_________________________________________________________________________________________________________

My personal opinion on the $SPX is that there looks to be a lot of downdraft in the market at the moment.


----------



## DaveTrade

*Is a Mid-Cycle Selloff Coming?*





	

		
			
		

		
	
Stocks traded slightly higher this morning as bulls finally halted the market’s week-long selloff. Thus far this year, dips have regularly occurred leading up to the monthly options expiration (OpEx) date, which arrives the third Friday of each month. US economic slowdown concerns caused stocks to drop last week, providing yet another mid-month dip in September.

Will a rally follow like in the months prior? It certainly seems that way. Wall Street had plenty of concerns about a short-term plunge (upwards of 10%) this month – something analysts noted _en masse _last week.

Now, though, strategists are jumping back on the bullish bandwagon following the S&P’s recent (and much smaller than anticipated) 2.4% peak-to-trough correction.

“Despite concerns about the recent downshift in economic and business cycle momentum, we remain confident that strong growth lies ahead and activity is bound to re-accelerate,” explained JPMorgan’s Dubravko Lakos-Bujas in a morning note.

“We remain positive on the equity outlook, and expect S&P 500 to reach 4,700 by end of this year and surpass 5,000 next year on better than expected earnings.”

Lakos-Bujas made no mention of inflation following yesterday’s better-than-expected August Consumer Price Index (CPI) print. Wells Fargo Investment Institute strategist Sameer Samana believes it may have been “cold” enough to even delay a taper warning from the Fed.

“We probably won't get the answer to whether [inflation is] transitory or not probably until 2022 – that's when the base effects will start to wash out and all the distortions start to kind of resolve themselves," Samana said.

"What the [August CPI] tells us is that the Fed probably has a little more wiggle room. If they don't want to do something at the meeting next week, given the weaker-than-expected [August] payrolls number, the inflation number […] also takes the pressure off of them to do something next week.”

If the Fed goes the “no taper” route, stocks could easily rally through the end of September. The S&P hasn’t closed below the 50-day moving average – a longer-term trend identifying indicator – since late June of this year. At present, the index remains above it despite last week’s selling.

But Morgan Stanley chief investment officer Mike Wilson broke rank with the rest of Wall Street when he predicted that not only will stocks stay subdued in September, but that the S&P could breach the 50-day moving average as well.

“The midcycle transition always ends with a correction in the [S&P],” Wilson remarked.

“Maybe it’ll be this week, maybe a month from now. I don’t think we’ll get done with this year, however, with that 50-day moving average holding up throughout the year because that’s the pattern we typically see in this part of the recovery phase.”

What investors also don’t usually see is massive OpEx rallies (preceded by sharp selloffs) nearly every month. Wilson’s right in that the midcycle transitions of the past have typically followed a specific pattern.

But these days, all the conventional rules have gone out the window. Extreme bullish exuberance has pushed the market to dizzying heights. Derivates (options, futures) are driving equities (the underlying) more than ever before.

So, could stocks climb higher from here? Absolutely. And until a true bearish collapse occurs, buying the dip likely remains the best move.

No matter how many times cycle-driven analysts insist that’s no longer the case.


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## DaveTrade

*Will the “September Slump” Get Worse?*





	

		
			
		

		
	
Stocks dropped significantly this morning despite better-than-expected retail sales data. The Dow, S&P, and Nasdaq Composite all retraced most of their gains from Wednesday.

The Census Bureau reported today that August retail sales rose 0.7% month-over-month, beating the consensus estimate (a 0.8% monthly decline) with ease. In the past, a “beat” of this nature typically sent the market higher.

But in addition to releasing the August numbers, the Census Bureau also revised July’s retail sales stats from a 0.5% month-over-month gain to a sharp decline of 1.8%.

Relatively speaking, that made August’s 0.7% jump far less impressive. Disappointed traders took out their frustration on equities by selling shortly after trading opened. First-time weekly jobless claims only added to the bearishness, as 332,000 fillings were made last week vs. 320,000 initial claims expected.

“People are starting to see that some of the economic data that we’ve received lately has been affected by Delta and are probably waiting for some of the effects of that to roll off,” explained Crossmark Global Investments strategist Victoria Fernandez.

“I think we’re going to see a little bit of ‘two steps forward, one step back’ in the markets over the next few weeks.”

Akshata Bailkeri, equity analyst at Bruderman Asset Management, also noted that bullish exuberance may be starting to fade in the face of rough economic reports.

"Equity markets have been positive for seven consecutive months, which is quite rare [...] So yes, investors are rightly concerned," Bailkeri said.

"But the reason why we're seeing this is because these earnings behind a lot of these companies are continuing to grow, and that's really what's driving these index values higher."

Meanwhile, rising inflation and producer costs threaten to squash Q3 earnings. The Producer Price Index (PPI), which measures producer inflation, climbed higher again in August in response to rising transportation and input costs.

Those increased costs will either be passed on to the consumer (which would then be reflected in the September Consumer Price Index reading) or absorbed by producers, slimming margins. Either way, share valuations would likely fall as a result.

This disturbing trend was first observed with Clorox (NYSE: CLX) when it reported earnings back in early August. The company unveiled a massive earnings per share (EPS) miss of 95 cents (vs. $1.36 expected) and a sales miss of $1.8 billion (vs. $1.92 billion expected). Worse yet, Clorox leadership said that they only expect the company to earn between $5.4 billion - $5.7 billion in fiscal 2022. Analysts originally projected $7.67 billion in earnings for fiscal 2022 by comparison.

If other American manufacturers issue similar reports come earnings season, the market could easily plunge thereafter. The tech sector wouldn't get hit as hard, but overall, it may turn out to be a very grim affair for bulls.

The majority of S&P companies won’t report until October. Analysts predict earnings growth of almost 28% year-over-year for Q3. Should the S&P “miss” Q3 earnings due to inflation, serious pain could follow.

"I don't think statistics or just how long it's been is a good reason [for a correction]. Generally, you need some sort of a negative catalyst,” said Charles Schwab's managing director of trading derivatives, Randy Frederick.

"What we have right now is not negative catalysts so much as a lack of positive catalysts."

A group of inflation-driven earnings “misses” would certainly do the trick. But, unless it actually happens, staying long remains the most sensible move.

Especially at what looks like the bottom of a mid-month dip.


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## DaveTrade

*The New Trend That Could "Blindside" Bulls*





	

		
			
		

		
	
The September options expiration (OpEx) date is here and, like always, it’s been an eventful affair. Stocks tumbled this morning in response to a massive unwinding of options positions. Over the last year, OpEx has provided major buying opportunities for traders. The market would typically start to dip on the Monday prior to OpEx.

This month, however, equities peaked almost two weeks ahead of schedule. That may have contributed to the worse-than-usual correction that has yet to level off. It seemed the bottom was in yesterday as the major indexes rallied through the close.

But today, stocks opened for significant losses that only intensified as the trading session progressed.

The market’s biggest names – Facebook (NASDAQ: FB), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Google-parent Alphabet (NASDAQ: GOOG) – all fell significantly. Reopening-sensitive stocks, like airlines and cruise lines, were among the lucky few that managed to post major morning gains.

What also jumped higher was volatility as Delta variant worries, economic concerns, and a lack of stimulus weighed heavily on bulls.

“We expect volatility to increase over the next month driven by a seasonal pickup in investor uncertainty, continued virus uncertainty, and significant monetary and fiscal policy catalysts,” wrote Goldman Sachs derivatives research head John Marshall.

And the most recent consumer sentiment reading (released by the University of Michigan this morning) is unlikely to help matters in that regard.




Sentiment on current economic conditions (green) plunged again, drawing closer to its post-Covid low. Sentiment ticked higher overall (blue), helped by a rising consumer expectations index (red), but it still failed to meet analyst estimates.

The most troubling survey data concerned buying conditions related to houses, vehicles, and large household durables (products with lifetimes of three years or more).




“Although declining living standards were still more frequently cited by older, poorer, and less educated households, over the past few months, complaints about rising prices have increased among younger, richer, and more educated households,” said Richard Curtin, director of the survey, as he explained why buying condition sentiment sunk to new all-time lows.

"Some observers anticipated that the early August plunge in confidence would quickly disappear since it was driven by emotions,” Curtin added.

“[But] a more accurate reading is that consumers correctly assessed the economic impact of the resurgent Delta variant."

Relatively speaking, the Delta variant has not locked down local economies like the first wave of Covid did. Instead, a lack of government stimulus could be having a more profound effect on the US.

Don’t forget that President Biden wanted another cash injection of $3.5 trillion. Congress, however, can’t reach an agreement on Biden’s stimulus bill. Negotiations haven’t gone well, either, suggesting that additional stimulus won’t arrive for several months.

The FOMC is set to meet next week as well, and some analysts expect Fed Chairman Jerome Powell to announce a taper warning on September 22nd (next Friday) after the meeting concludes. Doing so might just make the US’s economic problems worse, however. For that reason, much of Wall Street believes the Fed’s taper timeline has been delayed. A taper announcement next Friday is now considered by analysts as an improbable outcome.

But even if the Fed doesn’t taper, quantitative tightening (QT) could arrive nonetheless. Legislators are expected to raise the debt ceiling (which hit its limit back on July 31st) in October. After that happens, the US Treasury is likely to issue hundreds of billions of dollars in new debt, sucking liquidity out of the economy in the process. Usually, this isn’t a problem as the Treasury issues the same amount of debt (which removes liquidity) as the cash it spends (which adds liquidity). More recently, however, the Treasury has been spending at unprecedented levels while scaling back its debt issuances as the debt ceiling grew nearer. This, in effect, acted as quantitative easing (QE).

When the debt ceiling is eventually lifted, a massive wave of debt issuances will be “uncorked” to cover for the Treasury’s low cash balance, scaling back the liquidity added and thus resulting in QT. Worst of all, the Fed has no say in whether this happens. Only Congress does.

And not raising the debt ceiling is basically out of the question.

So, no matter what the Fed decides next week, the US economy is headed for a date with QT. The market will eventually realize this, which should only make the recent volatility worse.

Does that mean stocks are going to crash any time soon? Probably not. Rather, a rally to new highs would match the market’s prevailing trend this year, which seems ready to continue.

Even with a debt ceiling vote threatening to reduce liquidity, and by proxy, share values sometime in the next few months.


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## DaveTrade

*Is Market Volatility Back For Good?

Mike Rykse*

The first 9 months of this year have provided one of the most forgiving markets that traders have ever seen. Every dip has been bought up almost immediately and as a result stocks have spent most of the year grinding towards all-time highs.

However, over the last 2 weeks we have started to see a shift in trading conditions. We are starting to see rallies sold, along with a pickup in volume. While it hasn’t led to any extreme selloffs just yet, the warning signals are all over the place.

While we like to focus on the technical on the charts, which are flashing warning signals, we are also seeing several potential headline risks that have not been priced into the market. All of the following will be hot topics in the months to come:

*Potential for the Fed to begin pulling back on stimulus. The next big Fed meeting is next week where many are expecting them to announce a tapering of their bond purchases.

Raising the Debt Ceiling will be a big issue in the weeks and months to come. While most would expect them to kick the can further down the road, in today’s climate anything can happen. Bottom line is the level of spending that we have seen from the government is not sustainable. Will this finally start getting priced in?

The pandemic will also remain a wild card for the economy. As the weather changes and everyone heads back inside, will we see the numbers spike again leading to further restrictions?*

Running for the exit is not the strategy just yet, but as traders we can’t ignore the warning signals either. We have been talking to our customers about getting more conservative for the last number of weeks. One of the benefits of trading options is we can control risk easier than any other financial instrument.

Before we talk about the ways we can get more conservative with our options trades, let’s review the technical levels that are giving us the caution signals.



*SPY Support Levels*

We love to use the S&P 500 ETF (Symbol: SPY) to gauge overall market sentiment. After making yet another all-time high at 454.05 back on 9/1, we have started to see some profit taking kick in. We have seen the last 10 trading days drift to the downside.

Price is now approaching the all-important 50 SMA and EMA levels on the daily chart. These support levels are at 442.51 and 441.94. These moving averages have held as support each time they have been tested so far this year.






We have seen the 50 EMA and SMA levels on the daily chart tested 10 times this year and each time those tests have led to springboard moves back to new all-time highs. Here we are approaching these support levels yet again and if they finally break to the downside, we will be looking for a much deeper pullback to kick in.

Should these levels break on a closing basis, the next support levels below are at 433.55 and 431.12.



*Volume*

We were expecting volume to pick up after the Labor Day holiday, and that is exactly what we are seeing. For most of the summer months it was a struggle for SPY to trade 50 million shares on a daily basis. Over the last week, we have seen this number jump up to between 75-80 million shares.






While we would still like to see this number closer to 100 million shares, the jump that we have seen so far have made it much easier to get fills on trades.

The pickup in volume is also another sign that traders are starting to get more active. With stocks so overbought at current levels, we are seeing traders start to get more cautious on the upside and there is more talk of traders starting to take profit.


*Average True Range (ATR)*

Going back to August, we were seeing the Daily ATR on SPY struggle to get above 3.00. For those of you trading during the summer months, you experienced this slow trading environment. There were many sessions that were like watching paint dry. There just wasn’t much to work with.

As we get into the second half of September, we are seeing the ATR start to expand. It has gone from below 3.00 up to 3.62. The ideal scenario would be to see this number get up above 4.00. Should this happen, we will see much better two-way price action.






While we aren’t looking for the market to crash, this expansion in range is also another sign that traders are more open to the idea of actually selling stocks instead of buying every dip that we see.



*VIX*

Finally, we are seeing the VIX come to life a bit over the last week. With markets grinding higher for most of the year, the volatility was sucked out of the market. As a result, the VIX contracted down to the low to mid-teens.

For option traders, we want the volatility to stay active. If volatility stays active, our playbook becomes bigger. We are able to use a wider range of option strategies along with a better mix of both weekly and monthly options.

The VIX is currently printing at 19.10. The ideal range would be for this number to be in the mid 20’s. It won’t take much selling in equities to get the VIX in that range. Just another sign that fear is starting to wake back up.



*How Do We Handle the Volatility?*

Most financial media sources thrive in bull markets and as a result will push that narrative as often as possible. In reality, as active traders we would much prefer to see big moves back and forth. Should we get these warning signals to lead to bigger moves lower, there are some things that we will do to react.

*Credit Spreads* – When volatility expands, we prefer to sell more credit spreads. Doing so when options are more expensive will produce better results over time. It allows us to collect more premium up front and push our breakeven points further away from the current stock price.

*Larger Number of Trades* – We prefer to take a larger number of small positions when trading options. This allows us to get more diversification by spreading the capital into a larger number of areas. Instead of taking 3-5 bigger positions, we prefer to take 10-15 small positions. This will allow us to use a better mix of strategies on a wider range of markets.

*Risk Management* – When markets get active, it’s easy to get caught up in the hype and lose track of risk management. It’s crucial to keep the risk at 2-5% of your account per trade. Any higher than this, and you run the risk of a large drawdown due to a few losing trades.

Instead, we like to use smaller positions on a larger number of markets to produce the results we are looking for. We can then let the power of compounding take over.



*Conclusion*

The warning signals are there all over the place. We expect the 4th quarter to produce a much different market environment than what we have seen for most of the year so far. Don’t let the volatility expansion intimidate you. If you properly manage your risk with a wide range of options strategies, there are great returns to be made.


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## DaveTrade

*Is This the Start of the Next “Big Crash?”*





	

		
			
		

		
	
Roughly two weeks after we covered it, the potential collapse of a major Chinese corporation now threatens to unravel the bull market. Evergrande, China’s second-largest real estate developer, was well on the path to insolvency earlier this year.

The company was also China’s largest issuer of commercial paper, or very short-term corporate bonds. Evergrande earned this title after the Chinese government banned it from issuing longer-term debt. So, in order to raise capital, Evergrande turned to short-term debt (commercial paper). That normally wouldn’t be an issue, but in this case, Evergrande was rotten to the core. Its revenues were tanking as billions in bonds came due.

Large creditors, aware of the deteriorating situation, pooled their resources and took Evergrande to court in an attempt to get at least some return on their investment. That was in August.

Fast forward to last week, and Chinese retail investors joined in on the fun. They camped out at Evergrande headquarters, holding executives hostage in their offices while demanding payment. Thousands of Chinese – many of whom had little bond-buying experience – put their life’s savings into Evergrande commercial paper, which promised a 10%+ return.

Now, they stand to lose everything as Evergrande (and its junk commercial paper) crumbles. The Chinese government could still step in to bail out Evergrande, of course. That has yet to happen, however, and investors have taken matters into their own hands in the meantime.

But it’s not just Evergrande bondholders that stand to get burned. To pay creditors, the company will have to liquidate its $355 billion in assets to cover roughly $305 billion in liabilities. And though assets exceed liabilities, the truth is that Evergrande won’t get anything near face value for them.

The company just sold its headquarters at a steep loss. A fire sale of Evergrande’s real estate holdings, which make up a large portion of China’s total real estate market, would devalue properties almost instantaneously. Banks would get whacked, too, as mortgages get caught in the ensuing crossfire. Bond issuers are already withholding new offerings in anticipation of more Evergrande drama.

In short, Evergrande won’t be able to pay creditors even if it liquidates, as its assets aren’t really that liquid. Several weeks ago, we said that China would either bail out Evergrande (the more likely option) or let it go belly-up. Going bankrupt would undeniably cause more damage. Eight investment-grade debt issuers just pulled their bond offerings this morning in fear of having them priced unfavorably. Evergrande’s “contagion” risk via bankruptcy is already showing.

A bailout, by comparison, only threatens to devalue the yuan and (temporarily) most other assets as China is forced to buy roughly 300 billion US dollars to pay creditors, which would cause the dollar to rally sharply.

A bailout would also make Evergrande a business partner of Beijing – something that falls right in line with the Chinese government’s long-term plans.

Today, it seemed that investors finally realized how dangerous a looming Evergrande bankruptcy truly is. US stocks opened trading this morning for major losses that only grew worse around noon.

But is this the start of another Covid-like equity crash? Probably not. China is likely to issue some sort of statement or response within the next 24 hours. Odds are, it will include bailout terminology.

Add to that a coming “no taper” decision from the Fed when the September FOMC meeting wraps up on Wednesday, and you’ve got the makings of another whipsaw market rally.

Potentially as soon as Thursday or Friday of this week, and maybe even close to the S&P's recent highs.


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## DaveTrade

*Is This China's "Lehman Moment?"*





	

		
			
		

		
	
Stocks opened higher this morning before tumbling around noon. Concerns over the global financial structure lingered after Evergrande, China’s second-largest real estate developer and top issuer of commercial paper, missed two debt payments today.

Analysts reacted to the news differently. Some said it was the early stages of China’s very own “Lehman moment,” referencing the epic Lehman Brothers collapse of 2008 that helped spark the global financial crisis. Others disagreed. Lehman filed for Chapter 11 bankruptcy after accumulating over $613 billion in debt opposite its $639 billion in assets.

Evergrande owes a much smaller $305 billion vs. $315 billion in assets. Still, many experts think an Evergrande bankruptcy could have dire consequences. And not just in the Asian markets.

“Evergrande seems like China’s Lehman moment,” tweeted Uday Kotak, CEO and founder of Indian mega-lender Kotak Mahindra Bank.

“Reminds us of IL&FS. Indian Government acted swiftly. Provided calm to financial markets. The Government appointed board estimates 61% recovery at IL&FS. Evergrande bonds in China trading ~ 25 cents to a $.”

Kotak was chosen by the Indian government to oversee the Infrastructure Leasing & Financial Services (IL&FS) restructuring three years ago after the company missed several debt payments. He was able to “defuse” the IL&FS situation with the government’s help.

Most strategists argued over the last 24 hours that China would have to do the same to limit the economic fallout.

What they don’t agree upon, however, is whether Evergrande’s impending bankruptcy is as dangerous as Lehman’s was back in 2008.

"China’s situation is very different,” wrote Barclays analysts this morning.

“Not only are the property sectors’ linkages to the financial system not on the same scale as a large investment bank, but the debt capital markets are not the only, or even the primary, means of funding.”

The note continued, explaining that Beijing is likely to leverage bank lending in Evergrande's rescue attempt:

“The country is, to a large extent, a command-and-control economy. In an extreme scenario, even if capital markets are shut to all Chinese property firms (which is not occurring and is only a tail risk at this point), regulators could direct banks to lend to such firms, keeping them afloat and providing time for an extended ‘work-out’ if needed.”

“The only way to get a widespread lenders’ strike in a strategically important part of the economy would be if there were a policy mistake, where the authorities allow the chips to fall where they may (perhaps to impose market discipline), regardless of the systemic implications. And we think that’s very unlikely; the lesson from Lehman was that moral hazard needs to take a back seat to systemic risk."

In the US, real estate made up 27.9% of household wealth according to data collected in 2014. In China, real estate accounts for 74.7% of household wealth by comparison. Evergrande owns a large chunk of China’s real estate market. As Evergrande goes, so goes China’s financial system.

That’s why a “no bailout” scenario is seemingly out of the question. And because all of China’s banks are state-owned, Beijing will be able to offset a deflationary shock – something that occurred immediately after Lehman went bust. This strategy would ultimately cost China trillions in new stimulus, but these days, who really cares?

Fed Chairman Jerome Powell is expected to announce a taper delay tomorrow after months of hinting that the Fed would indeed start tapering at long last. That, combined with a full Chinese bailout, might just be enough to kick stocks back into their long-term uptrend.

Inflation will continue to climb higher without any tapering, of course. That should flatten the market’s real gains until the Fed decides to finally reduce its monthly bond purchases.

There’s no telling when that’s actually going to happen, though, so buying the dips in the meantime is probably still the best move.

And it's all because the Fed is too scared to finally pull the plug on the biggest “everything bubble” in history.


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## DaveTrade

*Get Ready for Another Rally*





	

		
			
		

		
	
Stocks ripped higher this morning as fears over an Evergrande bankruptcy cooled. The FOMC is set to wrap up its September meeting this afternoon, too, and investors expect a dovish statement from Fed Chairman Jerome Powell to follow.

As a result, sentiment’s looking far more bullish than it has in several weeks, and for good reason.

Yes, share values certainly appear overvalued long-term and economic difficulties are coming for the US economy by year’s end. Wall Street has already reduced its 2021 GDP projections by a significant amount in response to slowed growth.

In the short term, though, things are looking up. The Evergrande crisis shocked equities into a rapid selloff last Monday. But Beijing is now expected to bail out Evergrande through China’s numerous state-owned banks, splitting up the company into smaller parts to reduce the risk of another major collapse.

Will it be painless? Absolutely not.

However, there also won’t be a “Lehman-like” catastrophe that leaks into global markets. Analysts expect a far better-than-expected outcome from the whole situation than they did on Monday morning. And if China delivers in that regard, stocks could surge.

The most positive man on Wall Street, Fundstrat Founder Tom Lee, “think we’re still in a position where, ultimately, stocks are going to rally hard off this, because unless Evergrande is going to cause a real seismic effect on the US economy, the US fundamentals are in good shape.”

Lee has called for major rallies on every recent dip. And, each time, his prediction came true.

If Lee’s proven right again, a bronze statue bearing his likeness could (or should) be built alongside Wall Street’s famous Charging Bull. The fund manager certainly deserves it after years of continued bullishness despite persistent bearish “triggers” that have threatened stocks repeatedly since the start of the Covid pandemic.

Meanwhile, Sevens Report founder Tom Essaye warned traders that volatility could remain an issue moving forward, even if the market rallies to finish out the week.

“A dovish Fed (or even a Fed that meets expectations) could provide more of a relief rally today, but we continue to think the sheer number of unknowns remain a headwind that will keep markets volatile for the next few weeks, until there’s more clarity on the Fed, taxes, government funding and earnings,” wrote Essaye in a note.

Historically, Powell hasn’t had a positive effect on stocks when he speaks. Bespoke Investment Group analysts observed this fact in a recent note that looked at the price performance of the last few Fed chairs.

“When it comes to the late-day weakness on Fed Days, much of it has come during Fed Chair Powell’s tenure,” Bespoke researchers said.

“Since Powell became chair, the S&P 500 has averaged the worst performance on Fed Days of any other chair since [Alan] Greenspan.”

So, traders hoping for an afternoon rally might not get one. That doesn’t mean, however, stocks will sink on Thursday or Friday. Bulls have a tendency to get nervous when Powell speaks.

Later on, though, sentiment usually flips positive once more.

Will that happen again? It absolutely could, especially following Monday’s big drop, which likely provided traders with yet another fantastic dip-buying opportunity in a runaway bull market.


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## DaveTrade

I’ve stopped posting daily situation messages here, when I started this thread I wanted it to be more interactive, not just copying a daily update. The thread has had a lot of views but I’m not sure who has been viewing the thread, if they are beginners that are trying to put it all together in their head or seasoned traders who see nothing new but also see my inability to explain relevance, or both. It’s hard to know what needs to be said when you don’t know who you are talking too. I will post more to this thread but in a more sporadic manner and topic and only continue with that theme if some interaction requires it.


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## DaveTrade

Here is one of those sporadic posts, I'm going back to my first post on this thread because I think it's important. I've just copied this from the website link in my first post;

*NYSE BULLISH PERCENT*







_Welcome to the *New York Stock Exchange Bullish Percent Index (BPI)* page -- a free investing resource from True Market Insiders.

The NYSE BPI chart, above, updates daily. We update the commentary whenever the NYSE BPI signals an important change in the stock market._


*September 2, 2021 ~ Chris Rowe*

*This Recent Change Is: *A reversal from an O-column to an X-column. This means the direction of the indicator is UP. It means the most recent trend is bullish, with _demand in control of the market_. More and more stocks moving to buy signals (breaking above resistance levels).

*Date of Change: *September 2, 2021*.

Number of Days Since Previous Change: *49 days

*******





This is going to be a confusing one, for some people.

VERY LONG-TERM: The underpinnings of the very long-term global financial market position -- the VERY BIG picture -- are very bullish. Of course we can have swings up and down in the next smaller picture which is the...

LONG-TERM: You can see, in the NYSE BPI, the "sell signal" which is lower lows than the most recent O-column made.

INTERMEDIATE-TERM: We have reversed up where demand is in control. We will see if the intermediate-term bullish trend can continue up and then create a confirmation of a bullish long-term trend but that still has yet to happen. Therefore, even though we are seeing intermediate-term bullishness and can run some bullish plays here, we must be aware that the long-term trend hasn't yet repaired.

That means, we aren't super convinced there will be bullish followthrough without a big sell-off to "wash out" the scared money, which would be a painful but healthy thing for the bulls in the long-term.

*WHAT'S THE SIGNAL?*

What we are seeing is an *intermediate-term* move higher, which tells us demand has taken control of the stock market -- for now. The column change to X's means the *intermediate-term* (weeks to months) breadth has gotten significantly stronger and we'll look for followthrough into the larger, long-term, trend.

Until then, the* longer-term* signal (months to years) remains in question. It's critically important that investors understand this. And know this isn't some tea-leave reading that tells us what may happen int he future. It's exactly what is currently happening right now.

The longer-term signal is actually bearish, where more and more stocks have been participating in the downside moves of the stock market while fewer and fewer stocks are participating in the upward moves in the stock market.

With that being said, the majority of stocks are in fact bullish. If this seems confusing, reread what I wrote and understand the difference between the fact that most stocks look bullish while *the recent trend is a weakening one*.

I circled another time when the NYSE BPI looked similar to today's pattern, which was back in the summer of 2018.

That was followed by a huge market decline, circled in blue.





It was devastating for short-term investors and tough for long-term investors to endure. We aren't saying history will repeat because we don't predict/forecast and it might not repeat itself but when we consider the probabilities... consider this a tornado watch on an otherwise beautiful day.

You can create a Bullish Percent Index for any group of stocks, like the 500 stocks in the S&P 500, the 2,800 New York Stock Exchange stocks, or the stocks that comprise sectors of the stock market like the Semiconductors sector or the Textile & Apparel sector.

What's important, now that we've covered the general market risk and condition by viewing the NYSE BPI, is to have a strong focus on the sub-sectors of the stock market. We analyze the 41 sub-sectors and decide which ones should be bought by looking at the BPIs for each sector, and the Relative Strength of each sector. This is done using the _Sector Prophets Pro_ platform.

We love this "granddaddy of all technical indicators" (the BPI) because it's basically where we got the name of our firm: "*True Market Insiders*". It shows us the TRUE MARKET, while popular moving averages like the S&P 500, Dow Jones, NASDAQ, NYSE Composite, etc. can be very deceiving. For example, popular market averages has been breaking new highs all year even though stocks have actually been very weak.

The deception we've seen in 2021 is the biggest deception I've ever seen in an up market (it's very common at market lows). To describe this deception in my classes, I typically reference the deception in the second half of 1998, when the major averages continued to break highs, while most stocks were actually trading lower. I'll have to start referencing 1998 and 2021, going forward.

We are disciplined technical analysts and so we don't predict or forecast. But I will point out that, although the current intermediate-term market condition is bullish (net of more and more stocks breaking highs) the long-term picture is bearish until we see more bullish confirmation.

But the biggest longest-term trend, which can be seen in the global financial markets (including U.S. stocks, International stocks, Commodities, Fixed Income, Currencies and Cash), paints a very bullish picture. It's just that the next smaller trends might include several months of decline before reversing back up and continuing the biggest trend higher.

*A BIT ABOUT THIS INDICATOR*

The New York Stock Exchange BPI is, as I mentioned, the granddaddy of all technical indicators. It can tell us a lot about the stock market from the current risk to current direction of strength (whether the demand side or the supply side is getting stronger). The indicator as a whole gives us longer-term guidance. But there's a longer-term picture and an intermediate-term picture.

I'll sum that up very quickly and clearly for you, and in today's context.

THE POINT AND FIGURE CHART STYLE WE VIEW IT ON: The bottom shows the years (visible: 2014 - 2021). The numbers within the chart (within the X's and O's) represent what month it was when that box was filled.

When it's going up in a meaningful way (current settings are 2% box size), X's are drawn on the grid, creating an "up-column" of X's. When it reverses back down (in this case, by more than 6%), we move to the next column over to the right and start drawing O's, one below the next, creating a down-column. It's that simple.

We only plot the chart when there's significant up or down movement so it actually stays the same more often than it changes. Some years are more active than others, which is why you see some years have a few column changes and others have many.


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## DaveTrade




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## qldfrog

DaveTrade said:


> View attachment 130851



I follow with interest but not sure i can add much of interest.


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## KevinBB

DaveTrade said:


> Here is one of those sporadic posts, I'm going back to my first post on this thread because I think it's important.




Hello @DaveTrade

Totally agree with you. The NYSE Bullish Percent has a long history, and I've been following it, on and off, since Chartcraft and Dorsey Wright popularised the concept quite a few years ago.

The indicator has gone from above 70% to below 70%, and according to the Dorsey Wright reading, this gives the market a "Bear Alert" status. Going from above 70% and breaking a previous bottom changes this status to "Bear Confirmed".

The upshot isn't that we should all go to cash, but, again in Dorsey Wright and US football terminology, we should have the defensive team on the field playing the game for us.

KH


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## DaveTrade

KevinBB said:


> Hello @DaveTrade
> 
> Totally agree with you. The NYSE Bullish Percent has a long history, and I've been following it, on and off, since Chartcraft and Dorsey Wright popularised the concept quite a few years ago.
> 
> The indicator has gone from above 70% to below 70%, and according to the Dorsey Wright reading, this gives the market a "Bear Alert" status. Going from above 70% and breaking a previous bottom changes this status to "Bear Confirmed".
> 
> The upshot isn't that we should all go to cash, but, again in Dorsey Wright and US football terminology, we should have the defensive team on the field playing the game for us.
> 
> KH




You have a good understanding of the indicator KH, for those that don't, KH is saying that we are currently 'Bear Confirmed' because the last column of O's has gone lower than the previous column of O's.

Hope you like the website with it's narrative.


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## DaveTrade

This post outlines some significant issues that will have an impact on the US markets going forward.

*Why the Bull Market Could End in November*





	

		
			
		

		
	
Facebook’s back online and stocks are rising once more.

In short, everything’s back to normal.

Even Frances Haugen’s testimony to Congress (delivered this morning) was unable to keep bulls restrained for long. The market opened for a moderate gain before roaring through noon. Tech led the way with Dow industrials following closely behind.

Bulls can thank Senator Joe Manchin for the late morning rally after saying that he was warming up to President Joe Biden’s social spending plan.

"I'm not ruling anything out," Manchin told CNN reporters, referencing Biden’s $1.9-$2.2 trillion price tag on the bill. Manchin previously said he would go no higher than $1.5 trillion.

It’s no secret that the market has responded very positively to government spending since the start of the pandemic. By telling reporters that there’s a chance of a deal getting done near $2 trillion, Manchin reinvigorated buyers. He also stoked bullish enthusiasm with his comments on the debt ceiling.

“We just can't let the debt ceiling lapse. We just can't,” Manchin said.

“We can prevent default, we really can prevent it. And there's a way to do that, and there's a couple other tools we have that we can use. Takes a little bit of time, a little bit of – it's gonna be a little bit of pain, long ‘vote-a-ramas,’ this and that – do what you have to do. But we cannot – and I want people to know – we will not let this country default.”

Lawmakers have yet to see a debt ceiling they didn’t ultimately end up raising. As we mentioned previously, though, quantitative tightening will result from raising the debt ceiling due to the Treasury’s recent spending spree.

For those that aren’t acquainted with the US debt ceiling, it’s the maximum limit to how much the US government can borrow to pay its debts and obligations. Whenever that limit is reached, the US Treasury can’t issue any more notes, bonds, or bills.

What it can do, however, is pay for debts and obligations with tax revenue or the Treasury’s saved-up cash balance. As of July 31st, that cash balance was just $442 billion. That was a low number, historically speaking. From June to July, it plummeted by $398 billion.

As of October 1st, it sat at a meager $132 billion.

Typically, the US Treasury never needs to draw from its cash balance to pay the bills. It just issues new debt to meet its financial obligations.

For the US economy, the practice of issuing new debt usually doesn’t have any significant impact. The amount of money the Treasury spends (which adds cash to the economy) is offset by the debt issued (which removes cash from the economy).

As a result, no liquidity is added nor removed.

But more recently, the Treasury has run into a bit of a problem with this model due to the debt ceiling. It ended up slowing down debt issuance as the debt ceiling rapidly approached, which forced the Treasury to draw from its cash balance to pay for things instead.

And because less debt was being issued (while the cash balance was being spent), this acted as quantitative easing. Cash was effectively being injected directly into the economy by the Treasury without the issuance of debt to soak it back up. This applied serious pressure to short-term rates and was to blame for the negative rates in the repo market.

Lawmakers are expected to raise the US debt ceiling this month like Manchin said they would. And when they do, the Treasury will issue hundreds of billions of dollars in new debt (which sucks liquidity out of the economy), almost certainly outpacing spending (which injects liquidity into the economy) by a wide margin.

We talked about this last month. Now, though, with a potential $2.2 trillion bill looming overhead, the tightening could get a whole lot worse. Even if the majority of the $2.2 trillion comes from taxes, there’s still likely to be several hundreds of billions of dollars raised by new Treasury debt issuances.

This will result in a significant source of QT, right around the same time corporate earnings hit and when Wall Street expects the Fed to finally start tapering its asset purchases.

Does that seem like the kind of macroeconomic backdrop that will help extend the bull market? Probably not. That’s not to say bulls won’t make another attempt to hit a new all-time high.

They most likely will. Every monthly dip this year has been filled by opportunistic buyers.

But the next correction could very well be the final one due to a set of truly “market wrecking” conditions converging, and all at roughly the same time.


----------



## KevinBB

Hello @DaveTrade 

I don't know if you have noticed, but the NYSE BP has turned down. They haven't written it up as yet, but the chart shows the turn. It hasn't broken the last low, but one more good down day should do it again.

KH


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## DaveTrade

KevinBB said:


> I don't know if you have noticed, but the NYSE BP has turned down. They haven't written it up as yet, but the chart shows the turn. It hasn't broken the last low, but one more good down day should do it again.




Yes I see that KH, I do hold a down bias at the moment by this level of volatility is making me feel unsure about my view. It's a learning experience for me at the moment, I'm just glad that I went to cash.


----------



## KevinBB

DaveTrade said:


> Yes I see that KH, I do hold a down bias at the moment by this level of volatility is making me feel unsure about my view. It's a learning experience for me at the moment, I'm just glad that I went to cash.



When the chart looked like this (Bear Confirmed), Dorsey Wright used to recommend that their clients (mainly financial advisors) protect their portfolios, and their favourite method was using options. I'm the first to admit that I don't know anything at all about trading options, so I haven't done anything like that.

For diversification, I do have a small futures portfolio, and that should help a little. The Futures portfolio is currently neutral equities.

I certainly am more cautious, too, but my personal view is that it may be a bit early to go to cash (famous last words). I don't know anything about your investment or trading style, but for me cash isn't a good option at the moment. I am a firm believer in the "time in the market" theory. Over the last year or three I've been building up IOZ (I am the #1 world's worst stock picker, so an index ETF works for me), and I don't plan to sell any just yet. In fact I added some yesterday (6/4/21) as part of my accumulation plan.

My biggest fear with going to cash is missing out on any rebound. I've missed out on plenty in the past, so this time I'm hanging on to whatever there is to hang on to. So far ...

KH


----------



## DaveTrade

KevinBB said:


> I'm the first to admit that I don't know anything at all about trading options



I'm still learning about options and how best to use them for different trading methods. At the moment all my trades are experimental with a small trading account, I'm preparing myself for when I sell a property in about six months when I'll have that money to work in the markets. Years ago I traded futures and I know how stops can be blown away so in my retirement I've decided that options will the best way to control risk. With options you can do more than just control risk, you can define it.
Using options to hedge a stock position is the most basic type of option strategy, not too hard to learn. If there is nothing about it on this site I could put something into a thread, do you think others on this forum would be interested?


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## over9k

Hey @DaveTrade You'll find a lot of discussion of the U.S markets in this thread: https://www.aussiestockforums.com/t...cations-of-a-sars-coronavirus-outbreak.35169/


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## KevinBB

@DaveTrade  I understand what you say about options, and understand the theory, but just don't know how to trade them as a trader. I don't know or understand the trading terminology. However, the biggest reason that I have no interest in options at the moment is my perception of the lack of liquidity in the Australian options market. I have searched before, and there never seems to be any quotes on the screen, even for what I would think would be the popular XJO options. The US market is fine, heaps of liquidity there.

For me the better alternative is to go short an extra US Dow futures contract(s) as a hedge against the value of my Australian equity investments, should I feel the need to do so. At least I understand this method.

KH


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## DaveTrade

The bulls are back;

*Is the "October Dip" Already Over?*





	

		
			
		

		
	
The debt ceiling has been lifted and so too have stocks. All three major indexes gapped higher at the open this morning before climbing further through noon. Tech led the way once more while Dow industrials followed closely behind.

Analysts pointed to the short-term debt ceiling deal as the reason for today’s bullish surge. Senate Majority Leader Chuck Schumer expects to have an agreement finalized by this afternoon.

“I have some good news,” Schumer said.

“We have reached agreement to extend the debt ceiling through early December, and it’s our hope that we can get this done as soon as today.”

If Schumer’s right, there won’t be a government shutdown. Historically, though, shutdowns haven’t really hurt stocks in a meaningful way.

Instead, the majority of government shutdowns have actually had a positive effect on the market dating back to 1982.

Regardless, bulls seemed relieved that Congress could have a deal done sometime today.

“Everyone blinked yesterday, as it became clear — once again — that the politicians, the Federal Reserve and the country’s business leaders will never allow the debt ceiling nonsense to threaten a U.S. default,” Greg Valliere, chief U.S. policy strategist at AGF Investments, said in a note.

Every time the debt ceiling draws near, the government ends up raising it. Today’s news wasn’t all that surprising, relatively speaking. But for the market, it may as well have been bullish “manna from the heavens.”

"The debt ceiling is one of many factors right now that we think are causing these gyrations in the markets. Certainly, the market will take some comfort when there is a deal when it is more formalized," said Yung-Yu Ma, chief investment strategist for BMO Wealth Management.

Simply put, dip-buyers were seeking a reason to get long again. Lawmakers gave them one this morning. To sustain the bullish momentum, however, investors may need additional good news.

"Markets are looking for some resolution, or at least an end in sight to the supply chain issues, the inflation pressures that are building," Ma explained.

"The markets are also starting to look toward the November meeting of the Fed, and hoping that the Fed is not going to show excessive increases in future interest rates as well [...] So, several things are going on."

The ongoing supply chain problems are unlikely to get resolved any time soon, though, as energy prices continued to soar. US crude oil futures shot higher again after the US Energy Department said it had no plans to tap into the Strategic Petroleum Reserve (SPR). On Wednesday, Energy Secretary Jennifer Granholm threatened to sell 60 million barrels of oil (drawing from the SPR) to bring oil prices lower.

Today, she decided against selling those barrels according to an Energy Department spokesperson. US crude erupted in response. If oil prices keep rising, supply chain constraints should only tighten further.

But that doesn’t matter; Congress has a deal to lift the debt ceiling for a few months and the bull market is back on. We mentioned last week that the market was primed for another rally. Today, the debt ceiling agreement may have been the trigger.

Even though most investors already knew that the debt ceiling would inevitably be lifted all along.


----------



## DaveTrade

*Will the Jobs Report Delay the Fed's Taper?*





The September jobs report arrived this morning and stocks traded flat in response. Payrolls only totaled 194,000 last month, falling well short of the 500,000 job estimate. In fact, it was bad enough that some Wall Street firms began to consider adjusting their taper timelines.

“This jobs number could call into question the starting point for taper late this year,” said Jamie Cox, Managing Partner for Harris Financial Group, shortly after the jobs report was revealed.

“There are lots of positives in the report, like an uptick in average hourly earnings, but not enough to sugarcoat the fact the employment picture remains murky with all the Covid related cross currents.”

Unemployment fell from 5.1% to 4.8% despite the massive jobs “miss.” Labor participation, on the other hand, dropped from 61.7% to 61.6%. That means the US labor force shrunk by about 183,000 people last month despite the expiration of unemployment benefits.

Analysts were expecting a major jobs “beat” for this reason. Instead, the labor crisis continued through September. We may see a hiring blitz reflected in the October jobs data as Americans start to run out of cash, but after this morning’s jobs report surprise, it’s anyone’s guess as to what the reported payroll gain will actually be.

The silver lining came by way of an increase in hourly wages. Month-over-month, wages grew by 0.6%, up from +0.4% in August. They’re now up 4.6% year-over-year, matching the consensus estimate. Analysts were concerned that wage growth would stagnate as millions of Americans entered the workforce last month.

Obviously, that didn't happen.

And so, the market wasn't quite sure what to make of the September jobs data. Is the bad jobs report truly bad news for stocks? Or does it mean the bull run will be extended?

The majority of analysts stuck to their guns, insisting that the jobs slump won’t change the Fed’s schedule.

“The result, in aggregate, is likely not enough to knock the Fed off its path to begin the tapering process of its balance sheet later this year,” said Glenmede CIO Jason Pride.

“The Fed has already outwardly stated that they believe the employment test for tapering has largely already been met, and today’s report may not meaningfully change that.”

BMO’s Ian Lyngen felt the same:

“This should be more than sufficient to keep tapering on schedule for the November announcement and we’ll look to the incoming Fedspeak to reinforce this notion,” Lyngen wrote.

“The decline of labor participation rate suggests that as unemployment benefits expired, some workers fell out of the labor participation category […] Overall, a mixed report that does little to shift the macro narrative."

In other words, bulls have the “green light” to continue buying despite the September jobs report’s troubling headline figure. And that’s probably good advice at this point.

The casino won’t close until the taper starts. With Wall Street ready and willing to sidestep the big jobs “miss,” traders are likely to follow suit.

That doesn’t mean stocks will surge through the close today, though. They most likely won’t.

But once the shock wears off, expect the rally to resume. Potentially as early as this coming Monday and maybe even to new market highs by mid-October.


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## DaveTrade

I thought throw in a chart that I think is one to watch. The weekly chart shows a high base on a product that is already in short supply worldwide;





I think that we could looking at a move back up to top of this zone and when the time is right, a breakout to the upside;


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## DaveTrade

*Will Oil Prices Keep Rising?*




Stocks traded slightly higher this morning as the market’s recent choppiness continued. Dow companies enjoyed the largest gains while tech shares lagged as inflation concerns lingered among traders and institutions alike.

“We’re seeing major supply disruptions around the world that are also feeding inflationary pressures, which are quite high and financial risk taking also is increasing, which poses an additional risk to the outlook,” said International Monetary Fund (IMF) economist Gita Gopinath in a press release.

The IMF then went on to say that central banks (like the Federal Reserve) need to watch inflation closely and tighten monetary policy if it gets “too hot.” European Central Bank President Christine Lagarde formerly served as the managing director of the IMF.

She said in September that the ECB’s coming taper wasn’t going to be a form of monetary tightening. It was a convenient spin on the truth intended to keep European bulls happy. Now, the IMF is saying that Lagarde needs to get serious about tightening in response to rising inflation.

The jury’s out on whether she’ll take the IMF’s advice. Fed Chairman Jerome Powell certainly doesn’t seem interested in it, either.

Both the ECB and Fed had ample opportunity to prevent the coming inflationary surge earlier in the year. Had they started tapering much sooner, we wouldn’t have witnessed landmark increases in recent price index readings. The Consumer Price Index (CPI) cooled slightly last month, but the Producer Price Index (PPI) roared higher once more.

Eventually, those increased producer costs will be passed on to consumers. Corporations could alternatively “eat” those costs and let them slash into their bottom line, harming shareholders instead.

Investors will soon find out how damaging rising input costs truly were as the next batch of corporate earnings approach.

“There are a lot of headwinds out there as we embark on corporate earnings, and traders will be looking for any and all indications of guidance — especially as the threat of slower growth looms large,” explained E-Trade Financial’s managing director of trading, Chris Larkin.

This has caused Wall Street to revise its Q3 earnings predictions downward.

“Expectations for third quarter earnings have been coming down in recent weeks and that should create some room for upside surprises, which is good for overall market sentiment,” said UBS Private Wealth Management’s Rod von Lipsey.

On the other hand, if companies fall short of their reduced estimates, the resulting disappointment could set stocks up for a sharp correction.

Making matters worse is US crude oil, which remains elevated after weeks of consistent price gains.

"We're definitely freaked out about crude oil prices [...] [and] slightly higher interest rates," said David Bailin, Citi Private Bank chief investment officer.

"But we have to put all of this in context. First of all, interest rates have been abnormally low. Energy prices are high due to excessive demand right now and delivery shortages across Europe and now in China [...] These things will abate. We think it'll take somewhere between three and nine months for energy supplies and for the shipping issues to abate."

Between three and nine months? Does the stock market have that long before another crisis emerges?

Probably not. If rising crude prices and supply chain issues persist for even one more month, a much-feared economic slowdown could smash equities at a particularly bad time. Three more months would be potentially ruinous for bulls, especially if the Fed decides to actually taper asset purchases in November as Wall Street believes it will.


----------



## DaveTrade

*It’s Official: Inflation Is Here to Stay*




The September Consumer Price Index (CPI) arrived this morning and, contrary to the Fed’s recent comments, inflation looked anything but “transitory.” After slowing for two consecutive months, September saw CPI spike by 0.4% month-over-month (MoM) vs. 0.3% expected and 5.4% year-over-year (YoY) vs. 5.3% expected. That’s the highest YoY headline CPI surge since July 2008.

Energy prices experienced the largest hike among the major CPI categories, rising 1.3% MoM. And within energy, fuel oil costs leaped by 3.9% MoM. Fuel oil costs climbed an eye-popping 42.6% YoY.

In short, energy primarily drove the headline CPI number to a 13-year high. Core CPI (which excludes food and energy) still rose 0.2% MoM, beating the +0.1% estimate.

Curiously, used car prices actually dropped last month according to the US Labor Bureau. Manheim (the world’s largest auto auction wholesaler) reported yesterday that used car prices hit an all-time high in September by comparison.

Is Manheim wrong? It might be. But as a major wholesaler with data gathered directly from the used car market, that doesn’t seem very likely, does it?

It’s much more probable that the US Bureau of Labor Statistics got bad data. Or, that the bureau simply lied about it.

Regardless, investors can expect a nasty revision to September used car prices when the October CPI is released in November, which should boost both core and headline CPI retroactively.

Food prices and housing/rental (called “shelter” in the CPI) also jumped last month to the chagrin of Wall Street analysts, many of whom thought for months that inflation was transitory.

“Much of these inflationary pressures are transitory, but that doesn’t stop them from having a dampening impact on activity. Today’s number, with food price inflation and shelter inflation moving higher, suggests growing pressure on consumers,” said Principal Global Investors chief strategist Seema Shah.

Deutsche Bank’s Matthew Luzzetti agreed when identifying the potential sources of "stickier" inflation.

"The top takeaway is, inflation is still running hot. It's well above the Fed's target," he said.

"I think within the details, the most important point was, rental inflation was the highest we've seen since 2001."

Luzzetti continued, adding:

“I think today's data, at least on the rental front, does tell you that the rise in inflation is probably going to be a bit more persistent than what the Fed had anticipated previously.”

Something else to note is that wages are up only 4.6% nominally on the year vs. headline CPI, which is up 5.4% YoY. The Fed thought this gap would quickly close.

Instead, wages have remained “underwater” far longer than expected. And they might sink lower in October if the long-awaited hiring spree finally arrives, suppressing wages as inflation continues to climb.

Following the February CPI release earlier this year, we warned that the US was on track to meet a stagflationary conclusion by year’s end. We’re not even past Thanksgiving yet and the evidence supporting our hypothesis has snowballed. The Fed finds itself in an extremely difficult position as a result.

Does that mean Fed Chairman Jerome Powell's going to officially announce a taper in November as Wall Street believes? He just might have to in order to take some air out of the “everything bubble” that’s only grown larger with time. In doing so, though, Powell could cause it to "pop" violently, bringing down nearly every asset class in the process.

All while less-permanent sources of inflation (like rising oil) potentially scream higher still.


----------



## DaveTrade

*Watch Out for Another Big Tech Rally*






	

		
			
		

		
	
Stocks roared higher this morning amid better-than-expected corporate earnings. The Dow, S&P, and Nasdaq Composite all enjoyed significant gains at the open that only grew larger as the day went on.

Financials kicked off earnings season with a resounding “bang” after Bank of America (NYSE: BAC), Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), and Wells Fargo (NYSE: WFC) reported major Q3 “beats.” The banks followed in the footsteps of JPMorgan Chase (NYSE: JPM), which also revealed a standout quarter when it reported earnings Wednesday morning.

Even Walgreens Boots Alliance (NYSE: WBA) got in on the action this morning, rising strongly on the back of an impressive Q3 performance.

But that’s not all:

Treasury yields fell again today, boosting growth-focused (i.e. debt-hungry) tech stocks. It was a nice reprieve for Big Tech shares that sagged in recent weeks.

Weekly jobless claims fell, too, dropping below 300,000 for the first time since the Covid pandemic began.

In other words, it was a massively bullish (and much-needed) morning of trading. Analysts were quick to celebrate the good news.

“So far, the overwhelming majority of large US companies have been able to generate higher profitability despite rising labor costs because sales growth has been so robust. We expect the same to be true in [Q3],” said Mark Haefele, chief investment officer of UBS Global Wealth Management.

The question now is whether things are going "too well" for the US economy and if that could alter the Fed’s monetary policy.

“What we are seeing is an economy that continues to run hot," explained Thornburg Investment Management’s Jeff Klingelhofer.

"Consumers today still have elevated savings, and they’ll be drawing that down in the months to come. And so really, we are absolutely seeing higher wages trickling into the economy [...] The key to watch will be, as the economy continues to heal, as vaccinations continue to increase and businesses open, whether that trend continues.”

Klingelhofer continued:

“We’ll be watching those wage numbers exceptionally carefully. They really are the key to trying to figure out where the Fed goes and whether this inflation is transitory in nature. But at this point, we think it will moderate in the months and quarters to come.”

Thankfully for the Fed, wage growth should slow as hirings soar. The October jobs report (due out in November) could very well show a massive payroll gain for the month now that unemployment benefits have ended. If that happens, it might just be able to keep a lid on rising wages.

On the other hand, prices continue to climb for both consumers and producers, outpacing wage growth. The Producer Price Index (PPI) was released this morning, and in it, investors learned that input costs jumped higher again in September.





Headline PPI grew by 0.5% month-over-month vs. 0.6% expected and 8.6% year-over-year vs. 8.7% expected, falling short of the consensus estimates. Still, the PPI showed that the ongoing surge in producer costs persisted through September and that it's giving no sign of slowing significantly any time soon.

When major American manufacturers start to report earnings later this month, investors will get another glimpse into how much margins have truly slimmed. Clorox (NYSE: CLX) execs shocked shareholders in August when they said that margins had slimmed enough to reduce the company’s 2022 outlook.

Similar guidance could arise as more manufacturing-based companies report in the coming weeks.

For now, though, enjoy the bullish resurgence. Yields seem ready to drop further, which could result in a major tech rally that ultimately lifts the general market in the process.

Especially if earnings from the “softer,” non-manufacturing sectors (like financials) continue to impress.


----------



## DaveTrade

*The "Ugly Truth" About Earnings*






	

		
			
		

		
	
Stocks traded higher again today as bank earnings continued to impress. This time, it was Goldman Sachs that reported a blowout quarter thanks to the company's massive trading gains. All three major indexes opened higher on the day in response.

“The banks painted a strong and healthy picture of the US consumer,” explained Oanda senior market analyst Edward Moya.

“Wall Street can’t turn negative on the economy after seeing reserve releases, moderating trading revenue, mixed loan growth, and a consumer willing to take on debt.”

It’s much easier to take on debt when rates are near historic lows. The 10-year Treasury yield climbed higher today to 1.57% (+3.62%), limiting growth-hungry tech gains in the process. But the 10-year rate is still down significantly when compared to its longer-term performance.




The latest University of Michigan Consumer Sentiment Survey wounded bulls slightly this morning, too, when it revealed a significant “stagflationary” impulse. Inflation expectations surged to their highest level since 2008 while the current economic conditions index approached its initial Covid low.





Clocking in at 77.9, that’s the second-lowest current economic conditions index reading since 2011.

“When asked to describe in their own words why conditions were unfavorable, net price increases were cited more frequently than any time since inflation peaked at over 10% in 1978-80,” said Richard Curtin, the long-time director of the survey.

Surprisingly, though, September’s retail sales data (also released this morning) showed a major “beat.” Retail sales increased by 0.7% last month, easily surpassing the -0.2% consensus estimate.

“The inflation environment and concerns about supply chains have not put a strong dent in retail sales,” noted BMO Wealth Management’s Yung-Yu Ma.

“Consumers are acclimating to higher prices. So far that hasn’t resulted in a meaningful fall off in demand. But this willingness to absorb higher prices is not unlimited.”

In other words, the slump in consumer sentiment has yet to impact retail sales. But that’s not to say it won’t do so at some point in the near future as the holiday season draws near. October’s retail sales data will be critical in determining the economy’s trajectory heading into Thanksgiving and Christmas.

Most analysts think that a strong earnings season will prevent another sell-off from happening this year. Natixis Investment Managers portfolio manager Jack Janasiewicz believes that’s not only due to a strong crop of earnings, but the fact that quarterly estimates have been trimmed significantly in anticipation of a slow Q3.

"We've had a number of Wall Street strategists come out and call for a correction. If you look at things like the surprise indices, they're all trending lower [...] earnings estimates for the third and fourth quarter have leveled off," Janasiewicz said.

"To me, it feels like the market's leaning bearish. And when we start to think about the buyer power that could come back in when everybody starts to flip positive — earnings might be that catalyst, [and] we could certainly see that upside."

So, will stocks march on to new highs in the coming weeks? It certainly seems like they could, aided by analysts who scaled back their quarterly estimates to produce bigger earnings “beats.”

Even if the reality of the earnings picture is far less bullish than these “surprise reports” would have investors believe.


----------



## KevinBB

I've been keeping these stats for the major Australian market indices for quite some time (many years), but have only just added the major US indices to the stats.

I realise that the Australian and US markets are structurally different, and that the Australian high dividend rate is a factor, but some of these longer term return figures (as at Monday) show why investing in US stocks, and their index ETFs, can be very attractive.






KH


----------



## DaveTrade

*Are Earnings Forming a Major "Bull Trap?"*







	

		
			
		

		
	
Bulls received several “green lights” to double down on their bets this morning after better-than-expected earnings reports continued to roll in. Johnson & Johnson (NYSE: JNJ), and Walmart (NYSE: WMT) beat their Q3 EPS (earnings per share) estimates with ease.

After the market closes later this afternoon, Netflix (NASDAQ: NFLX) and United Airlines (NASDAQ: UAL) are set to report as well. If the current trend continues, both companies should also please shareholders with their own quarterly results.

But investors shouldn’t necessarily be surprised by how Q3 earnings have looked thus far. Banks – companies that weren’t hit by surging supplier costs, a clogged supply chain, or stagnating demand – stole the show last week after revealing “blowout” quarters, thanks to impressive trading revenues.

Major US manufacturers have yet to report earnings. When they do, sentiment could slip in response if investors don’t like what they hear.

“The financials got earnings season off to another strong start, but let’s be honest, Covid and supply chain issues aren’t going to impact this group,” noted LPL Financial chief market strategist Ryan Detrick.

“Now it gets very interesting to see what other industries will have to say about the health of the economic recovery.”

In other words, the sectors that were supposed to prosper (and have already reported earnings) in Q3 did just that. Now, it’s a question of whether the rest of the market followed suit.

"We're dealing with supply chain challenges because of the unique situation that we're in right now, where we've unleashed a lot of demand before businesses were really ready for it. That may persist for some time, drive volatility, raise some concerns," explained Brian Levitt, Invesco global market strategist of North America.

"But ultimately I think the supply-demand imbalances will moderate, enabling this cycle to move on further. What you want to hear from businesses are those that continue to believe that demand is going to be strong, and continue to believe that they have some ability to work through the supply challenges and pass on some of those costs to consumers.

Levitt continued, adding:

"It's not a rising tide that lifts all boats type of environment. It’s an economy that’s likely to slow some in here, and pricing pressures are going to be with us a bit [...] Those businesses that can pass on these costs are going to be the winners."

It’s something we’ve discussed before – the fact that some companies will be able to pass rising input costs on to consumers while others will simply try to “eat” them instead, wounding shareholders in the process.





With rates and inflation both expected to rise from here, the companies in the top right quadrant should outperform in that regard. That includes banks (which have already done very well), energy, and transportation. Opposite those sectors are real estate, utilities, and household products.

So, once more companies from the bottom left quadrant start to report, expect sentiment to sour. Most major real estate investment trusts (REITs) will report next week at the earliest. Procter & Gamble (NYSE: PG), a household and personal products corporation, reported this morning, offering shareholders disappointing forward guidance. PG shares slumped in response.

If more companies follow PG's lead, the conversation surrounding the ongoing post-Covid recovery could change dramatically. But, as usual, until it starts to show up on the charts, there’s no reason to bail on long positions just yet.


----------



## DaveTrade

Some food for thought;

https://thesteadytrader.com/outlook...ould-already-be-underway-video-market-update/


----------



## DaveTrade

Update on TSM;






The market has reached a minor top in the middle of the gap but still has good upside momentum so I'll be staying long for now.


----------



## DaveTrade

DaveTrade said:


> Some food for thought;
> 
> https://thesteadytrader.com/outlook...ould-already-be-underway-video-market-update/




Still hungry, have a bit more;





__





						This ETF could be ripe for the much anticipated breakout – The Steady Trader
					






					thesteadytrader.com


----------



## DaveTrade

*Are Stocks Headed for New Highs Again?*






	

		
			
		

		
	
Stocks opened lower today, taking a break from their recent (and rapid) ascent. The Dow, S&P, and Nasdaq Composite all fell slightly.

And though that might seem disappointing, it’s the kind of thing that usually happens after the S&P rises 4% in just 5 trading sessions. What’s more, it won't be the end of the rally if stocks finish down this afternoon.

The market can’t go up unabated forever, after all. Eventually, there will be (usually small) pullbacks even in a runaway short-term rally like we just experienced.

Is today’s turbulence the first sign of trouble? It certainly could be, especially after the Dow notched a new record high in the trading session prior. But it also may be a small "hiccup" en route to even higher highs.

“The Dow traded to a new all-time high today, again showing the resilience of dip buyers and the importance of cyclical companies in the stock market rally,” said Independent Advisor Alliance’s Chris Zaccarelli yesterday.

Better-than-expected earnings have pitched stocks higher over the last week and a half. Of the 70 S&P 500 companies that reported earnings thus far, 86% beat analyst estimates. Tesla (NASDAQ: TSLA) joined that group last evening when it beat on both earnings per share ($1.86 reported vs. $1.59 expected) and revenue ($13.76 billion reported vs. $13.63 billion expected). The company saw its sales grow last quarter, too, which most other automakers couldn’t achieve amid semiconductor and supply chain constraints.

But in spite of the strong quarterly results, many investors remain concerned about inflation. The recent Consumer Price Index (CPI) and Producer Price Index (PPI) readings showed “stickier” price increases than most analysts had hoped for this late into the year. Margins for manufacturers slimmed as well, which should eventually show up in earnings for certain types of companies.

Deutsche Bank’s head of thematic research, Jim Reid, noted that margins still seem unchanged for the companies that have already reported.

“There are no signs of widespread erosions of margins at the moment,” Reid said.

“Perhaps there is so much money sloshing about that for now prices are broadly being passed on.”

That’s going to change when the Fed finally starts to taper its asset purchases. Wall Street believes the taper will actually begin sometime in November.

And if it does, that may signal the beginning of the end for the bull market. That’s not to say stocks will immediately streak lower when the taper is announced.

They probably won’t.

But in starting the taper, the Fed will get the ball rolling on a shift in monetary policy that culminates in 2022 with a series of rate hikes – the bigger hazard that some traders (of both the institutional and retail variety) already have their eyes on.

"Both the fiscal stimulus and monetary stimulus has been driving markets really since the ricochet off the bottom of COVID," said Michael Vogelzang, chief investment officer for Captrust.

"What we're looking at now is, the easy work is done. The Fed is beginning to taper shortly, we expect. And in order to progress here [...] we're going to have to see stronger earnings growth, and continued strong earnings growth."

When rates rise and bond purchases fall, far less money will be “sloshing around” to boost prices. Which, over the last 17 months, has helped fuel the market’s epic post-Covid run-up right alongside consistently better-than-expected earnings seasons.


----------



## DaveTrade

*Trump's Newest Project Just "Broke the Market"*






	

		
			
		

		
	
Stocks opened flat this morning as social media companies dragged the Nasdaq Composite lower. Intel (NASDAQ: INTC) didn’t help matters much either after reporting a major earnings “miss.” Intel leadership cited the ongoing chip shortage as Q3’s most significant hurdle, which the semiconductor manufacturer blamed for its worse-than-expected revenues. INTC shares sunk more than 10% in response.

Overall, though, tech companies have had a great earnings seasons along with the rest of the market. 84% of S&P companies have beaten their respective EPS (earnings per share) estimates thus far.

That’s why the S&P was able to touch a new all-time high earlier today as investors digested the latest batch of upside quarterly surprises.

“In a quarter where we thought things would slow down and there was concern about what profit margins were going to look like, these companies are still doing well,” explained Crossmark Global Investments’ Victoria Fernandez.

Better-than-expected weekly jobless claims tilted sentiment positive, too. First-time unemployment filings clocked-in at 290,000 last week, hitting a new pandemic low. Economists predicted 300,000 jobless claims by comparison.

"Beyond weekly fluctuations, filings are likely to trend down over coming weeks, gradually moving closer to the pre-pandemic level," said Rubeela Farooqi, chief U.S. economist with High Frequency Economics.

"Businesses are reporting severe labor shortages and are likely unwilling to reduce their workforce."

But the biggest story of the day had to do with former president Donald Trump’s newest project – a social media platform designed to protect conservative voices online. Trump is using a special purpose acquisition company (SPAC) to take the platform, called TRUTH Social, public. The name of the SPAC is Digital World Acquisition Corp. and trades under the symbol DWAC.

This morning, trading on DWAC was halted after the SPAC surged for a massive 190% gain. It also jumped over 350% higher on Thursday, closing at $35.54.

SPACs, which became a new fad within the last few years, raise money via public markets with the intent of merging with a private company in order to take that private company public within two years.

When SPACs open for trading, investors typically have no clue as to what the company will eventually become. In DWAC’s case, however, traders quickly learned what the SPAC was being used for. Speculators flocked to it, causing a massive run-up in price.

“This was a history-making deal,” said Accelerate Funds CEO Julian Klymochko.

“I believe it may reinvigorate the SPAC market and bring back retail interest in a big way,” Klymochko added.

"It showcases the tremendous risk-reward dynamic of pre-deal SPACs. Very limited downside with tremendous upside. Perhaps the best risk-reward profile of any security out there.”

After bursting onto the scene, interest in SPACs cooled dramatically following several high-profile misfires. Now, though, “SPAC-mania” may be returning thanks to DWAC’s incredible two-day rally – something that could send other, less notable SPACs into the stratosphere in the coming weeks.

Even if they're completely unrelated to Trump's TRUTH Social.


----------



## DaveTrade

DaveTrade said:


> Update on TSM;
> 
> View attachment 131711
> 
> 
> The market has reached a minor top in the middle of the gap but still has good upside momentum so I'll be staying long for now.



Follow up on TSM;

At the time of my previous post (above) I had good momentum, I thought it would be enough to push through the minor-top-in-the-gap resistance zone but I lost momentum so I'm out. The market always knows best. I still think that Semiconductors will be a good market long term but right now it's having a rest and my trade plan on this trade was short term.


----------



## DaveTrade

One of the major topics of concern for the US markets is Interest Rates. The talk around this topic is that interest rates have already been rising and everyone wants to know if and when they will really start to move higher. In this post I’m going to attempt to shed some light on this topic. In order to do this I need to use one of my indicators.

A bit of background; for years I’ve been programming my own indicators, I’ve done this to try and get a simpler, easier to understand visual indication of the markets. I’ve tried to view a market from a couple of different angles as a way of confirming in my mind what I see in the price action. So I’ll be using one of these home grown indicators in this post.

The US 10 Year Bond Yield is a representation of interest rates, below is a nine-day chart showing a low in momentum on the 13/5/20 (lower indicator). The shorter term indicator at the top sometimes gives a heads-up to what the longer term momentum will do next, as can be seen with the divergence in this shorter term indicator just prior to the 13/5/20. In the price action a cup-and-handle pattern can clearly be seen, this is known to be a very bullish pattern, so when price breaks out above the handle a quick run can be expected.





Below is a Daily chart of just the handle of the cup-and-handle pattern. It shows the low in momentum on the 20/7/21 (lower indicator), and the lower indicator also shows the gain in momentum as price moves up towards the breakout zone at the top of the handle. The top indicator however is showing that momentum has been losing strength since the 29/9/21 and is therefore coming into the top resistance zone (breakout zone) with fading momentum, making me think that this resistance zone is likely to turn the market back down, at least temporarily, giving a bit more time before interest rates take off to the upside.


----------



## DaveTrade

*Is Hyperinflation Coming?*






	

		
			
		

		
	
Stocks traded slightly higher this morning as earnings season continued. Up next are tech earnings, which many analysts expect could reveal blowout quarters following Netflix’s impressive Q3 “beat.”

“Rising tide of earnings is lifting all the boats and adding fuel to the bull market fire,” said Commonwealth Financial Network’s Anu Gaggar.

“The [Q3] earnings season is off to a strong start despite concerns about supply bottlenecks and labor shortages.”

Facebook (NASDAQ: FB), Google-parent Alphabet (NASDAQ: GOOG), Microsoft (NASDAQ: MSFT), Amazon (NASDAQ: AMZN), and Apple (NASDAQ: AAPL) will release earnings this week alongside a large chunk of Dow companies.

In short, it’s “showtime.” And the market could absolutely erupt in response if earnings skew positive once more. Thus far, 84% of the S&P companies that have reported managed to exceed their EPS (earnings per share) estimates. That bodes well for this week’s batch of earnings as the S&P lingers near its all-time highs.

But the bigger story this morning was the market’s reaction to Sunday’s debate between Treasury Secretary Janet Yellen and Twitter (NASDAQ: TWTR) CEO Jack Dorsey.

“Hyperinflation is going to change everything. It’s happening,” Dorsey tweeted.

“It will happen in the US soon, and so the world.”

To which Yellen responded:

“I don’t think we’re about to lose control of inflation. On a 12-month basis, the inflation rate will remain high into next year because of what’s already happened. But I expect improvement by the middle to end of next year […] second half of next year.”

Yellen continued, explaining that supply chain issues and the ongoing labor shortage in the US will eventually end.

“As we make further progress on the pandemic, I expect these bottlenecks to subside. Americans will return to the labor force as conditions improve,” she said.

Major cargo carriers don’t see these issues resolving any time soon, though, and a group representing several air freight companies recently issued a warning that Biden’s December 8th vaccine mandate deadline could trigger utter supply chain chaos.

September’s Consumer Price Index (CPI) reading showed that consumer price inflation is near a 30-year high, too. The Producer Price Index (PPI), meanwhile, showed that producer prices are rising faster than ever before on an annual basis.

Yellen thinks inflation will slow.

But Graeme Pitkethly, Unilever’s CFO, recently said that “we expect inflation could be higher next year than this year.” To be fair, Yellen claimed that inflation should improve in the second half of next year, which lines up with Pitkethly's prediction.

That means, however, it may even get worse until then.

Procter & Gamble (NYSE: PG) has already started to increase prices on some of its products.

“We announced price increases to retailers in the US on oral care, skin care, and grooming,” said CFO Andre Schulten in a conference call. “It’s item by item.”

It seems most analysts and industry leaders agree that high inflation will be sticking around until at least Q3 2022. Even Yellen admitted it.

In response, traders may want to load up on inflation hedges like precious metals, precious metal-related stocks, and, according to billionaire investor Paul Tudor Jones:

Bitcoin.

“Clearly, there’s a place for crypto. Clearly, it’s winning the race against gold at the moment,” he said last Wednesday. Jones also said that he owns some Bitcoin and sees it as a good inflation hedge.

With Bitcoin trading near its all-time high, that may be a bit of a tough sell for anyone who doesn’t already own some. But given the current economic conditions, the stage is set for Bitcoin to make another, larger run.

Especially now that tech CEOs aren’t just predicting higher inflation, but hyperinflation for the near future.


----------



## DaveTrade

*Some Stocks Could Be "Un-Buyable" Next Quarter*






	

		
			
		

		
	
More earnings rolled in this morning as stocks continued their climb to new heights. Facebook (NASDAQ: FB) added to Big Tech’s win-streak by beating its EPS (earnings per share) estimate ($3.22 reported vs. $3.19 expected). FB shares jumped higher at the open in response.

“Earnings season is off to another great start, but now the big test is will the Big Tech names step up?” asked Ryan Detrick, chief financial strategist at LPL Financial.

“With stocks at all-time highs, the bar is indeed quite high and tech will need to impress to help justify stocks at current levels.”

Most other companies that reported today – Hasbro (NASDAQ: HAS), 3M (NYSE: MMM), United Parcel Service (NYSE: UPS), and General Electric (NYSE: GE) – surpassed EPS expectations, too. And although MMM beat its EPS estimate, the stock sunk this morning. So too did Corning (NYSE: GLW), the glass and specialty materials maker, after falling short of expectations.

Polaris (NYSE: PII) shares also tumbled following a disappointing earnings release. The company met its EPS expectations but slashed its full-year outlook due to lingering supply chain issues.

And while it’s true that most S&P companies are still beating their EPS estimates, a clear trend has developed over the last quarter:

Manufacturers were unable to overcome supply chain problems and slimmed margins. What’s more, those struggles should continue into Q4 and beyond.

“Even though this has been a good earnings season in aggregate we are starting to see more companies with supply backlogs, hiring difficulties, and rising input prices that are eating into profits,” wrote Deutsche Bank analysts.

But so long as the majority of the S&P continues to impress, the market could easily rise further as it heads into November following an already strong month.

"The S&P 500 Index has gained more than 20% so far this year, making more than 50 record highs along the way. Certainly nobody should be upset with that return if that was all 2021 brought us," Detrick said.

"However, we see signs that there could be more gains to come in the final two months of the year. Seasonal tailwinds, improving market internals, and clear signs of a peak in the Delta variant all provide potential fuel for equities heading into year-end, and we maintain our overweight equities recommendation as a result."

That’s right, bulls. You have the “green light” to keep buying.

And it makes sense, honestly. The Fed’s taper hasn’t started yet and most S&P companies are still reporting robust earnings. Once the taper starts and earnings get whacked by the economy’s major hurdles, that’s going to change.

But those are December/early 2022 problems. For now, the going is good, so the bulls will remain in control.

Even though everyone knows the "good times" will eventually end, likely around the same moment the first rate hike hits and after the Fed’s taper has already throttled liquidity by a significant amount.


----------



## DaveTrade

*Are Stocks Going to Rally Again?*






	

		
			
		

		
	
Stocks traded higher this morning after President Biden announced that he struck a deal with Senate Democrats who had initially opposed his new bill. Worth $1.75 trillion, the bill was created to bolster “social spending” and to target climate change.

But its biggest changes have nothing to do with either of those two things. Biden wants to raise the minimum corporate tax rate, limit business losses, tighten international corporate tax rules, and expand the 3.8% investment tax.

In other words:

The bill is really taking aim at taxing big businesses, possibly to fund the White House’s aggressive spending plans.

Biden went over the general concepts of the bill in a press conference today but didn’t provide as much detail as analysts had hoped.

“I know we have a historic economic framework,” he said.

“I’ll have more to say after I return from the critical meetings in Europe this week.”

In order to reach an agreement with Democrat holdout Sen. Joe Manchin, a federal paid family and medical leave system was removed from the bill. However, negotiations aren’t over just yet. The bill could still change dramatically in the meantime before it’s finalized.

And if Congressional progressives get their way, it may increase in size. Others aren’t necessarily happy with its current structure, either.

“It needs to be improved,” remarked Bernie Sanders.

“What we have to do now is, first of all, make sure that the before the [infrastructure bill] vote takes place in the House, to make sure that there is a very explicit legislative language” he continued.

Manchin wasn’t pleased with the bill's framework, either.

“It’s hands of the House,” he said.

“I’ve been dealing in good faith. I will continue to deal in good faith.”

Regardless, it may be only a matter of time until the $1.75 trillion in spending arrives now that Manchin and Sen. Kyrsten Sinema are seemingly on board.

That’s good news for bulls, especially after the Commerce Department released its quarterly US growth report this morning. US gross domestic product (GDP) grew at an annualized pace of just 2.0% last quarter, falling well short of the 2.8% consensus estimate due to reduced consumer spending and residential investment.

It was also the slowest quarterly post-pandemic gain for US GDP.

“Overall, this is a big disappointment given that the consensus expectation at the start of the quarter in July was for a 7.0% gain and even our own bearish 3.5% forecast proved to be too optimistic,” wrote Capital Economics chief US economist Paul Ashworth.

“We expect something of a rebound in the final quarter of this year — if only because motor vehicles won’t be such a drag and any negative impact from Delta should be reversed.”

If Covid cases continue to trend lower, consumer spending could potentially increase. But that will only happen if the supply chain issues are fixed relatively soon.

But many analysts, economists, and industry heads believe that supply chain struggles will linger well into next year. And they may even get worse as a vaccine mandate deadline approaches.

So, even though Q3 earnings have looked good, investors need to understand that the post-Covid recovery has slowed dramatically. The market may need to adjust its expectations as a result.

Because, eventually, the major quarterly earnings “beats” will end. And when they do, stocks with sky-high valuations are going to look a little pricy, no matter how much the White House intends to spend via new bills.


----------



## DaveTrade

*Could Kill Bull Market*






	

		
			
		

		
	
Stocks traded slightly lower today after earnings from two Big Tech companies disappointed investors. Apple (NASDAQ: AAPL) and Amazon (NASDAQ: AMZN) both missed their revenue estimates this morning while offering underwhelming guidance for Q4.

Apple said that supply chain problems hurt iPhone, iPad, and Mac sales in Q3. And with the holidays approaching, those issues are unlikely to be resolved any time soon. It was the company’s first revenue miss since May 2017. AAPL shares unsurprisingly fell over 3% in response.

Amazon provided guidance similar to Apple’s, citing supply chain problems as well. The e-commerce giant also missed its earnings estimate, much to the dismay of AMZN shareholders. AMZN dropped as much as 5% on the day before paring back much of its initial losses.

And while that’s certainly not good news for the tech sector, the arguably more important story this morning didn’t have to do with earnings at all. The Commerce Department reported today that the personal consumption expenditures price index – the Fed’s favorite inflation gauge – climbed 0.3% higher in September, raising the year-over-year inflation gain to 4.4%.

That’s a new 30-year high and evidence that inflation has been anything but “transitory.” Still, Treasury Secretary Janet Yellen believes inflation will recede next year.

“Year-over-year inflation remains high and will for some time simply because of what’s already happened in the first months of the year,” Yellen said in a CNBC interview this morning.

“But monthly rates I believe will come down in the second half of the year. I think we’ll see a return to levels close to 2%.”

It’s more or less what Yellen already said on Monday after Twitter (NASDAQ: TWTR) CEO Jack Dorsey predicted an impending period of hyperinflation.

“Hyperinflation is going to change everything. It’s happening,” Dorsey tweeted.

“It will happen in the US soon, and so the world.”

To which Yellen responded:

“I don’t think we’re about to lose control of inflation. On a 12-month basis, the inflation rate will remain high into next year because of what’s already happened. But I expect improvement by the middle to end of next year […] second half of next year.”

Technically, anything can be considered transitory on a long enough timeline. Is the US economy going to be able to handle heightened inflation for another year?

What’s also left out of this conversation is that the past price hikes don’t simply go away when inflation falls. The price gains of the last year and a half are likely permanent.

Wage growth, meanwhile, continued to lag inflation in September. The Commerce Department reported that income fell 1% month-over-month (MoM), greatly surpassing the -0.3% MoM estimate.

In short, the Fed’s already difficult situation has only grown more complex. Fed Chairman Jerome Powell undoubtedly needs to raise rates, and when he does, there could be hell to pay.

The Bank of Canada said Wednesday that it would hike rates sooner than expected due to persistent inflation worries. It also ended quantitative easing (QE) by ceasing new asset purchases.

Of course, the Bank of Canada is far less important than the Federal Reserve, which controls the dollar, a reserve currency.

That does not, however, make the Bank of Canada’s decision to kill QE any less correct. Yes, the Bank of Canada certainly should have done it sooner.

But at the end of the day, they’ll have beat the Fed to the punch by several months (if not years), all while the Fed struggles to keep the “everything bubble” from violently bursting in response to what’s looking like a major policy error.


----------



## DaveTrade

*Will Inflation Keep Rising?*






	

		
			
		

		
	
Stocks traded flat this morning after the market enjoyed one of its best months on record. The October rally took the S&P over 7% higher as of Friday's close. It was the largest monthly gain for the index since November of last year.

And now, toward the end of a mostly better-than-expected earnings season, bulls are looking for new reasons to keep buying.

Wall Street’s biggest bull, without a shadow of a doubt, has been Fundstrat’s Tom Lee, the same man responsible for correctly predicting Bitcoin’s 2017 peak of almost $20,000.

Lee’s been wrong about other predictions since then. But he was right when he called new highs for the market in anticipation of a strong earnings season several weeks ago.

Lee sees even stronger revenues coming down the pipe next year thanks to recent shifts in health trends.

“In our view, the key story arc driving equities is the strengthening global recovery,” Lee wrote in a note to clients.

“COVID-19 trends are improving, but with vaccinations and boosters, the improvement in healthcare risk could materially accelerate in 2022.”

Inflation, however, could limit the economic outlook significantly if it continues to rise. The Commerce Department reported Friday that the Fed’s favorite inflation measure – the personal consumption expenditures price index – hit a 30-year high in September.

The Federal Reserve will hold a meeting this week that starts Tuesday and ends Wednesday. What Fed Chairman Jerome Powell has to say about inflation in his post-meeting remarks could sway sentiment greatly for the remainder of the year.

“The Fed is part of a global move to remove accommodation, and the market drives right past that,” said Bleakley Advisory Group CIO Peter Boockvar, referencing the Fed’s coming taper of asset purchases.

“In a way, the stock market is playing a game of chicken, with this inflation move and interest rates and the response from central banks.”

Up until now, Powell’s insisted that inflation has been merely “transitory,” or temporary. Treasury Secretary Janet Yellen has said the same thing when given the chance.

But Yellen also mentioned last week that inflation was “more persistent” than expected. Worse yet, she doesn’t think inflation will come down until the second half of 2022.

That doesn’t seem all that transitory, does it? And what if her prediction is wrong? Powell and Yellen both underestimated the rate of inflation once already.

It could easily happen again.

When an overabundance of cash “chases” too few goods, inflation always arises. The Fed will try to reduce the amount of cash in the economy by tapering.

The supply of goods, on the other hand, really needs to start surging soon for inflation to drop. Lingering supply chain problems won’t let that happen, though, and a coming vaccine mandate could make the issue even worse.

Rumors of walk-outs at major airlines could be indicative of another supply chain-related obstacle. Southwest had to cancel many of its flights last month. The company’s CEO claimed a staff “sick-out” wasn’t the cause. American Airlines canceled roughly 2,000 flights over the last weekend, too. Much like Southwest, American’s CEO blamed the cancelations on weather and a "staffing shortage," not unruly pilots.

In reality, though, something more organized among plane crews may be taking place. Other, less-critical industries have experienced similar walk-outs related to vaccine requirements. First-responders in major cities have threatened to unofficially strike as well.

Simply put, the backdrop for a surge in supply over the next few months does not exist. And let’s not forget that the Fed won’t be shutting off its asset purchases entirely when it finally decides to taper. Powell’s likely to only throttle those asset purchases slightly at first.

That means high inflation won't go away any time soon. Maybe not even until 2023 (or later) if experts within the shipping industry are accurate in predicting multi-year logjams at the world’s major ports, no matter how much Powell or Yellen insist that spiking prices are just a temporary hurdle prior to the next great economic boom.


----------



## DaveTrade

*Support/Resistance levels on 10yr Bond Yield*


----------



## DaveTrade

*The Vaccine Mandate Is a "Ticking Time Bomb" for Stocks*





The market opened significantly higher this morning before giving up most of its early gains. Yesterday, the Fed officially announced an asset purchase taper while intentionally avoiding any discussion on rates.

As a result, it seems the Fed will join other central banks in holding rates lower for the short term. The Bank of England said this morning that it too would keep rates unchanged.

In response, stocks rallied.

“The Fed’s tapering announcement removes a minor, but overhanging worry across markets, as investors had been waiting for this moment for months, and it reinforces the view that the economic recovery has a long runway, albeit with a low rate of growth,” explained Sanders Morris Harris chairman George Ball.

“The Fed’s tapering announcement is a signal of economic strength, which is good for corporate earnings and markets.”

What won’t be good, however, is if inflation continues to surge. The Fed’s favorite inflation gauge, the personal consumption expenditures price index, hit a 30-year high in September. Both Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen admitted that inflation is running hotter than expected.

Yellen even went so far as to say that she doesn’t think inflation will subside until the second half of next year.

The US economy is also dealing with major supply chain issues, which experts within the shipping and trucking industries believe will persist until 2023.

What’s more, the supply chain gridlock could get worse with a vaccine mandate deadline looming on January 4th.

That’s right, OSHA finally released the details of President Biden’s vaccine mandate this morning. Companies with over 100 employees have until the new year to get their workers vaccinated or face hefty fines. Individual violations will cost businesses $13,653. Willful, company-wide noncompliance carries a fine of $136,532.

That poses a serious problem that would have been bad enough if the US was only dealing with supply chain backups. But a labor shortage has taken hold as well.

Investors already witnessed a number of walkouts from workers within key industries, primarily in rural areas. Major airlines famously canceled flights due to large-scale “sick-outs” from employees, which the mainstream media refused to acknowledge.

Strikes of this nature will only snowball as employers pressure workers to get vaccinated. The White House claims that the Covid vaccine is highly popular everywhere, but that’s simply not the case outside of major urban areas. In the past, rural communities relied on large cities to survive.

That relationship has completely flipped over the last 50 years. Rural-based workers and industries are now critical components of the US economy.

And though the coming vaccine mandate is only targeting large companies with its January 4th deadline, OSHA will consider expanding its net to include smaller businesses, too. Many of which are, again, located in vaccine-averse areas.

What's going to happen when a significant chunk of the population decides to not show up for work?

So, despite the Fed’s continued dovish policy, the US economy is still on the path to a major slowdown. Sky-high inflation and a more dysfunctional supply chain await investors in 2022.

No matter how many times Powell, Yellen, and others insist that everything is going just as planned in the rapidly decelerating, post-Covid economic recovery.


----------



## DaveTrade

*Look out for a "November Crash"*





Stocks fell this morning opposite Bitcoin, which touched a new all-time high above $68,000. Volatility’s up, too, as investors weigh whether to “buy the dip.”

It’s not a big dip, relatively speaking. At least, not yet.

But the market has been very streaky over the last two months. September saw the S&P plummet roughly 6% from its all-time high in a matter of weeks. Then, in October, the S&P logged one of its best months ever. When stocks hit a rough patch, they spike lower. When a rally follows, they rise just as quickly.

In fact, the index hasn’t closed lower on the day in nine trading sessions. There’s no doubt that bulls were in control last month. But today, momentum has shifted significantly toward bears for the first time in a long while.

And it may only get worse following the latest inflation data, released this morning.

The Producer Price Index (PPI) jumped 0.6% higher month-over-month (MoM) in October, matching the consensus estimate. Year-over-year (YoY), the PPI was up 8.6% to an 11-year high while also falling in line with analyst expectations.

“Bottom line, while today’s data was as expected, the numbers are certainly eye-opening in terms of the pace of gains,” explained Bleakley Advisory Group CIO Peter Boockvar.

The Labor Department’s report showed that energy and transportation costs surged last month, rising 4.8% and 1.7% MoM, respectively. It’s a trend that continues to pump headline PPI higher and one that has lasted far longer than the Fed expected.

"The acceleration in US inflation may not fade as quickly as previously thought, particularly for businesses because of the global supply-chain issues," said Moody’s Analytics senior economist Ryan Sweet.

"Elevated inflation is turning up the heat on the Federal Reserve but they haven't shown signs of buckling as they will stomach higher inflation to get the labor market back to full employment quickly."

Will “full employment” ever be reached, though? The Fed’s goal was to hit 3.5% unemployment, which is what the US was at immediately before the pandemic started. In October, unemployment fell to 4.6% as the labor recovery slowed.

It could be years before 3.5% unemployment is achieved, if ever. And if the economy does reach “full employment,” that probably means inflation will have climbed even higher.

To bring inflation lower, the Fed will need to raise rates substantially. Or, the US economy will have to slow down.

Either solution would whack stocks for major losses.

The third alternative is to let inflation run rampant, decimating America’s purchasing power while those invested in the market watch their portfolios rise. But the gains won’t be real. The indexes will simply attempt to match the rate of inflation.

And that won’t be good for anyone. Not even the 1%.

The October Consumer Price Index (CPI) comes out tomorrow morning and over the last few months, the gap between the CPI and PPI has widened in historic fashion.

At some point, that gap needs to close. The result will be either slimmed margins for producers or massive price increases for consumers.

Bottom line: things don’t look good, regardless of which side of the transaction you're on. Today’s stock market losses may indicate that investors are starting to realize that, especially as far greener pastures await them in the land of digital currencies, where Bitcoin and Ethereum continue to make new record highs.


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## DaveTrade

*October Inflation Shocks Biden, Investors*





Stocks down. Inflation, gold, and Bitcoin up.

The October Consumer Price Index (CPI) was released this morning, and in the Labor Department’s report, investors learned that consumer prices rose faster than expected last month. Headline CPI jumped +0.9% month-over-month (MoM), bringing the yearly inflation surge to +6.2% vs. 5.9% expected. That’s the highest measured year-over-year (YoY) headline CPI increase since 1982.

Core CPI (which excludes energy and food prices) also advanced last month, rising to +4.6% YoY, hitting a 20-year high.

“Wednesday’s Consumer Price Index showed another month of inflation data well above the Federal Reserve’s inflation target, primarily due to continued supply chain issues and labor shortages. If inflation doesn’t subside, the Federal Reserve may need to taper at a more substantial rate and hike interest rates, which could hurt stocks and bonds,” remarked Nancy Davis, founder of Quadratic Capital Management.

The most concerning portion of October’s inflation print, however, was how inflation grew in non-reopening-sensitive categories.




​This happened while reopening-sensitive components saw far less inflation than earlier in the year. That likely means “stickier” inflation has arrived as the US transitions to a post-pandemic economy.

“Inflation is clearly getting worse before it gets better, while the significant rise in shelter prices is adding to concerning evidence of a broadening in inflation pressures,” explained Principal Global Investors chief strategist Seema Shah.

Food, vehicle, shelter, and energy were the largest contributing categories to October’s headline CPI “beat” (or “miss,” depending on how you look at it). Alcohol and airline fares, meanwhile, supposedly fell in price – something that’s probably going to be revised higher in the future.

In response to the CPI spike, the Fed’s likely to stick to its guns and insist that inflation remains “transitory.” President Biden, on the other hand, has grown tired of watching inflation (and energy prices, in particular) tick higher every month.

“On inflation, today’s report shows an increase over last month. Inflation hurts [Americans'] pocketbooks, and reversing this trend is a top priority for me. The largest share of the increase in prices in this report is due to rising energy costs—and in the few days since the data for this report were collected, the price of natural gas has fallen,” Biden said via a statement on whitehouse.gov.

“I have directed my National Economic Council to pursue means to try to further reduce these costs, and have asked the Federal Trade Commission to strike back at any market manipulation or price gouging in this sector.”

Unsurprisingly, energy stocks fell shortly thereafter. But Bitcoin and gold did not. And neither did the dollar.

Instead, all three climbed higher as an interesting cocktail of hyperinflation and hawkish monetary policy fears tilted sentiment.

It’s been a long time since gold and the dollar both rose in tandem. Now, though, following October’s CPI print, that’s going to change.

And investors need to come up with a trading plan to address that. Buying precious metals may no longer simply be a defensive play. Loading up on Bitcoin, a more speculative asset, might also make sense.

The American regime has completely lost control of inflation this year, and assets that can harness this trend could outperform as a result.

Even with a series of rate hikes likely coming sooner than expected.


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## DaveTrade

*Why the Next Crash Will Be "Worse than Covid"*





Stocks traded slightly higher this morning, rebounding after yesterday’s plunge. The Nasdaq Composite was up opposite the Dow, which fell at the open.

All in all, it was a good morning session for tech. But inflation – not the intraday tech rally – continued to dominate the market’s narrative following yesterday’s hotter-than-expected October Consumer Price Index (CPI) print.

“Inflation remains stubbornly high, to the surprise of many that expected prices to come back to earth sooner,” explained LPL Financial chief market strategist Ryan Detrick.

“The truth is you can’t shut down a $20 trillion economy and not feel some bumps as it restarts, but we are hopeful the supply chain issues will resolve over the coming quarters and inflation should calm down as well.”

Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen were hopeful for the same thing six months ago.

But high inflation and supply chain issues have persisted. Yellen now thinks that both could remain until the second half of next year.

This prediction was made before the most recent CPI data, however. Yellen’s timeline may have changed dramatically in light of the October inflation surge.

"This is certainly telling us, I think, that price pressures are more persistent. They are broader. They are not just narrowly focused on those categories, whether it's autos and the supply-constrained items. And it's going to last longer than expected," said Matthew Luzzetti, Deutsche Bank’s chief U.S. economist.

He continued, adding:

"We do think that the Fed is going to have to raise rates next year. They've signaled that they're going to taper through the middle of the year, and that's our baseline at this point. But if you continue to see price pressures like this over the coming months and more persistent, it may cause them to have to act earlier than expected."

The Fed’s taper has already begun to the tune of $15 billion per month, reducing the central bank’s $120 billion in monthly asset purchases. And while that’s certainly a whole lot of money, it’s not necessarily all that hawkish, either.

A rate hike, on the other hand, would be a different story.

Don’t forget that when the going was good back in late 2018, Powell tried to raise rates.






In response, the market sunk over 20% from peak to trough. By comparison, the Covid pandemic spurred on a 35% correction.

At the time, economists were concerned about signs of “economic softening” and argued that it would be unwise to raise the federal funds rate above 2.00%.

The truth of the matter, though, is that there was never going to be an ideal moment to get hawkish after almost a decade of uber-dovishness and quantitative easing (QE). When rates went up, stocks were going to fall regardless.

But Powell deserves a ton of credit for attempting to induce quantitative tightening (QT), the polar opposite of QE, with the economy in good shape relative to where it was from 2008-2016.

QE has often been compared to a roach motel. It’s been theorized that once your economy “checks in,” it can’t “check out.” Powell more or less proved that hypothesis to be true with his 2018 rate hikes. By July 2019, the Fed began to reduce rates once more, culminating with a targeted federal funds rate of 0.00%-0.25% on March 15, 2020, in response to the Covid pandemic.

To summarize:

The last time the Fed raised rates significantly, the economy was doing far better than it is currently. Inflation was not of any major concern. Supply chains were running smoothly, and shipping containers weren’t piling up outside the world’s major ports.

And yet the market fell by 20% in response to Powell’s September 2018 rate hike.

What’s going to happen when rates go up next time, and while the economy is caught in stagflationary limbo?

Bulls had better figure that out soon. Because before too long, Powell could increase rates again.

Resulting in a potentially even worse correction than the one sparked by Covid.


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## DaveTrade

*Stocks are at a "Make or Break" Moment*





Stocks traded higher this morning after closing flat in the session prior. The Dow, Nasdaq Composite, and S&P all enjoyed moderate gains shortly before noon.

The question now is whether this is the start of a bullish continuation, or simply a “dead cat bounce.”






The S&P, as represented by the SPY, is at a crossroads. The index closed outside of its bullish October trend lows (yellow trendline) two days ago. Then, today, it jumped above its minor bearish trend highs (purple trendline).

If the SPY falls below the low of Wednesday’s bearish breakout, a correction would likely be confirmed. Alternatively, a rise above today’s high (currently $467.22) would confirm that a rally could soon follow thereafter.

Keep in mind also that November’s options expiration (OpEx) date is approaching on the 19th. In June, July, August, and September, the market plunged shortly before each month's respective expiration dates.

October was the exception.

And with single options trading activity at an all-time high, next Friday’s OpEx could be yet another explosive one.

Especially considering how quickly the market climbed in October.

"We've got a market that is just incredible. No matter what it's going up, and that shouldn't be much a surprise given how much money has been pushed into the system," explained Lenore Hawkins, Tematica Research chief macro strategist, referencing last month’s major run-up.

"There's just a lot of money chasing not a whole lot of alternatives."

Meanwhile, the University of Michigan’s latest Consumer Sentiment Index print (released this morning) showed that sentiment tumbled to a 10-year low.

“Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation,” said the survey’s chief economist, Richard Curtin.

“Rising prices for homes, vehicles, and durables were reported more frequently than any other time in more than half a century.”

It’s clear that inflation has taken its toll on consumers. But even worse than the Consumer Sentiment Index was the Labor Department’s September quits report, which was also released today. 4.43 million Americans quit their jobs two months ago, bringing the quits rate (vs. the total labor force) to 3%. It was the most monthly quits ever measured by the Labor Department.

The data shouldn’t have come as much of a surprise given September’s poor jobs report. But still, it’s an inauspicious sign for bulls as the market lingers near its record high.

As a result, more volatility is likely on its way. It’s something that should ultimately frustrate traders looking for signals to get long, short, or just get the heck out of Dodge before they’re whacked by another “flash crash.”

On the other hand, the market has been able to handle periods of high volatility in the past. Stocks eventually made new highs quickly after volatility slowed on each occasion.

They’ll probably do the same thing when the next volatility wave hits equities.

But it won’t be comfortable when one inevitably comes. Least of all for bulls, who continue to buy near the top.


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## DaveTrade

*This "Hidden Divergence" Just Gave a Crash Warning*





Stocks down, rates up. As has been the case in each recent pullback, rising rates sent equities lower this morning.

Yields even hit new monthly highs as the market priced in a 19% chance of a Fed rate-hike by March of next year. But instead of a tech wreck, value shares led stocks lower today. The opposite usually occurs in response to rising yields as most tech stocks are growth-focused (i.e., debt-dependent), which makes them more rate-sensitive. This morning’s slump saw those roles reversed.

It’s certainly disappointing for bulls following yesterday’s release of far better-than-expected October retail sales data, which revealed robust consumer spending last month. Sentiment was prodded further upward by strong earnings from brick-and-mortar retailers like Walmart (NYSE: WMT) and Target (NYSE: TGT), both of which beat their EPS estimates.

However, both companies also saw their stock valuations crater shortly after reporting. The reason being that their margins slimmed significantly in Q3 due to operating costs rising faster than consumer prices.

“The consumer is spending and engaging in this economy at a level that is beating expectations,” noted GLOBALT portfolio manager Keith Buchanan.

“What’s hammered the market though is that for Target and Walmart, the two biggest retailers in the country from a brick-and-mortar standpoint, the costs of running those businesses are outpacing the strong consumer, so they’re missing on margins.”

We mentioned that after Q2 earnings were released earlier this year, margins would eventually narrow for certain types of major corporations. This was alluded to by the gap that initially formed between the Producer Price Index (PPI) and Consumer Price Index (CPI) back in Q1. We estimated that companies would either have to eventually raise prices for consumers or simply “eat” the increased costs, thus reducing their margins.

It seems now that the latter has begun and the CPI/PPI gap has only widened over the last quarter as well.

This is the kind of thing that should be spiking the market lower, but over the last few days, stocks are only down modestly.

Divergence between sentiment and assumed future performance has materialized in the broader market, too. Bank of America’s most recent Fund Managers Survey found that global growth expectations are still extremely low compared to the number of fund managers overweight equities.






November did see a slight increase in the net percentage of fund managers expecting a stronger global economy, but the percentage of fund managers overweight equities also went up. Bank of America has never measured a gap this large in the history of its Fund Managers Survey.

And much like the CPI/PPI gap, this one too must close at some point, either through a massive surge in the percentage of fund managers expecting a stronger global economy…

…Or a major crash in the percentage of fund managers overweight equities. Considering the number of problems facing the US (the world’s top economy), it’s unlikely that the former will improve so dramatically as to narrow the gap in a meaningful way. A reduction in the number of fund managers overweight equities is far more probable.

Does this mean it’s time for traders to exit the market completely? No, not yet. But it is absolute confirmation of the imbalances that form when stocks are pumped-up on unprecedented quantitative easing (QE) and historically low rates.

As a result, the market remains at a critical crossroads. If the S&P can breach new ground this week, investors may be treated to another major rally. A failure to do so could just as easily precede another rapid slump, followed by a potential bullish continuation as Wall Street seeks to go even more overweight equities opposite stagnant growth expectations.


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## DaveTrade

*Is Covid Coming Back This Winter?*






It was a big day for earnings but a lackluster morning session for bulls. Stocks fell slightly at the open today despite blowout earnings from some of the market’s top companies. Tech-stalwart Nvidia (NASDAQ: NVDA) reported far better-than-expected quarterly results alongside Macy’s (NYSE: M) and Kohl’s (NYSE: KSS). Forward guidance from the latter two indicated to some analysts that department stores may finally be making a longer-term comeback following years of disappointing performance.

Others, however, were quick to note that the recent surge in consumer spending may not last through Q4 now that the “stimmy checks” have been spent and unemployment relief has ended.

“Macy’s is bouncing back from a terrible 2020 and is, like many other retailers, taking advantage of very elevated levels of spending in the consumer economy,” said Neil Saunders, managing director of GlobalData, in a note.

“None of this takes away from the positive numbers, but it places an important context around the reasons for recent success.”

What’s more, lingering supply chain issues could limit revenue growth for retailers and department stores as the critical holiday season approaches.

Regardless, M and KSS shares rocketed higher this morning. So too did NVDA.

But the general market refused to budge due to continued bond volatility. Yesterday, yields initially spiked before tumbling below their recent highs. Economic uncertainty, high inflation, and the aforementioned supply chain problems all remain as persistent headwinds for bulls.

“Recent economic reports remain strong, but today’s stock market action highlights that it is already discounting another Covid cycle,” said Leuthold Group chief investment strategist Jim Paulsen.

“Concerns about Covid also caused the 10-year bond yield to decline for the first time in 6 days and kept downward pressure on commodity prices including another sizable drop in crude oil prices. If inflation keeps rising while another Covid surge again stalls real economic activity, we may find out how the stock market handles a pseudo-stagflationary episode.”

In September, NIAID director Dr. Anthony Fauci warned Americans that a “dark winter” would soon arrive unless the US reached a high vaccination rate. President Biden took it a step further, saying that a “very dark winter” was coming as well.

Yet in Ireland, where over 93% of the country’s eligible population is at least partially vaccinated, the government has reinstated a partial lockdown. A nationwide midnight curfew is going into effect in addition to new work-from-home guidelines. The Irish government fears a full lockdown will be necessary before Christmas.






Meanwhile, in Gibraltar, the most Covid-vaccinated region on earth, Christmas has been canceled – yes, canceled – due to surging Covid cases.

It was believed by many analysts that Covid peaked in the US in September. Now, that prediction seems far less accurate as case totals continue to erupt in different nations with far higher vaccination rates than the US.

Covid infections have already started to rise again stateside. Will bulls continue to buy into the teeth of a “dark winter?”






Today’s bond activity suggests they won’t. It also warns of a coming stagflationary shock to the financial system.

So, even though strong Q3 earnings and October retail sales provided some bullish encouragement, the data may also represent the US economy's “last hurrah” before another wave of Covid infections.

All while inflation continues to rise.


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## DaveTrade

*What a Powell Nomination Means for Stocks*





President Biden’s made his pick. Jerome Powell is to remain Fed chairman for another term.

Bulls breathed a sigh of relief this morning as stocks rallied strongly in response.

“It appears markets are reacting positively to the continuity signal. Continuity will be key during this potentially tricky phase of the recovery where inflation is elevated and sticky, demand growth is strong but cooling and capital and labor supply is gradually rebounding,” explained Oxford Economics chief US economist Greg Daco.

By noon, however, the market gave up most of its initial gains. Tech shares were down while Dow components enjoyed a moderate lift. The S&P traded for a small gain.

It seems investors sobered up after stocks temporarily touched new highs. Last Friday was the November options expiration (OpEx) date.

This year, there have been plenty of post-OpEx rallies that followed pre-OpEx dips. Up until September, it was a fairly reliable trade – sell the week of OpEx, then buy immediately after.

Last month, though, there was no pre-OpEx correction. Stocks simply surged through expiration without looking back. September saw a steep selloff prior to expiration, but no rally emerged to close out the month.

Now, though, the S&P may be returning to its old ways. Stocks closed below the November high last week. Today, the market rallied post-OpEx.

But the enthusiasm quickly wore off as hawkish sentiment came crawling back. With Powell still in charge, at least one rate hike should occur sometime next year. Short-term, Powell retaining his seat provides stability, which the market initially loved. Longer-term bulls, on the other hand, were hoping that Lael “no hikes” Brainard would get the nod instead.

“I think this was largely expected by markets. Certainly, there were some conversations in markets over the last couple of weeks about Brainard potentially being elevated to the Fed chair position. But by and large, the expectation was for consistency,” said Erin Browne, Pimco managing director and portfolio manager.

“You may see a little bit of a rally on the back of this with the expectation that policy is going to remain in place and intact, and everything that’s been articulated already by the Fed is likely to continue into 2022 and beyond.”

Compared to Powell, Brainard is an “uber-dove.” It’s hard to imagine after almost two years of unprecedented quantitative easing (QE) under Powell’s guidance, but a Brainard nomination would have undoubtedly been a moderate-to-long-term bullish impulse.

Inflation expectations would’ve risen, too. But in today’s market, high inflation doesn’t really matter. Not when taken at face value, at least. Investors are likely approaching a scenario where stocks continuously rise (nominally) to keep pace with inflation.

But little-to-no real gains will be made.

We’re not there just yet because stocks are rising so quickly. It’s coming, though, and it could happen fast should demand wane further and true stagflation take hold in 2022. That trend may intensify in the future now that Brainard is clearly next in line for Fed chair.

That means when Powell’s second term is done, Brainard’s in. Probably around the same time the US economy is begging for low rates once more.


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## DaveTrade

*Did the Fed Just Lie About QE?*





Stocks opened slightly lower this morning before tumbling further shortly before noon. Rising rates sparked the midday selling as tech shares endured most of the losses.

Fed Chairman Jerome Powell’s nomination – something that initially sent equities higher yesterday –has clearly had a negative impact on sentiment. Hawkish fears caused a bearish finish to the trading session prior.

Today, investors saw more of the same.

But plenty of analysts still believe that Powell’s nomination will prove to be a net positive for stocks, even after this morning’s spike in rates.

“With a Powell-led Fed, we expect the speed of the QE taper to follow the data, likely speeding up if inflation prints continue at the pace of the October print with interest rate hikes to shortly follow the taper (June at current pace). The market believes this action will keep the Fed in control of inflation,” wrote Aptus Capital Advisors portfolio manager John Luke Tyner in a note to clients.

“While the market is expecting a more hawkish response to current inflation, time will tell if it will be enough, as Powell is well established in the dovish camp of FOMC policy.”

Other analysts noted the difficult situation the Fed currently faces.

“Continuity at a time of such extraordinary uncertainty is certainly welcome news. We have extraordinary uncertainty because we’re pivoting from the phase of the cycle where the Fed had been shoring up the recovery from the pandemic-induced recession, and […] it did avoid a meltdown in financial markets,” said Diane Swonk, Grant Thornton chief economist.

“But now we’ve got very easy financial market conditions and we’re dealing with inflation. And having to pivot to dealing with inflation and tamp it down without derailing the recovery. That’s a very hard thing to pull off. We’ve not seen the Fed actually chase inflation down since the early 1980s.”

The 10-year Treasury yield is now within striking distance of its November high. However, Powell’s nomination alone didn’t cause it to rise today. Nor did inflation worries. Something odd happened with the Fed’s bond-buying programs that prompted the Fed to postpone its scheduled purchase of 7.5 to 30-year Treasury Inflation-Protected Securities, otherwise known as TIPS.

“Due to technical difficulties, today’s Treasury outright purchase operation - scheduled for 10:10 AM in the TIPS 7.5 to 30 year sector for up to $1.075 billion - is being rescheduled,” said the Federal Reserve Bank of New York.

“It is now scheduled to take place Wednesday, November 24, 2021 at 11:00 AM.”

The postponement provoked heavy TIPS selling today which sent rates higher. Equities dropped in response to the rising rates.

If it’s true that the purchases were postponed for a purely technical reason, then rates should snap lower tomorrow and equities will likely rebound. On the other hand, the “technical difficulties” may actually be a smokescreen to cover for a lack of bond market liquidity. If that’s the case, rates should jump higher while stocks get crunched.

Don’t forget that the Fed just started throttling quantitative easing (QE). After more than a year and a half of unprecedented dovishness, hiccups were bound to happen.

Today’s bond-buying misfire may be the first of many. And it may also be the kind of thing that knocks bulls down a peg or two as inflation continues to heat up.


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## DaveTrade

My personal view is that the markets world wide, including the $SPX, look very weak at the moment.


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## DaveTrade

*What the Covid Resurgence Could Mean for Stocks*





It was another wild trading session this morning as stocks opened significantly lower on the day. Treasury yields initially spiked, driving equities lower. The 10-year Treasury yield hit a 6-month high for a few moments.

But several hours later, yields were back down. Rate-sensitive tech shares gained, helping to lift the S&P. Dow components sat at a loss.

Despite this morning’s growth-led intraday reversal, however, many analysts still believe value shares will outperform in the coming months.

“It’s certainly a story of more rotation,” explained Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.

“The market is now, with the Powell renomination, thinking this is a reopening story, which sets aside any of the risks or concerns we might have about rising Covid infection rates.”

Haworth’s comments were made prior to a surprise announcement from the Slovakian government, which is set to impose a 2-week lockdown on its citizens regardless of vaccine status. The country is experiencing the world’s fastest rise in infections when adjusted for population. Neighboring countries Hungary and the Czech Republic also saw record-setting increases in daily infections yesterday.

Last weekend, Austria entered a nationwide lockdown as well. Germany attempted to curb new infections also by placing additional restrictions on the unvaccinated.

Will these lockdowns really help to “set aside any of the risks or concerns” about a Covid resurgence? Not at all. Case totals are rising even in the United States.




Deaths are up, too. In fact, US Covid deaths this year have actually exceeded 2020’s total based on data from Johns Hopkins. It’s a bit surprising given that over 60% of the US population is fully vaccinated according to the CDC. 69% are at least partially vaccinated.

Yet deaths in 2021 are higher than before the US had access to Covid vaccines. Worse still is that we have another month to go before the year ends. If infections continue to accelerate stateside, deaths could surge through Christmas.

And for the most part, analysts didn’t think that Covid would make a comeback. They believed that vaccines, treatment methods, and social distancing would finally end the pandemic in the near future.

Now, it’s clear that Covid’s sticking around for at least a little while longer than expected.

Wall Street banks said last month that a new variant could spoil the fun in 2022, but none of them predicted a good, old-fashioned seasonal spike in cases. It’s already begun in Europe, and even in highly vaccinated countries.

What happens if the US experiences something similar?

It won’t be pretty for reopening-sensitive stocks. And though growth shares won’t get hurt as much, they also won’t enjoy a “pandemic reboot” by any means. The Fed’s committed to slowly whittling away at its bond-buying programs. Inflation is surging and at least one rate hike seems likely next year.

If Covid cases continue climbing, the Fed will be put in an even more difficult position. Remaining hawkish into the teeth of an infection resurgence could have dire economic consequences. Alternatively, going dovish could push inflation to dizzying heights.

We’ve talked for months about the Fed’s “damned if you do, damned if you don’t” predicament. Powell was facing a tough situation six months ago. Now, escaping unscathed will be darn near impossible.

Unless, of course, the world simply chooses to live with Covid rather than avoid it at all costs. But based on the new lockdowns out of Europe, that outcome seems highly unlikely if not completely out of the question.


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## DaveTrade

*Did Powell Just End the Bull Run?*





Vindication.

That was the word on my mind this morning as I read the latest statement from Fed Chairman Jerome Powell. After over a year of insisting that high inflation was merely transitory, Powell finally said “uncle” today when he admitted that it was “time to retire the word transitory regarding inflation.”

Powell continued, adding that the “threat of persistently higher inflation has grown.”

Does that ring a bell to anyone?

We’ve been arguing that high inflation would be a longer-term problem ever since Powell and Treasury Secretary Janet Yellen claimed it wouldn’t.

Now, following month-after-month of sky-high inflation prints, Powell’s thrown in the towel. Yellen will probably capitulate also so as to provide the façade of a united front against runaway prices.

I’d be more than happy to take a victory lap on this considering how much Powell, Yellen, the White House, and mainstream financial media have repeatedly balked at the notion of persistently high inflation.

But it’s really nothing to feel good about. The fact that it took this long for the most powerful central bank in the world to finally “catch up” with rational investors should be seen as extremely demoralizing.

These are the same people who control the US’s financial future. And they got inflation completely wrong.

Even worse, it’s likely too late to course-correct without decimating the US economy. The market already shrieked at the notion of that this morning when Powell’s remarks initially hit the airwaves. Then, he followed up with a comment that shook bulls to their very core:

“At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases […] perhaps a few months sooner,” Powell said. “I expect that we will discuss that at our upcoming meeting.”

All three major indexes sunk in response. The dollar soared, applying additional pressure to equities while gouging crypto and precious metals. The Dow officially entered “free fall” territory, dragging the S&P below last Friday’s low. Only the Nasdaq Composite remains within striking distance of its recent highs despite also tumbling.

Analysts went into full panic mode as a result.

“We have to expect [...] that the scenarios, all scenarios, include discoveries of people in this country with Omicron and talk that the vaccines don’t work or if they did those who have had Covid have no immunity,” tweeted “Mad Money” host Jim Cramer.

“These all cause selling.”

Conversely, today’s news may be the last bearish gasp before another rally. The dip-buying has simply been too strong this year. That’s not to say stocks will touch new all-time highs in the coming weeks, though. They may have done so had Powell not come to his senses this morning.

Now, however, the taper timeline looks like it will shift forward. That’s delivered a veritable hammer blow to the market’s typically dependable seasonal trend. So, as we approach Christmas, beware of a fake “Santa rally” as dip-buyers flood back into stocks.

Traders who exit in time could make out like bandits with some short-term gains, of course. But for the buy-and-hold crowd, it’s arguably never been more dangerous to be a passive investor.


----------



## DaveTrade

*Was That a Black Friday Sale or Sell-Off?*

By Mike ReillyNovember 30, 2021​
News that a new COVID-19 variant has surfaced in South Africa spooked global equity markets this past Friday causing a frenzied sell-off.

The question coming into Monday’s open was whether that sell-off was an overreaction and an opportunity – or the beginning of a much deeper, panic-driven sell-off.

My thinking was – if global markets continued to panic and sell-off and it’s discovered the new variant poses less risk than first thought, a major global rally could follow.

And as Monday’s trading session got underway, that’s exactly what we saw, as both the S&P 500 and broad sectors rebounded from Friday’s sell-off.

So, although it appears equity markets have calmed and selling pressures have subsided, at least temporarily, there is still the question of what data investors should keep an eye on for future clues as to the overall direction of the markets.

Let’s start with where investors shouldn’t look for market guidance.

Do yourself a favor – *avoid searching media outlets looking for financial advice, which proved to be absolutely worthless during the height of the 2020 pandemic*.

Seriously, gain clarity and sanity by stepping away from the financial news network programs. You’ll be glad you did.

Instead, investors should spend their time focusing on what Wall Street is doing with their money.

*Follow the money – focus on price trends.*

In a previous *ADAPT Weekly* article, I wrote about small-caps’ attempts to finally break out of a range that they’ve been stuck in since February.

They didn’t. The attempt failed with Friday’s sell-off, which given the circumstances, probably shouldn’t have come as a big surprise.






You see, when investors get nervous and head for the exits, it’s typically small-cap stocks that get sold first, while the established household names are held the longest.

As of Friday’s market close, small-caps found themselves back in familiar territory, trading at levels they’ve been stuck in since February.

So, if the risk-off trade were to accelerate, expect small-caps to continue to sell-off.

On the other hand, if Friday’s sell-off was a knee-jerk reaction to the covid news, then small-caps could make another run at a breakout – indicating risk-on is back.

That thesis is still valid as we move into the trading week.

*One day doesn’t a rebound make. The media isn’t done with their newest headline and neither are the global equity markets.*

Small-cap stocks are only a part of the narrative this week…

A lot of investors haven’t even noticed the relative weakness of small-caps this year because they focus so heavily on large-cap stocks – think Apple, Microsoft, Google, and Tesla.

Check out this chart of the S&P 500 (SPX). The two areas outlined have been important price levels in the past – and we say that price has memory.






The 4545-4500 level is going to be important. A break below that level, which is also the September high, would not be a good look for what’s to come. A move back to the 4700 level would show improved demand for large-cap stocks and reaffirm the risk-on thesis.

And what about the DOW? On a positive note, the Dow Jones Industrial Average held up pretty well in the face of Friday’s sell-off.






A hold above the 35000 level is the short-term line in the sand. A significant break below that level would indicate that even the biggest of the big are getting sold off – meaning risk-off is the prevailing theme.

So what’s the bond market telling us about stocks?

If stocks are getting sold off as part of the fear trade, that money is going somewhere. That somewhere is often a flight to the relative safety of Treasury Bonds…

That’s why we saw bond yields plunge on Friday. Bond prices rallied and the yield on the 10-Year Treasury moved sharply lower.






This is another area to watch over the coming days…

Will yields continue to fall as more and more investment capital flees the stock market in search of safer harbors or will the trend quickly reverse as money flows out of bonds and back to risk-on assets at what looks like bargain prices?

Well, Monday’s trading is a perfect example of what I mean… check out the same chart of TNX after Monday’s close.






That’s a huge reversal in yields… it says institutional money – the money we track here at Rowe Wealth Management – is moving out of the safety of the bond market and back to growth assets.

Will it stick or is it just a temporary reversal?

*What are we seeing on the sector level is what investors like you should keep in mind.*

All 11 stock sectors lost ground during Friday’s sell-off. But which sectors are performing best can give us insight into how the biggest investors in the world feel about risk.






Friday’s market action saw defensive sectors like Healthcare, Consumer Staples, and Utilities hold up better than the more risk-on growth sectors.

While the growth sectors, Consumer Discretionaries, Technology, and Energy suffered the biggest losses.

As markets opened yesterday morning the question was: Will defensive sectors continue to lead as this market reassesses the prospects of future growth – or will the growth sectors reemerge as the leaders?

Here’s what sector performance looked at Monday’s close.






Technology and Consumer Discretionary stocks lead the market higher. These are the risk-on stocks that are growth leaders.

Interestingly enough, Utilities caught a bid, rising 1.5% on the day. Although Utilities are more defensive in nature, the reason they may have jumped today was the move from bonds back to equities – utility stock dividends replacing bond yields.

So, there you have it, some important areas for you to review as you navigate this week’s markets.

These are the same price charts we’ll be keeping a close eye on to interpret what’s happening at both the index and sector level for any clear signs of a directional bias – risk-on versus risk-off.

So stay tuned for more, and remember…

*Follow the price action and always trade based on what is happening, not what might happen.*


----------



## qldfrog

DaveTrade said:


> *Was That a Black Friday Sale or Sell-Off?*
> 
> By Mike ReillyNovember 30, 2021​
> News that a new COVID-19 variant has surfaced in South Africa spooked global equity markets this past Friday causing a frenzied sell-off.
> 
> The question coming into Monday’s open was whether that sell-off was an overreaction and an opportunity – or the beginning of a much deeper, panic-driven sell-off.
> 
> My thinking was – if global markets continued to panic and sell-off and it’s discovered the new variant poses less risk than first thought, a major global rally could follow.
> 
> And as Monday’s trading session got underway, that’s exactly what we saw, as both the S&P 500 and broad sectors rebounded from Friday’s sell-off.
> 
> So, although it appears equity markets have calmed and selling pressures have subsided, at least temporarily, there is still the question of what data investors should keep an eye on for future clues as to the overall direction of the markets.
> 
> Let’s start with where investors shouldn’t look for market guidance.
> 
> Do yourself a favor – *avoid searching media outlets looking for financial advice, which proved to be absolutely worthless during the height of the 2020 pandemic*.
> 
> Seriously, gain clarity and sanity by stepping away from the financial news network programs. You’ll be glad you did.
> 
> Instead, investors should spend their time focusing on what Wall Street is doing with their money.
> 
> *Follow the money – focus on price trends.*
> 
> In a previous *ADAPT Weekly* article, I wrote about small-caps’ attempts to finally break out of a range that they’ve been stuck in since February.
> 
> They didn’t. The attempt failed with Friday’s sell-off, which given the circumstances, probably shouldn’t have come as a big surprise.
> 
> View attachment 133635
> 
> 
> You see, when investors get nervous and head for the exits, it’s typically small-cap stocks that get sold first, while the established household names are held the longest.
> 
> As of Friday’s market close, small-caps found themselves back in familiar territory, trading at levels they’ve been stuck in since February.
> 
> So, if the risk-off trade were to accelerate, expect small-caps to continue to sell-off.
> 
> On the other hand, if Friday’s sell-off was a knee-jerk reaction to the covid news, then small-caps could make another run at a breakout – indicating risk-on is back.
> 
> That thesis is still valid as we move into the trading week.
> 
> *One day doesn’t a rebound make. The media isn’t done with their newest headline and neither are the global equity markets.*
> 
> Small-cap stocks are only a part of the narrative this week…
> 
> A lot of investors haven’t even noticed the relative weakness of small-caps this year because they focus so heavily on large-cap stocks – think Apple, Microsoft, Google, and Tesla.
> 
> Check out this chart of the S&P 500 (SPX). The two areas outlined have been important price levels in the past – and we say that price has memory.
> 
> View attachment 133636
> 
> 
> The 4545-4500 level is going to be important. A break below that level, which is also the September high, would not be a good look for what’s to come. A move back to the 4700 level would show improved demand for large-cap stocks and reaffirm the risk-on thesis.
> 
> And what about the DOW? On a positive note, the Dow Jones Industrial Average held up pretty well in the face of Friday’s sell-off.
> 
> View attachment 133637
> 
> 
> A hold above the 35000 level is the short-term line in the sand. A significant break below that level would indicate that even the biggest of the big are getting sold off – meaning risk-off is the prevailing theme.
> 
> So what’s the bond market telling us about stocks?
> 
> If stocks are getting sold off as part of the fear trade, that money is going somewhere. That somewhere is often a flight to the relative safety of Treasury Bonds…
> 
> That’s why we saw bond yields plunge on Friday. Bond prices rallied and the yield on the 10-Year Treasury moved sharply lower.
> 
> View attachment 133638
> 
> 
> This is another area to watch over the coming days…
> 
> Will yields continue to fall as more and more investment capital flees the stock market in search of safer harbors or will the trend quickly reverse as money flows out of bonds and back to risk-on assets at what looks like bargain prices?
> 
> Well, Monday’s trading is a perfect example of what I mean… check out the same chart of TNX after Monday’s close.
> 
> View attachment 133639
> 
> 
> That’s a huge reversal in yields… it says institutional money – the money we track here at Rowe Wealth Management – is moving out of the safety of the bond market and back to growth assets.
> 
> Will it stick or is it just a temporary reversal?
> 
> *What are we seeing on the sector level is what investors like you should keep in mind.*
> 
> All 11 stock sectors lost ground during Friday’s sell-off. But which sectors are performing best can give us insight into how the biggest investors in the world feel about risk.
> 
> View attachment 133640
> 
> 
> Friday’s market action saw defensive sectors like Healthcare, Consumer Staples, and Utilities hold up better than the more risk-on growth sectors.
> 
> While the growth sectors, Consumer Discretionaries, Technology, and Energy suffered the biggest losses.
> 
> As markets opened yesterday morning the question was: Will defensive sectors continue to lead as this market reassesses the prospects of future growth – or will the growth sectors reemerge as the leaders?
> 
> Here’s what sector performance looked at Monday’s close.
> 
> View attachment 133641
> 
> 
> Technology and Consumer Discretionary stocks lead the market higher. These are the risk-on stocks that are growth leaders.
> 
> Interestingly enough, Utilities caught a bid, rising 1.5% on the day. Although Utilities are more defensive in nature, the reason they may have jumped today was the move from bonds back to equities – utility stock dividends replacing bond yields.
> 
> So, there you have it, some important areas for you to review as you navigate this week’s markets.
> 
> These are the same price charts we’ll be keeping a close eye on to interpret what’s happening at both the index and sector level for any clear signs of a directional bias – risk-on versus risk-off.
> 
> So stay tuned for more, and remember…
> 
> *Follow the price action and always trade based on what is happening, not what might happen.*



well last night was not good so rebound or jumping falling cat?
I was actually surprised by the size of the fall in the US last night , was expecting more a stabilisation +-0.1 or 0.2 %;
obviously that anagram of moronic variant being milder and more contagious..(no surprise) could be objectively seen as a blessing so just narrative  BS about the cause  of the market fall.
so I am more incline to mark this as the beginning of a big fall than I was this weekend
As you point out: focussing on market fact.
will be manageable either way with my current exposure


----------



## DaveTrade

*Why the November Jobs Report Is "Fake News"*





Stocks go up, stocks go down. Investors were treated to another wild intraday trading session as the market jumped higher at the open this morning before plunging several hours later. A weaker than expected November jobs report initially sent stocks higher, due to the effect it could potentially have on the Fed’s taper schedule.

Fed Chairman Jerome Powell indicated earlier in the week that the taper might accelerate in response to persistently high inflation. Bulls interpreted last month’s major jobs “miss” (revealed pre-market today) as something that could slow the taper instead.

Only 210,000 nonfarm payrolls were added in November vs. 573,000 expected. At face value, that’s a very weak report.

But the real jobs number was likely much higher last month. It’s just that it wasn't reported accurately due to the Bureau of Labor Statistics’ (BLS) flawed seasonal adjustment model, which is used to screen out seasonal labor swings. For example, during months of uncharacteristically bad weather, the BLS will apply its seasonal adjustment model to construction-related payrolls to smooth out any sudden drops in hires.

The same type of adjustment is made to holiday-related jobs when the Christmas shopping season approaches. Over the years, November has typically seen 200,000 to 300,000 new hires as companies look for help to deal with the surge in holiday spending. The BLS’s seasonal adjustment will remove those jobs from the reporting to offset the spike in temporary employment, which can obscure the job market’s general health.

It’s an approach that makes sense. But during the Covid pandemic, the BLS’s model was thrown completely out of whack. And it’s only grown worse as the economic recovery has stalled.

Case in point, the BLS adjusted November’s jobs number down by a record-setting 568,000 payrolls. The average November adjustment since 2011 has been just 277,000 jobs by comparison.

Even in 2008, following the start of the Global Financial Crisis, the BLS adjusted down November’s jobs number by 389,000. Still far less than this morning’s report.

Without including the -568,000 job adjustment, roughly 778,000 payrolls were added last month. Had the BLS applied its average adjustment of -277,000 jobs, we’d be looking at a post-adjustment gain of 501,000 jobs, just 72,000 jobs away from the consensus estimate.

Wall Street either hasn’t realized this or is simply choosing to ignore it in the face of accelerating inflation.

“The disappointing 210,000 gain in non-farm payrolls in November suggests the labor market recovery was faltering even before the potential impact of the new Omicron variant, possibly as a result of the rising infection rates in the Northeast and Midwest,” explained Andrew Hunter, senior U.S. economist at Capital Economics.

“Nevertheless, the Fed will still push ahead with its plans to accelerate the pace of its [quantitative easing] taper at this month’s [Federal Open Market Committee] meeting.”

Analysts from investment management firm SouthBay were among the few who correctly identified the reason for last month’s major jobs “miss.”

They said the BLS’s massive adjustment took away from the fact that it was “far from being a weak November” for hiring. In reality, it was a relatively strong report despite missing estimates. Next month, these numbers will improve greatly following the BLS's November revision.

And that, if anything, should only fan the hawkish flames as inflation continues to rise.


----------



## qldfrog

DaveTrade said:


> *Why the November Jobs Report Is "Fake News"*
> 
> View attachment 133795
> 
> Stocks go up, stocks go down. Investors were treated to another wild intraday trading session as the market jumped higher at the open this morning before plunging several hours later. A weaker than expected November jobs report initially sent stocks higher, due to the effect it could potentially have on the Fed’s taper schedule.
> 
> Fed Chairman Jerome Powell indicated earlier in the week that the taper might accelerate in response to persistently high inflation. Bulls interpreted last month’s major jobs “miss” (revealed pre-market today) as something that could slow the taper instead.
> 
> Only 210,000 nonfarm payrolls were added in November vs. 573,000 expected. At face value, that’s a very weak report.
> 
> But the real jobs number was likely much higher last month. It’s just that it wasn't reported accurately due to the Bureau of Labor Statistics’ (BLS) flawed seasonal adjustment model, which is used to screen out seasonal labor swings. For example, during months of uncharacteristically bad weather, the BLS will apply its seasonal adjustment model to construction-related payrolls to smooth out any sudden drops in hires.
> 
> The same type of adjustment is made to holiday-related jobs when the Christmas shopping season approaches. Over the years, November has typically seen 200,000 to 300,000 new hires as companies look for help to deal with the surge in holiday spending. The BLS’s seasonal adjustment will remove those jobs from the reporting to offset the spike in temporary employment, which can obscure the job market’s general health.
> 
> It’s an approach that makes sense. But during the Covid pandemic, the BLS’s model was thrown completely out of whack. And it’s only grown worse as the economic recovery has stalled.
> 
> Case in point, the BLS adjusted November’s jobs number down by a record-setting 568,000 payrolls. The average November adjustment since 2011 has been just 277,000 jobs by comparison.
> 
> Even in 2008, following the start of the Global Financial Crisis, the BLS adjusted down November’s jobs number by 389,000. Still far less than this morning’s report.
> 
> Without including the -568,000 job adjustment, roughly 778,000 payrolls were added last month. Had the BLS applied its average adjustment of -277,000 jobs, we’d be looking at a post-adjustment gain of 501,000 jobs, just 72,000 jobs away from the consensus estimate.
> 
> Wall Street either hasn’t realized this or is simply choosing to ignore it in the face of accelerating inflation.
> 
> “The disappointing 210,000 gain in non-farm payrolls in November suggests the labor market recovery was faltering even before the potential impact of the new Omicron variant, possibly as a result of the rising infection rates in the Northeast and Midwest,” explained Andrew Hunter, senior U.S. economist at Capital Economics.
> 
> “Nevertheless, the Fed will still push ahead with its plans to accelerate the pace of its [quantitative easing] taper at this month’s [Federal Open Market Committee] meeting.”
> 
> Analysts from investment management firm SouthBay were among the few who correctly identified the reason for last month’s major jobs “miss.”
> 
> They said the BLS’s massive adjustment took away from the fact that it was “far from being a weak November” for hiring. In reality, it was a relatively strong report despite missing estimates. Next month, these numbers will improve greatly following the BLS's November revision.
> 
> And that, if anything, should only fan the hawkish flames as inflation continues to rise.



Interesting fact again🙏
Why these adjustments?
To get a smooth curves😊
Economics should be able to do their own work,if your raw data is not raw,that is just noise being added.
Great post


----------



## DaveTrade

__





						True Market Insiders
					






					www.truemarketinsiders.com


----------



## DaveTrade

*Why the “Santa Rally” Might Not Happen*





Following a brutal week of trading, stocks opened higher this morning before rising even further through noon. Dow components led the way, dragging the S&P upward while the Nasdaq Composite lagged.

Our commentary last week noted that the Covid Omicron variant may not be worth worrying about. Today, investors seemed to realize that. It’s true that the new variant is more infectious, but early cases have suggested that it produces far milder symptoms than other Covid strains. Because of this, Omicron could potentially crowd out Delta, leading to a less-lethal version of Covid.

Some analysts believe, however, last week’s losses had little to do with Covid headlines.

“Super-cap tech has been well bid on the expectation of ‘forever’ low rates and support,” said Sevens Report founder Tom Essaye.

“But, with the prospect of rates rising and this new Fed paradigm, we are seeing investors rotate out of tech and into sectors with better exposure to higher growth.”

Essaye continued, adding that the Fed’s recent remarks on inflation and the ongoing taper ultimately dented sentiment.

“Tech pulled the entire market lower. Essentially, we are seeing a sort of Taper Tantrum 2.0 as markets react to a more hawkish Fed and rotate into sectors with more positive exposure to rising rates.”

As of this morning, the tantrum seems to have calmed somewhat. But that doesn’t mean the bull market is back on just yet. The S&P, for example, still lingers near key support at 4,550. A failure to rebound off support over the next few trading sessions could doom the market to a deeper retracement, especially if rate hike expectations continue to rise.

“Any speculative growth portions of the market are the ones that are trading off the most and that’s perhaps due to accelerated Fed tapering and Fed rate increases,” said US Bank Wealth Management’s Tim Hainlin.

“If you raise interest rates that decreases the value of those long-term cash flows for those long-term growth companies or parts of the market that are dependent on them.”

But Hainlin believes that investors have gone overboard with pricing in a more aggressive rate hike next year.

“The long-term growth rate is challenged by factors that are changing — demographics, productivity and longer-term growth in the labor force — and drive the economy in the long-term,” he explained.

“We still think those are muted relative to history, so the idea that the Federal Reserve would raise rates up until up to a rate that we’ve historically seen — we think that it’s not likely to get up to that level.”

What Hainlin didn’t mention, though, was how “hot” inflation has gotten in recent months. Persistently higher inflation, not strong economic growth, caused Fed Chairman Jerome Powell to consider accelerating the Fed’s taper.

In addition, the Federal Open Market Committee (FOMC) is now clearly concerned that stagflation – low consumer demand, high inflation – could soon arrive. The FOMC will meet later this month (December 15th) to discuss monetary policy moving forward.

If traders get any indication that the FOMC is tilting hawkish, expect stocks to drop again, regardless of how the Omicron situation looks in the coming weeks.


----------



## DaveTrade

*Today’s “Big Story” That Most Investors Missed*





Stocks fell this morning as investors continued to weigh Covid fears. With cases rising around the world, it’s clear that not only is Covid making a comeback, but that the new Omicron variant could throw a sizable “wrench” in the US’s post-pandemic recovery.

Despite producing milder symptoms, the Omicron variant is more infectious according to doctors who first discovered the new strain. This is likely a positive turn of events should Omicron replace Delta in the coming weeks as the dominant variant, as it would theoretically result in fewer hospitalizations.

To WHO director-general Tedros Adhanom Ghebreyesus, though, there’s nothing about Omicron that’s worth celebrating.

“Certain features of omicron, including its global spread and large number of mutations, suggest it could have a major impact on the course of the pandemic,” Tedros said.

But perhaps the most disheartening Omicron-related soundbite came from Pfizer CEO Albert Bourla, who said this morning that people may potentially need a fourth shot sooner than expected to fight Omicron.

“When we see real-world data, will determine if the omicron is well covered by the third dose and for how long,” Bourla observed.

“And the second point, I think we will need a fourth dose.”

Remember when you only needed one dose of the Pfizer vaccine to be considered vaccinated? Those days are long gone. And don’t forget that each additional dose is simply the same stuff being injected multiple times, intended for the original Covid that came out of Wuhan. We’ve already run through both the Alpha and Delta strains with no variant-targeted changes to the vaccine.

Next up is Omicron, and Pfizer thinks that people will need a fourth dose of the unaltered vaccine to beat it back.

Unsurprisingly, this news stole the mainstream financial headlines this morning as investors groaned at the idea of yet another booster. But in China, the birthplace of Covid, something far more sinister happened that flew completely under the radar:

Evergrande, China’s largest real estate developer, finally defaulted after months of grasping at solvency. We observed back when the Evergrande problems first started that a default seemed inevitable. It wasn’t a question of _if_ Evergrande would go “belly up,” but _when_.

_When_ arrived earlier today (at least partially) after ratings agency Fitch reported the company defaulted on offshore bonds. Now, Evergrande has been given “restricted default” status alongside Kaisa Group, another major Chinese property developer that also missed offshore payments.

It’s important to note that Evergrande has not declared bankruptcy yet. The company is still in operation. But that could change quickly as certain holders of US dollar-denominated notes (those who control at least 25% in aggregate) can now demand immediate payment on those debts. This is what happens after a company triggers an “event of default,” which according to Fitch, occurred when Evergrande missed coupon payments on two bonds at the end of a 30-day grace period on Monday.

Fitch reached out to Evergrande to see if the payments were made. Evergrande didn't respond, so Fitch assumed that the payments were missed. S&P, another major ratings agency, has yet to declare “selective default” (their version of restricted default), but the agency sees it as an inevitability following Fitch’s report.

For now, the damage has been limited to foreign bondholders, which means Chinese investors haven’t had to take a haircut. At least, not yet.

That’s probably coming, though, as bondholders attempt to claw some funds back. The short-term concern is identifying who the major offshore bondholders are and seeing what kind of damage could result from future defaults. Pensions may be at risk alongside cryptocurrencies, the latter of which is in danger because of Tether's sizable Evergrande commercial paper holdings, denoted in US dollars.

Longer-term, the Chinese real estate market could potentially crash after Evergrande and Kaisa are chopped up and restructured, either through existing enterprises or a more nationalized, state-owned structure. If Chinese real estate goes down, the Chinese economy would likely follow, whacking the West as well.

So, while today’s Covid headlines were certainly disappointing for bulls, Evergrande’s default really should have received the majority of this morning's coverage. It’s something that threatens to unravel the entire Chinese bond market, and eventually, virtually every other market as well.


----------



## DaveTrade

The Market Is Sending Mixed Messages. But What Does It Mean to Investors?​By Mike ReillyDecember 12, 2021


Investors have been holding their breath as the S&P 500, the DJIA, the NASDAQ, and even the Russell 2000 Small-Cap Index has moved from one extreme to the other over the last two weeks.

When markets sell-off and quickly rebound, investors often find themselves in one of two camps.

The first group is jumping back in with both feet…

Screaming “What an opportunity! Let’s buy!”

While the other group is much more reserved… waiting for the proverbial “other shoe” to drop.

This group in particular is discovering that maybe they can’t handle as much risk as they previously thought…

After the market tanked in 2020, investors panicked when the S&P 500 shed more than 30% in a matter of weeks. It was painful…

Fearing the worst, many investors sold what they could and hoped for the best. 

Nobody knew what the first pandemic in over 100 years could bring.

But what most investors couldn’t see was market breadth improving after the March low, leading to an eventual spike in breadth…

Meaning more and more stocks were breaking new highs, _indicating that we were in the early innings of a new bull cycle and a great buying opportunity_.

You can see it here – the S&P 500 along with a breadth measurement, looking at the percentage of S&P 500 stocks making new highs over the previous 21 days.







The fact that more and more stocks were rising was a strong bullish signal, giving hesitant investors another shot at profits.

The market in 2021 however, has been characterized by corrective price action and generally weak market internals. Nothing like 2020.

Although what we’ve seen in 2021 is historically normal during year two of a bull market, it’s still frustrating… and sometimes scary.

We’ve seen sideways, choppy price behavior since February.  

And from a breadth perspective, markets in 2021 haven’t come close to the highs we saw from breadth indicators of 2020.

That’s not necessarily the worst thing because market internals (breadth) often peak early on in a new cycle. 

But what bullish investors don’t want to see is a meaningful deterioration in breadth.

And here’s where things get a little dicey right now… 

*During this most recent sell-off, markets have experienced some of the highest readings of new lows since the COVID crash.*

So, we may have exactly what we don’t want to see! 

Fewer and fewer stocks moving higher, with more and more moving lower.

_Was that it for the bulls? Was that the last gasp? 

Are the bears getting ready to take control, sending markets substantially lower? _

We don’t know yet. I wish it were that easy, but it’s not black and white. 

From a breadth perspective, we want to know if what we just experienced was what we’ll refer to as “fall day” – a day when we see a big spike in selling. 

These “fall days” are associated with markets that have run out of steam, where the spike in new lows in breadth is often followed by a sell-off in the index soon after.  

Take a look at this chart of the NYSE where you can see the new highs for the New York Stock Exchange looking back over the last few cycles.






The recent increase in new lows (yellow arrow) represents a clear change from what we’ve seen from stocks compared with what stocks have done over the previous 18 months. That’s important information.

*This is by far the most significant amount of new lows since the first quarter of 2020. *

It should also be noted that the current reading looks a lot like the “fall days” from 2014 and 2018. 

*In other words, it’s time to sit up and take notice.*

Unfortunately, it’s only with hindsight can we know for sure if what we just witnessed was the beginning of the end for this bull run…

So now is the time for investors to remain vigilant, and on the lookout for further weakness. 

One thing we do know for sure is that market tops and bottoms aren’t an event, they’re more of a process. And that’s good for you as an investor… 

Because this process provides investors like you the opportunity to prepare for either occurrence.

All the technical data is great, it can paint a picture of markets under the surface, where it really happens…  

*But all that data is useless if you haven’t already considered what is arguably the most important aspect of your investment success – proper risk management. *

Over my more than 30 years of experience, I have learned that most people _think _they can handle a lot more risk than they can. 

And the only way most people figure it out is when the damage is already done. 

*If you don’t understand your “risk number” – the amount of volatility or loss you can comfortably withstand within your account… 

AND you haven’t structured your portfolio to behave in a manner consistent with your propensity for risk…

You’ve already lost. It’s just a matter of time.*

That’s why we utilize a risk assessment process at Rowe Wealth that’s designed to help investors consider _real dollar and cents terms_. 

Because nobody feels percentages, right?  

If I were to ask you, “How would you feel if your account fell by 15% next week?”… 

It feels very different than if I asked you, “How would you feel if your account lost $175,000?”

See what I mean?

Our aim is to not just help you find your true tolerance for risk… 

But to also look at your risk tolerance compared to the risk _you’re actually taking in your portfolio_. 

You’d be surprised how often those two numbers don’t match! 






The point of the exercise is for you to understand, well in advance of a market reversal, what you could expect to happen in your portfolio. 

And given the uncertainty in today’s markets, wouldn’t you like to know what to expect?


----------



## DaveTrade

*Why Wednesday Could "Make or Break" Stocks*





Stocks fell this morning as inflation expectations rose. With the December FOMC meeting approaching on Wednesday, many analysts expected that the major indexes would remain “coiled” until then.

Instead, equities sunk today while reopening-sensitive stocks endured the worst of the selling. American Airlines (NASDAQ: AAL) and Carnival Corp (NYSE: CCL) both dropped over 6%.

Drugmakers, on the other hand, rocketed higher in response to rising Covid Omicron variant fears. Moderna (NYSE: MRNA) and Pfizer (NYSE: PFE) climbed more than 5% through noon.

But most investors are focused on Wednesday, when the 2-day December FOMC meeting begins. Wall Street believes that Powell will reveal an accelerated taper in his post-meeting remarks, doubling the current reduction in monthly asset purchases from $15 billion to $30 billion.

“Concerns are plentiful [...] ranging from a market which recently rallied quickly back to record highs, to ongoing Covid concerns. But the elephant in the room today and perhaps for the next few days will be the Federal Reserve and just how hawkish a tone they adopt later this week,” explained Leuthold Group chief strategist Jim Paulsen.

“With the first Fed tightening imminently pending, investors are dumping anything but risk-off assets including defensive sectors within the stock market, large caps, bonds, and the safe-haven U.S. dollar. Until the Fed meeting and its press conference is over, investors should probably expect fears to keep pressure on the stock market.”

Goldman Sachs chief US equity strategist David Kostin thinks that the discounting has already begun.

"Both equity and fixed-income markets appear to be pricing the coming Fed tightening," Kostin said in a note.

"Historical experience suggest equity valuations are typically flat around the first Fed hike. Moreover, some of the longest duration and highest valuation stocks plunged during the past month, suggesting that equity market pricing of Fed tightening is also under way."

This morning’s correction worsened following the release of the New York Fed’s public short-term inflation expectations survey.

"Median inflation uncertainty — or the uncertainty expressed regarding future inflation outcomes — increased at both the short- and medium-term horizons, with both reaching new series highs," the survey revealed, as the median inflation expectation (for one year from now) rose to 6%.

Some analysts don’t think inflation concerns will keep equities down for long, though. Mark Haefele, chief investment officer of UBS Global Wealth Management, said as much in a recent commentary on stocks.

“We believe markets can continue to take a higher inflation reading in their stride, though additional volatility remains a risk,” Haefele said.

“With Fed policy staying relatively accommodative, the backdrop for equities is still positive, and we favor winners from global growth.”

The S&P hit a new closing high on Friday. Today, the index almost touched its Friday low. But stocks still look capable of hitting new highs again should the Fed’s monetary policy not shift too hawkish for comfort.

Similarly, another correction could easily follow in the event that Powell disappoints bulls. Regardless of what happens, though, a big move should result – either up or down – as sentiment continues to whipsaw in anticipation of the Fed’s revised taper and rate hike schedule.


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## DaveTrade

Key Takeaways from Last Week’s Market​By Mike ReillyDecember 15, 2021

A week ago, I warned investors that the week ahead would be an important one for stocks and risk assets in general. And therefore an important week for investors.

The direction stocks turned would tell us a lot about what to expect in the coming weeks and possibly spell the end of the current bull market.

This morning, during our team meeting, it was suggested I put out a quick summary of any new developments that investors should be aware of.

So let’s revisit a few important stats from a week ago and compare them to today, to see if we’ve had any meaningful improvement or further breakdown.

Last week I pointed to price levels on both the S&P 500 and the DJIA as important lines in the sand. The message was that stocks had to hold their first-half highs.

I said we wanted to see the S&P 500 hold above 4500 and the September highs. If 4500 didn’t hold, it looked bad for stocks.

I also pointed out the 34500 level on the Dow Jones Industrial Average and its springtime highs as an important line. A meaningful and sustained breakdown would be damaging to some of the biggest stocks in the market.

I then commented about the importance of Treasury yields and reminded investors to watch them. If yields in the 30-Year and 10-Year fell dramatically it was likely happening in an environment where stocks were under a lot of selling pressure.

Investors didn’t want to see the 30-Year yield fall below 1.75% and the 10 Year fall below 1.40%.
We didn’t want to see yields break below their respective trend lines.

So, what’s changed? Has anything changed? What does it mean to investors?

The short answer is yes, we’ve seen some changes and some improvements in these key levels.

*Let’s start with the S&P 500 Index:*






Not only did the 4500 level hold, but the S&P 500 rebounded to reach an all-time high.

But as a caveat, and a word of caution, I will remind investors, these new highs in the index are happening while we continue to see weakening support from stocks under the surface, meaning fewer stocks are participating in the index’s rise to all-time highs.

Either stocks get it in gear and start to move higher or the index catches down to what the majority of stocks are doing.

You can see the weakness in the chart below showing the Large-Cap S&P 500 index compared to the percentage of stocks making new 52-week highs down the cap scale.






The bottom line is that we haven’t seen such weak breadth since COVID showed up a year ago.

*Next up is the Dow Jones Industrial Average:*






In a week’s time, the DJIA held and advanced 1000 points, back to 35500.

The DJIA found support at a very logical level, at a key technical level – kudos to the Dow!

We can summarize equities by saying that buyers stepped in and defended some very important price levels.

However, everywhere we look, it’s messy.

*Now for Treasury Yields…*

We’ve seen some dramatic improvement with yields running back above our key levels.

The 30-year yield is back above 1.75%, sitting at 1.88% today. The 10-year yield is back above its key 1.40% mark and is at 1.49% today.






That’s important information and a sigh of relief for many investors – or I should say, bullish investors…

Because if yields continue to falter, that’s happening when market bulls are heading for the exits and looking for someplace safe to put their investment capital.

And what would that mean for this bull market?

There are many, many other indicators we’re watching closely throughout the week, but the equity indexes and bond yields are as important as any of them.

I’d like to sit here and tell everyone the clouds are parting and it’s all systems go for stocks. But we’re just not there – yet.

It’s too early for the bulls to either claim victory or concede defeat…

So we’ll have to wait, watch and adjust to whatever the markets send our way.

It’s always a matter of weighing the evidence – and that means tracking data over time looking for emerging trends.

*I will say that if a few of our key indicators continue to show improvement over the next few weeks, it could signal a strong opportunity on the horizon*, but for now, it looks more like what we saw all summer….


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## DaveTrade

*1 Big Reason Stocks Could Rally Again*





Stocks traded flat this morning following yesterday’s major surge into the close, which came immediately after Fed Chairman Jerome Powell’s post-FOMC meeting remarks.

Over the last few days, bulls were clearly worried that Powell would shift more hawkish than expected. And though the Fed did make a hawkish pivot, Powell left the door open for continued dovishness at the same time.

"Economic developments and changes in the outlook warrant this evolution of monetary policy, which will continue to provide appropriate support for the economy,” the Fed chairman said in his afternoon press conference, revealing an accelerated taper ($30 billion per month) and seven total rate hikes over the next three years, with three coming up in 2022.

That’s a large number of hikes, and coincidentally, exactly what Goldman Sachs predicted last week. Most Wall Street banks expected fewer hikes by comparison.

But still, stocks rallied in response to Powell’s comments, which provided a dovish spin on what could have been received as a highly bearish impulse.

“While the three rate hikes for ’22 projected by the dot plot likely raised more than a few eyebrows, keep in mind that would still keep us within the realm of historically low rates, and further the market often moves positively when it has a clearer picture of the future, which the Fed no doubt provided,” explained E-Trade strategist Mike Loewengart.

Other analysts agreed.

“I think what the market was looking for more than anything was certainty [...] It got that yesterday. There was a lot of bearish sentiment that was building up in the market,” said Mercer Advisors’ Don Calgani before adding that the Omicron variant could serve as Powell’s “get out of jail free card” if the Fed needs to shift dovish once more.

And that’s really what sent stocks higher yesterday, the idea that the Fed’s rate hike schedule is by no means set in stone. Investors not only know that, but they may not even believe that the Fed will actually hike rates when the time comes.

The Fed’s first rate hike is scheduled for May 2022, a point at which Powell thinks the US will have achieved significant economic progress alongside a much lower unemployment figure.

But will the US economy actually meet Powell’s goals? Probably not. Don’t forget that both Powell and Treasury Secretary Janet Yellen were completely wrong about inflation. For months, they argued that it was merely “transitory.”

Then, in late November, Powell chose to officially retire the term "transitory," opting instead to describe inflation as “persistent."

The November Producer Price Index (PPI) confirmed that to be the case several days ago when it came in far hotter than expected, rising 9.6% year-over-year vs. the +9.2% consensus estimate.

So, don’t expect Powell to be right about how the US economy will look in May of next year. Nobody has a crystal ball, not even the reigning Fed chairman.

Stocks may be stalling today, but make no mistake: a “Santa rally” is coming if the S&P can take out its all-time highs before Christmas.

Which, with a hawkish-but-also-dovish Powell directing traffic, seems like an inevitability at this point.


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## DaveTrade

*5 Stocks That Will "Beat the Market"*





Stocks fell this morning as the post-FOMC meeting hangover continued. Rising Omicron variant infections and a blockbuster producer inflation reading out of Europe didn’t help matters, either. Germany just revealed an eye-popping +19.2% year-over-year rise in its Producer Price Index, blowing away analyst estimates. And as of today, the market (as represented by the S&P) has now given up all of its Wednesday gains, driven by Powell’s hawkish-yet-still-dovish afternoon press conference.

“As the Federal Reserve turns more hawkish and expectations for higher interest rates rise, investors are lowering exposure to growth stocks,” said Leuthold Group chief strategist Jim Paulsen.

“Typically, growth stocks exhibit a higher duration compared to value stocks because a higher proportion of their cash flows will be received in the more distant future.”

Growth stocks – i.e., the tech sector – certainly received the brunt of the bearish punishment this morning. The tech-heavy Nasdaq Composite led the market lower as a result of big plunges in major semiconductor names (NVDA, MRVL) and other market-leading tech shares (AAPL, MSFT).

For traders, the recent volatility has been utterly frustrating regardless of discipline. Fundamental analysts were left scratching their heads on Wednesday as stocks soared following the Fed’s hawkish pivot. Today, they’re trying to make sense of a sudden reversal.

Technical analysts, who base their trades entirely on charted price action, have similarly been whipsawed in both directions in response to a number of “head fake” moves from the major indexes.

In situations like these, the seasonal tendency has a knack for eventually taking over. “Santa rallies” have been the norm in December. This year probably won’t be any different despite the recent uncertainty.

But, as FSI Investments chief market strategist Troy Gayeski observed, investors may have to get a little more selective if they want to enjoy their milk and cookies come Christmas.

"The thing investors have to understand is, we're going through a major transition in monetary policy," Gayeski explained this morning.

"The Fed has been running emergency policies arguably far longer than they should have been, and as that money supply growth slows down as they ease off the balance sheet expansion and ultimately hike next year, one would at least expect more volatility in markets. And that's really what we've been seeing the last month."

He continued, adding:

"The biggest difference between now and six months ago, or even more than a year ago, is you could pretty much go long anything and you were confident it was going to go up. The economy was booming, we had a lot of fiscal stimulus, we still had unprecedented monetary policy stimulus. And it's a very different environment in 2022 where you're going to have to pick and choose much more carefully."

Market breadth, which was already narrow a year ago, has grown even narrower since then. The market’s top 5 tech names – AAPL, MSFT, NVDA, TSLA, GOOGL – have contributed to a whopping 51% of the S&P’s returns since April. These are likely going to be the same stocks that push the S&P to new Santa rally highs if the seasonal trend holds up.

And though buying the market’s most popular stocks near their all-time highs might be a bitter pill to swallow (especially for technical traders), it also could be the easiest way to outperform the general market without going “bargain hunting” for smaller companies, the vast majority of which did markedly worse than the S&P this year.


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## DaveTrade

Is This Signaling a Cautionary Tale?​By Mike ReillyDecember 21, 2021

There’s one ratio chart you don’t want to miss right now.

It’s one to focus on over the coming days and weeks ahead.

I’ve been saying this most of the year. 

Don’t be fooled by what you think you see out of the cap-weighted S&P 500 index…

Most stocks are either grinding sideways or have recently failed at attempted breakouts. 

The bulls can’t get it done.

Just look at the Small-Cap Stock Index. 






After spending most of 2021 range-bound, small-caps finally broke out in late November, only to fail miserably in December. 

And as the saying goes, “from failed moves, come fast moves in the other direction.”

But you didn’t need my help to see what happened with small-caps. So let’s dig deeper than what most investors can see on their own… 

I’m going to give you a seat next to some of the world’s biggest mutual fund managers so you can see what they’re doing with their money right now.

All we have to do is look at what may be one of the most important Relative Strength ratio charts we’re monitoring today…

This ratio chart compares the strength of Consumer Discretionary (growth) stocks versus Consumer Staples (defensive) stocks.

Why is this chart you need to pay attention to? 

Most mutual funds are mandated to stay fully invested. So, unlike individual investors, mutual funds can’t rush to the safety of cash if they’re worried about the current state of the market.

Mutual fund managers (the long-only community) only have two basic choices: Risk-On or Risk-Off. 

Invest in growth stocks, which they’ll do when the economy supports growth – or invest in defensive stocks, which they’ll do when they’re worried the economy and stock markets are weak in the knees.

*So by looking at this one ratio chart, investors, just like you, can see what some of the biggest fund managers in the business are thinking as they decide which direction to go, *Risk-On or Risk-Off. 

But before we take a peek, here are a few things you need to know:


Consumer Discretionary stocks include things like Autos, Retail, and Home Builders. These are all areas where *consumers* go to spend their *discretionary* income. 
_When Consumer Discretionary stocks are charging higher, this is normally happening in an environment of economic growth, so investors are willing to take on the additional risks associated with investing in growth stocks. _

Consumer Staples stocks are things *consumers* will spend money on regardless of economic conditions. You’re still going to wash your clothes, brush your teeth, and eat and drink. Think of toothpaste, laundry detergent, food, and beer as *staples*…
_When Consumer Staples is leading, it’s often a sign of economic weakness and Risk-Off behavior. It’s a sign people are tightening the proverbial belt on spending._

So which group is in charge today? Check the chart.







When the line in the ratio chart is rising, Consumer Discretionary stocks are outperforming staples. It’s Growth Stocks over Defensive Stocks. 

And that’s a bullish signal for growth investors.

But see how the line peaked in October and November? Since peaking, the relationship moved sharply lower as Consumer Staples is outperforming discretionaries. 

This means Risk-Off and defensive positioning by big investors. 

But that doesn’t mean panic. Consumer Staples are still stocks. 

We expect them to participate and rise in price during bull markets. But what we don’t want to see is Staples outperforming Discretionaries for any significant length of time. 

And it’s starting to look like that’s what’s happening.

It’s still too early to call it over for Consumer Discretionaries or this bull market, but there are definitely signs of weakness you should be aware of. 

This market is messy, it’s been messy since February. It’s range-bound – again. 

Investors are going to have to be both patient and nimble until we get a definitive directional bias from market internals. 

The Consumer Discretionary/Consumer Staples ratio chart is one of my favorites. 

*And right now it’s indicating investors should proceed with caution.*

We’ll continue to pay close attention to the XLY/XLP ratio, looking for any hint of the direction of risk assets as we move into the last weeks of 2021.


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## DaveTrade

NYSE BULLISH PERCENT​


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## DaveTrade

*How to Play the "January Effect" in 2022*






Stocks opened higher this morning before flattening out several hours later. Following yesterday’s big gain, it’s not all that surprising to see this kind of response, especially when you consider that most major trading desks are now closed for the year.

Wall Street’s biggest automated traders – aka, “quants” – don’t trade from Christmas to New Year’s. This leads to reduced trading volumes during this time, which can encourage increased volatility. It also can hamstring breakout rallies because quants are all momentum-chasing.

They use advanced machine learning and computer science to code algorithm-based, automated trading systems. Hedge funds lean heavily on quants these days to outperform the general market.

But when quants are on vacation, prolonged bullish breakouts are far less likely. The S&P blew past resistance yesterday, reaching a new all-time high in the process.

During any other week, quants probably would have jumped on that breakout again this morning, sending equities even higher.

This week, though, the quants aren’t available to “goose” share prices like normal. That’s why stocks are stalling. But come January, that all could change. And fast.

“We’re going to have a very strong January,” said Navellier & Associates founder Louis Navellier this morning, referencing yesterday’s major gain.

“If we can rally on light volume, we’re going to get an explosion to the upside when the volume increases in January.”

Navellier’s prediction makes perfect sense. If stocks can avoid a year-end rout this week, the impending surge in trading volume should see share prices soar as the “January Effect” takes hold.

JPMorgan’s chief market strategist, Dubravko Lakos-Bujas, recommends buying riskier, higher beta stocks (ones that tend to move “faster”) in preparation for an equity boom.

“In particular, outside of the Big 10 stocks in the U.S., equity drawdowns and multiple derating have been severe,” he said.

“Some argue this price action is a harbinger of late-cycle dynamics or at least an intra-cycle 10-20% market correction. In our view, conditions for a large selloff are not in place right now given already low investor positioning, record buybacks, limited systematic amplifiers, and positive January seasonals.”

Lakos-Bujas also explained that investors are “back to paying record premium” for the market’s lower volatility names. This has made the market’s already narrow-breadth even narrower as investors dumped higher volatility stocks in favor of "safer" mega-cap shares.

To nimble-minded traders, however, this may present a huge opportunity for outsized gains over the next month. High beta stocks look like a bargain compared to their low beta counterparts, which Lakos-Bujas said can be attributed to the market taking “the hawkish central bank and bearish Omicron narratives too far.”

He continued, adding:

“Performance in the hedge fund space has been poor lately with many giving back multiple quarters of gains. This resulted in forced liquidations and deleveraging at a time of low liquidity, triggering extreme stock price action, especially across the High Beta stock complex.”

Traders willing to buy the high beta dip may reap big rewards if that “extreme price action” flips to the upside. There’s still plenty of uncertainty in the market, of course, but investors have a knack for adhering to seasonal tendencies. Does that mean a bullish January is waiting for us on the other side of the New Year?

Probably. And it might not matter how many new Omicron infections there are, either, once the quants get back in on the action next week.


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## DaveTrade

Stop Wasting Your Time on New Year’s Stock Predictions​By Mike Reilly January 4, 2022

Nobody, and I mean nobody, can tell you with any amount of certainty what is going to happen over the next 12 months.

Yet, with the change in the calendar from December to January of a new year, we see the same lame headlines predicting this year’s winners… “Stock Outlook for 2022” or “Predictions for ‘22.”

Seriously, just stop reading this stuff. I mean it – your time is valuable, use it wisely.

Spend more time thinking about what’s in front of us now… spend your time considering what _is_ happening, over what _might_ happen later.

Want my 2022 prediction?

Some stocks are going to go up, some stocks are going to go down and other stocks will churn sideways.

And I bet come December of ‘22 that’s exactly what you’ll see.

Ok, now that we’ve dismissed the value, or lack thereof, in spending any of your precious time reading the year’s next winner list, let’s find something more productive to do.

As many of you know, we use technical analysis as the basis for investment decisions.

Technical analysis is the study of price behavior. And what we know for sure is that prices trend.

That’s a fact – it’s why technical analysis works.

We want to find trending markets and invest in them.

Our approach analyzes markets in the short- to intermediate-term time frame… which means weeks to months – and no further out than that.

Markets are much too fluid to say in January what to expect 12 months down the road. It’s a waste of time.

How about we worry about the next quarter? And then the next quarter after that, and then the next after that.

And before you know it, you’ve analyzed an entire year in real-time.

That makes a lot more sense to me. Why pretend we have any idea of what will be happening a year from now?

Focus on what is in front of you now don’t worry about what might happen 6-12 months from now. Too much can change.

Since this is your first installment of ADAPT Weekly in 2022, let’s make it productive and look at some price charts that will help illustrate the current investment landscape and by doing so, help you get off to a good start this year.

Believe it or not, with all the doom and gloom headlines about the latest iteration of covid and the potential implications, not all is lost.

True, 2021 was not an easy year to navigate financial markets and there were plenty of headwinds.

But in spite of challenges and headlines to the contrary, we’re seeing lots of all-time highs at both the index and sector levels.

Here’s a monthly chart of the S&P 500 index hitting new all-time highs.






And here is a relative strength chart comparing stocks to bonds. I love these kinds of charts. This relationship exemplifies risk-on vs. risk-off.

Do you see how in spite of all the fears over the resurgence of COVID, stocks are still stronger than bonds on a relative basis?






Stocks are showing both relative outperformance and absolute performance, as the S&P 500 hits new all-time highs.

And check this out… look at growth via the S&P 500 vs. defensive asset classes, Gold, and U.S. Treasuries.






If stocks were really about to roll over, the relationship between these three assets would look very different.

This next chart looks at the Dow Jones Industrial Average and the Dow Transports both reaching new all-time monthly highs.






For all of you Dow Theorists out there, this is a jackpot, as the Transports are confirming the highs in the Industrials.

We’re seeing new all-time highs on the sector level as well.

Consumer Discretionaries are making new monthly closing highs and Technology is currently ranked as the strongest sector of the 11 broad sectors we track – also hitting new monthly closing highs.

Not only that, but Healthcare and Consumer Staples are also joining the party with new all-time monthly highs.

So does this mean the moon and stars are all aligned for investors? Not necessarily. Just look at Small-Caps in the same quagmire they’ve been stuck in since February 2021.






And the Value Line Geometric Index is looking a lot like small-caps, trading sideways for the past year.






I like to look at the VLG because it represents the median stock – the average joe stock. We’d like to see both Small-Caps and VLG breakout supporting the case for a strong equity market.

Now let’s talk about sentiment for just a minute. Sentiment data is most useful when it’s at extremes – either overly bullish or overly bearish.

Coming into 2020 and even 2021, there was a lot of optimism in the markets.

We’re just not seeing that same level of optimism now. People today aren’t feeling good about the economy.






Historically when sentiment was at these low levels, they turned out to be good buying opportunities for stocks.

We wrote about this last summer when we believed the amount of optimism and bullishness was becoming a headwind for stocks.

Today, we don’t have that problem at all. If history is any gauge, sentiment readings could act as a tailwind for stocks, as more investors become more bullish and begin the next buying cycle, driving stock prices higher.

Now, is any of this a guarantee? No, of course not.

However, if we’re going to summarize what we’re currently seeing out of stocks, we have indexes and sectors breaking out to new all-time highs. Defensive asset classes are weak relative to stocks, indicating a risk-on market environment, and sentiment data is telling us there are potential buyers out there waiting to put fresh money to work.

This is what we can see happening today… now does this tell us what to do in June?

No, but it does provide evidence of uptrends in stocks. And that will have to be enough for now.


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## DaveTrade

Here is a link to a no-hype talk about the current US market, it's worth a listen IMHO.









						WealthPress Roundtable LIVE | 01-05-2022
					

Today Lance joins Roger and Jeff for a new LIVE Roundtable format to kick off 2022! 👍Don't forget to give this video a thumbs up 👍📺Watch more episodes of ...




					click.go.wealthpress.com


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## DaveTrade

Taking a look at the current status of the S&P500, it can be seen from the moving averages on the chart that the uptrend is still intact. The next week when everyone gets back to work will hopefully give clues as to what to expect next.


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## DaveTrade

*Why the December Jobs Report Was Bad for Bulls*





Stocks traded flat today in response to a lukewarm jobs report. December payrolls were released this morning and investors learned that the US only added 199,000 new jobs last month, which fell well short of the 422,000 job estimate. And though payrolls disappointed, the unemployment rate fell to 3.9%, down from 4.2% while beating the 4.1% estimate with ease.

Hourly wages came in hotter than expected (+0.6% month-over-month vs. +0.4% estimated), bringing the year-over-year rise to 4.7%, roughly 0.5% above the 4.2% estimate.

So, despite a poor headline jobs number, December’s report was a good one for workers. It showed that wages continued rising, and labor remained tight.

But for market bulls, it’s probably not a positive sign. We mentioned earlier in the week that the market is back in “good news is bad news” territory due to an impending hawkish shift from the Fed. Bloomberg chief economist Carl Riccadonna echoed our sentiment in an article this morning, citing the Fed’s “full employment” target of 4.0% unemployment.

“As we are already beyond that level (3.9% reported), this will compel any lingering fence sitters on the FOMC to the view that the threshold for interest rate liftoff has been met – thereby titling policy makers’ inclination toward March vs. June liftoff.”

Neil Dutta, head of US economics at Renaissance Macro Research, saw this morning’s report the same way.

"This is a green light for March," Dutta wrote.

"The U3 unemployment rate plunged 0.3ppt [percentage points] to 3.9%, 0.4ppt below the Fed's Q4 2021 estimate and only 0.4ppt above the Fed's estimate for year end 2022. Average hourly earnings are coming in firm as the labor force participation rate remains flat."

March is also when the Fed’s taper of asset purchases is expected to end, and according to the December FOMC minutes (released yesterday), the Fed may start to reduce its balance sheet at that time as well. It’s unlikely that bulls would be tortured by both a rate hike and a balance sheet reduction simultaneously, though, as picking one or the other would lead to a spike in yields, achieving the intended effect. Choosing to do both would be downright malicious.

Dutta also noted something else of importance: the fact that the labor force participation rate remained unchanged last month.





​
Like it or not, the US may never reach a pre-pandemic labor force participation rate again. Yes, Americans have increasingly come off the “government dole” since Covid hit.

But many ended up staying home, refusing to return to work. This has contributed to regularly higher than expected wage growth month after month. There are simply fewer workers available. Now, the US boasts a labor participation rate comparable to that of the late 1970s.




​Does this seem like a trend that’s heading in the right direction? Labor force participation peaked back in the early 2000s and has been declining ever since. It finally rebounded from 2016-2020 after President Trump took office and the US economy began to truly flourish, prompting an attempted Fed rate hike to cool things down in late 2018.

This, along with many other factors, has made gauging the true health of the labor market a very difficult task. It’s also made the Fed’s job just that much more complicated.

And so, given today’s report, the Fed likely has the evidence it needs to start really turning up the hawkishness. Full employment has been exceeded. By the Fed’s standards, the “going is good.”

The question now is:

When will the rate hikes “get going?”

March seems like a good time to start, right when the Fed’s taper ends and a potential bear market reversal begins.


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## DaveTrade

A video talking about the things mentioned in the post above this one;

Let’s Start With This Chart


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## DaveTrade

*Will Rates Keep Climbing?*





Stocks tumbled this morning as the rough start to the year got even worse. The Dow, S&P, and Nasdaq Composite all fell, scorching lower for significant losses. Today’s dip was likely driven by rising yields, which spiked again after already jumping higher last week. The 10-year Treasury yield hit 1.8% this morning, exceeding the pandemic high of 1.765% in the process.

This caused a slump in Big Tech shares, the majority of which endured heavy selling. Facebook-parent company Meta (NASDAQ: FB) was down 4% alongside chipmaker Nvidia (NASDAQ: NVDA). Amazon (NASDAQ: AMZN) dropped, too, falling 3%.

But it wasn’t just the market’s top tech shares that sunk. Over 70% of the S&P’s 500 stocks were down as of noon.

“Stocks are getting pulverized as tech extends its slump, but investors are forgetting to rotate, and the cyclical/value community is getting hit too as a result,” said Vital Knowledge’s Adam Crisafulli in a note to clients.

“It’s hard to blame any incremental news, and instead the same themes and trends as the last few weeks continue to weigh heavily on sentiment, specifically the withdrawal of stimulus and the effect this will have on equity multiples.”

And though Crisafulli’s take on investors “forgetting to rotate” is a little tongue-in-cheek, it’s also accurate. Value stocks beat growth to end the year. Now, both types of companies are down big as sentiment crumbles.

"The surge in rates since early December has crushed the valuation of stocks with high growth and low margins, but a well-ordered progression of Russell 3000 stocks implies further repricing," wrote Goldman Sachs chief strategist David Kostin.

"We have previously shown the speed of rate moves matters for equity returns. Equities typically struggle when the 5-day or 1-month change in nominal or real rates is greater than 2 standard deviations. The magnitude of the recent yield qualifies as a 2+ standard deviation event in both cases."

If rates climb further and at their current pace, growth stocks (ie, tech) will continue to see the worst of the losses, especially now that investors are expecting a Fed balance sheet reduction in March – something traders learned in the December FOMC meeting minutes release last week.

“That hawkish surprise hit the broad markets on Wednesday but especially high-growth and high-[price-to-earnings] tech stocks, as the prospects of the Fed aggressively tightening are most negative for high-growth/high-PE names,” said Tom Essaye, founder of the Sevens Report.

The “hawkish surprise” of a Fed balance sheet reduction may get even more hawkish in the next few days. The December Consumer Price Index (CPI) comes out on Wednesday, one day before the December Producer Price Index (PPI) is released. Both the CPI and PPI will provide the Fed with key inflation data heading into the January FOMC meeting, scheduled for January 25th-26th.

If inflation looks hotter than expected again, Fed Chairman Jerome Powell may seek to crank up the hawkish pressure once more. Ahead of that meeting, though, Powell’s set to testify before a Senate panel in his nomination hearing tomorrow. And while Powell will undoubtedly be confirmed, his testimony could provide significant monetary policy insight just days before a pair of critical inflation data releases.


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## DaveTrade

In the above post Bill Poulos said, 'The “hawkish surprise” of a Fed balance sheet reduction may get even more hawkish in the next few days', so where are we at the moment. The SPY is heading down with some conviction but the equally weighted SPX is holding up much better. The VIX is under 20 so at the moment the market participants are not too worried.






If the HYG breaks through the lower support then the SPY could be in trouble, it should be an interesting week.


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## DaveTrade

*Is It Time to “Buy the Dip?”*





Another day, another rebound. Stocks traded moderately higher this morning after enduring a strange trading session yesterday, in which the market sunk at the open before closing flat. Whipsawing yields had share prices peaking and plunging on an intraday sentiment “seesaw” that ran many traders ragged in the process.

Now, though, rates are starting to fall once more. The 10-year Treasury yield retreated from 1.80% to 1.76%, providing some relief to tech stock bulls. The tech-heavy Nasdaq Composite climbed over 1% higher in response.

What also lifted stocks this morning was testimony from the market’s most important man, Fed Chairman Jerome Powell, before the Senate Banking Committee.

“The Federal Reserve works for all Americans. We know our decisions matter to every person, family, business, and community across the country,” Powell said in a statement made as part of his confirmation process.

“I am committed to making those decisions with objectivity, integrity, and impartiality, based on the best available evidence, and in the long-standing tradition of monetary policy independence.”

All good stuff, and precisely what the Senate panel wanted to hear. He also explained that the Fed remains concerned about inflation and will take the steps necessary to control rising prices.

“If we have to raise interest rates more over time, we will,” Powell said.

“We will use our tools to get inflation back.”

It’s nothing new, but it’s also not the dovish surprise bulls were perhaps hoping for. Still, the market seemed unaffected by Powell’s remarks. A rally now looks to be building instead of a deeper selloff, and according to JPMorgan’s Marko Kolanovic, big returns could await investors who buy back in sooner rather than later.

“The pullback in risk assets in reaction to the Fed minutes is arguably overdone,” Kolanovic wrote in a note to clients.

“Policy tightening is likely to be gradual and at a pace that risk assets should be able to handle, and is occurring in an environment of strong cyclical recovery.”

Leuthold Group chief strategist Jim Paulsen offered a similar take:

“Historically, the stock market has suffered some nasty ‘temper tantrums,’ and numerous rate hikes eventually led to recessionary bear markets,” he said.

“However, the current focus among investors may be misplaced. The stock market’s response may have less to do with the timing and number of rate hikes than it does with the ‘direction’ of real earnings.”

Real earnings also looked great in 2018 before Powell’s rate hikes caused stocks to scorch lower for several months. Is a repeat performance on its way?

It certainly could be. And that’s definitely worth worrying about, even if the next earnings season looks good. Don’t forget that we’re in “good news is bad news” territory, where positive economic data (including strong earnings) may only cause the Fed to dial up the hawkishness further.

Does that sound like the kind of thing that bulls should ignore? Not if they want to avoid a severe “haircut” when the taper ends in March and the rate hikes (or Fed balance sheet reductions) are expected to begin.


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## DaveTrade

*The “Dirty Little Secret” in Today’s Inflation Report*





Stocks traded flat this morning as bulls attempted to push shares prices higher once more. Following the release of the December Producer Price Index (PPI), however, much of the market’s enthusiasm from yesterday waned. Investors learned that producer prices climbed 9.7% year-over-year (YoY), falling just shy of the consensus estimate (+9.8% YoY).

And while an inflation “miss” these days could certainly be interpreted as bullish, December’s PPI print was nothing worth celebrating. It still represented a new record high for the index, up from November’s 9.6% yearly gain in producer prices.

“Stocks shook off the sticker shock of the historically high inflation number, but that was also widely expected and incredibly a non-event today really,” explained LPL Financial’s Ryan Detrick.

When food and energy prices were removed, December’s core PPI jumped 8.3% YoY, well above the +8.0% YoY estimate. The margin between Headline PPI and CPI remained wide last month (2.7%), too, suggesting that profit pressure persisted for corporations.

Wall Street still expects strong revenues from America’s top companies in the coming weeks, though, as earnings season gets underway this Friday.

“What we are excited about is earnings season is right around the corner,” Detrick said.

“We expect another solid showing by corporate America, while it will also be a chance to stop focusing so much on the Fed and policy, but instead get under the hood and see how the economy is really doing.”

The most important thing to consider when looking at the December inflation data is that gasoline prices fell 6.1% last month, dragging down the headline prints significantly. That will not be the case with January’s numbers, as WTI crude oil just eclipsed $82.00 per barrel yesterday, rising over 30% from the December low.

This could boost the January inflation readings substantially, which may only make the Fed squirm as it gets one month closer to March – the month in which most analysts believe the first 2022 rate hike will occur.

But will yields spike higher in anticipation of a rate hike? They already did earlier this week after the December FOMC minutes were released, causing a major “tech wreck” in the process.

And while rates should ultimately rise through February, they probably won’t move too fast for bulls to comfortably handle.

“We expect the US 10-year yield to move from the current 1.73% to around 2% over the coming months, as investors digest the Fed’s more hawkish stance along with further elevated inflation readings,” read a note from UBS strategists.

“That said, we don’t expect a sharp rise in yields that will imperil the equity rally. Year-over-year inflation is still likely to peak in the first quarter and recede over the year.”

UBS’s take on yields is a rational one. How the bank’s analysts feel about inflation, on the other hand, might be a little too optimistic. This estimate was made with the assumption that the Fed will actually raise rates when the time comes.

What’s more probable, however, is that Fed Chairman Jerome Powell finds some way to weasel out of a rate hike. Slowed economic growth or another surge in Covid cases might be enough to keep his finger off the hawkish trigger. This would help equities, of course, but at a great cost to the consumer as inflation rises further.

So, until March hits, a slow increase in yields should occur while the market makes new highs. Any uptrend from here would likely be a volatile one, but bulls could still see strong returns in the wake of better-than-expected corporate earnings.

Even with the first of three (possibly four) rate hikes looming in a few months.


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## DaveTrade

__





						True Market Insiders
					






					www.truemarketinsiders.com


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## DaveTrade

*If THIS Happens, Stocks Could "Flash Crash" Again*





In the west, it’s all about rate hikes. Wall Street expects that the Fed will raise rates roughly four times this year. JPMorgan CEO Jamie Dimon shook things up last week when he predicted that the Fed would actually raise the federal funds rate a total of seven times. This caused a temporary intraday spike in yields.

But in the far east, China’s cutting rates instead. Beijing unexpectedly reduced rates today for the first time since 2020. The move was made in an attempt to reboot the Chinese economy, which has recently slowed due to Covid shutdowns and a sluggish real estate market.

“The [People’s Bank of China] really has started the New Year in a different position to, let’s say, other global banks and we do expect to see further easing or supportive measures, both monetary wise as well as from a fiscal stance,” said Fidelity International investment director Catherine Yeung.

US equity futures climbed slightly higher on the news alongside European stocks. And though the bond/equity markets are closed for MLK day, Treasury futures are pointing to a jump in yields tomorrow. The 10-year Treasury yield is on track to open above 1.80%, matching its post-pandemic high set last week.

That may seem like a bearish impulse for stocks at first glance. However, equities have risen in tandem with yields in the past. It's just that they tend to fall when rates move too quickly.

What qualifies as “too quick?” Historically speaking, stocks struggle when rates move more than two standard deviations within one month or less. That might seem like a wide range to work with, but the longer rates remain unchanged, the less “wiggle room” they have.

The standard deviation shrinks more and more as rates remain flat. This is what occurred on Jan 5th when stocks rapidly plunged in response to a spike in yields that well exceeded the two standard deviation limit.

“That hawkish surprise hit the broad markets on Wednesday but especially high-growth and high-[price-to-earnings] tech stocks, as the prospects of the Fed aggressively tightening are most negative for high-growth/high-PE names,” said Sevens Report founder Tom Essaye last Monday, referencing the December FOMC meeting minutes release in which investors learned that the Fed may reduce its balance sheet in March. This jolted yields higher, sinking stocks.

But will yields spike again in the coming weeks? UBS strategists released a note last week covering this very topic.

“We expect the US 10-year yield to move from the current 1.73% to around 2% over the coming months, as investors digest the Fed’s more hawkish stance along with further elevated inflation readings,” the bank’s analysts explained.

“That said, we don’t expect a sharp rise in yields that will imperil the equity rally.”

And though today’s Treasury futures activity indicates that yields will rise tomorrow, China’s rate cut is unlikely to cause a major US Treasury yield surge. It would take another unforeseen, hawkish action by the Fed to prompt that kind of response.

So, despite the market’s recent weakness and inability to truly rally, traders may be looking at yet another dip buying opportunity, simply because the Fed’s out of surprises for January. That could change if Fed Chairman Jerome Powell comes out and announces a February rate hike at the next FOMC meeting.

But for now, bulls probably have the “green light” to swing shares higher once more. Provided, of course, that corporate earnings come in better than expected this week.


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## DaveTrade

*Will the White House "Cancel" 5G Tomorrow?*





Stocks fell again today as yields spiked this morning, hitting new post-pandemic highs in the process. Goldman Sachs (NYSE: GS) also reported a major earnings “miss,” souring investors on bank stocks even further after JPMorgan (NYSE: JPM) disappointed shareholders on Friday. This set a bearish tone for the current earnings season that’s only intensified in the wake of Goldman’s underwhelming revenues and forward guidance.

“Recent economic data is further confirming the economy is indeed slowing due to omicron. Retail sales, consumer confidence, industrial production, and the Empire State manufacturing all told a similar story, our economy is slowing and worries are growing,” said LPL Financial's Ryan Detrick.

“This isn’t the end of the world though, as we expect any near-term slowdown of output to simply be pushed back to further quarters once the Omicron worries subside.”

And though bank stocks dragged the Dow lower, the Nasdaq Composite endured the worst losses on the day. Tech shares were hammered by surging rates as the 10-year Treasury yield notched a new post-pandemic high at 1.856% as did the 2-year Treasury yield at 1.03%.

“The bond market is continuing to price in a more aggressive policy tightening by Federal Reserve based on still-high inflation and the Fed’s more hawkish guidance,” explained Oxford Economics chief economist Kathy Bostjancic.

“A fairly aggressive Fed tightening path will lead to somewhat lower valuations as economy-wide growth should slow as the Fed tries to soften the pace of demand.”

Few tech stocks were spared in the selling. Tesla (NASDAQ: TSLA) and Amazon (NASDAQ: AMZN) both fell 2.5%. Facebook-parent Meta Platforms (NASDAQ: FB) dropped almost 4% through noon.

But the next group of “biggest losers” could be tied to either the airline or wireless industries. It all has to do with the upcoming 5G nationwide rollout and its impact on commercial planes, which could ground thousands of flights in the next few weeks.

The reason being that 5G signals operate on a similar wavelength as those used by altimeters, which measure the distance between airplanes and the terrain beneath them. 5G signals have the potential to interfere with altimeters because of this.




The FAA recently cleared most commercial planes for ultra-low visibility landing (when altimeter use becomes even more important) near 5G towers. On Sunday, however, Airlines for America, a group of airline lobbyists that represent Delta, American, Southwest, UPS, FedEx, and others, released a statement saying that the group remains concerned about disruptions to existing flight schedules due to poor weather conditions provoking more ultra-low visibility landings than usual.

“Even with these new approvals, flights at some airports may still be affected. The FAA also continues to work with manufacturers to understand how radar altimeter data is used in other flight control systems. Passengers should check with their airlines if weather is forecast at a destination where 5G interference is possible,” Airlines for America said.

The group believes that over 1,100 flights and 100,000 passengers could be subject to delays or cancellations each day.

“Unless our major hubs are cleared to fly, the vast majority of the traveling and shipping public will essentially be grounded,” the airline lobbyists said.

“The ripple effects across both passenger and cargo operations, our workforce and the broader economy are simply incalculable […] To be blunt, the nation's commerce will grind to a halt.”

If the lobbyists are right, this could make the ongoing supply chain issues in the US far, far worse.

The White House said this morning that it would work with airlines, wireless providers, and federal agencies to settle the dispute.

“The administration is actively engaged with the FAA, FCC, wireless carriers, airlines, and aviation equipment manufacturers to reach a solution that maximizes 5G deployment while protecting air safety and minimizing disruptions to passenger travel, cargo operations, and our economic recovery,” a White House official said.

The 5G rollout is supposed to begin tomorrow, but if the White House delays it, 5G stocks could face some short-term pain. Verizon (NYSE: VZ) and AT&T (NYSE: T) likely have the most to lose should Biden delay the rollout.

On the other hand, if the White House allows the wireless companies to plow forward, airlines could see their share prices drop instead if flights are canceled. This outcome could also impact the broader market assuming Airlines for America is right and poor weather causes significant backups at America’s major airports.

For bulls, the best outcome likely involves a 5G rollout delay. The alternative would arguably be a bearish impulse for the majority of the market, and at a very inopportune time with the S&P trading near its recent lows.


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## DaveTrade

It’s All Bullish for Energy and Financials​By Mike ReillyJanuary 20, 2022


One of the most important themes these days is the rotation between growth and value stocks.

To be clear, we’re not seeing a rotation out of stocks into risk-off alternatives, we’re seeing a rotation within the equity market.

Groups like Energy and Financials have been breaking to new highs while growth and Tech indexes have come under serious pressure (as you’ll see in our Relative Strength Analysis below).

We’re only 20 days into the new year, but so far 2022 is telling the story of two markets – and possibly foreshadowing what’s to come.

You see, while cyclicals and value stocks look to become this year’s outperformers, it looks like the party is finally coming to an end for the growth trade.

Here is a one-month chart of the 11 broad sectors of the U.S. market.






Take a look at the performance leaders: Energy, Staples, Financials, Industrials, and Basic Materials. In other words, value stocks. 

Just as importantly, is what isn’t working… previous leaders like Technology, Consumer Discretionary, Communications – the growth stocks.

Further proof can be seen in our Relative Strength analysis of the broad sectors, as Financials and Energy hold the two top spots after displacing Technology (now #3). Industrials are close to breaking into the top four. 

*That would make three of the four strongest sectors cyclical value groups.*

Energy stocks (XLE) have been on a torrid run. Beginning 2022 ranked #6 out of the 11 broad sectors we track, January 11 they were #4 and as of last night’s market close, Energy moved into the #2 ranked sector.

It’s also noteworthy that this is the first time in five years (2017) that Financials have been the top dog.

*So, investors will want to lean into these value-heavy leadership groups in 2022.* As for growth, well, as long as rates continue to rise, it’s likely to remain messy.

When we look beneath the surface at growth and value stocks right now, our breadth data is confirming what we’re seeing at the sector level. 

Here’s one way to visualize how large-cap value and large-cap growth are moving in opposing directions. 

This indicator shows us the percentage of stocks above their 50-day moving averages for each of these indexes:





Breadth or participation from large-cap value stocks has risen dramatically since December. *The metric went from 20% to 70% in just over a month.*

Large-cap growth looks very different. We’ve seen the number of stocks above their 50-day moving average fall from about 70 to under 40 in recent months.

*I think Investors have two options – complain that growth stocks can’t seem to find a floor or rotate into the groups that are working. Don’t overcomplicate it.*

For now, our breadth analysis is confirming the price action at the sector level. *While nothing looks good in the growth space, it’s all bullish for energy and financials.*

One thing we’re keeping a close eye on is for participation to broaden out to the other value sectors like Materials and Industrials. 

It’s not quite there yet, and we want to see these areas participate and help confirm the value trend.

Here’s a look at the percentage of stocks above their 50-day moving averages for each of the value sectors.





Energy has an impressive 95% of stocks above their 50-day moving average, closely followed by Financials at 77%.

*Before we can bet on a sustained rotation into value stocks, we want to see participation broaden to these sectors as well. Financials and Energy can’t prop up the entire market.

For now, we like the idea of leaning on leadership (Financials and Energy). *

When it comes to the health of the overall market, we want to see an improvement in market internals from Industrials and Materials.

These groups following Energy and Financials to new highs would be a very bullish development. We’ll be keeping a close eye on them for confirmation.


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## DaveTrade




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## DaveTrade

*The "Other Index" Most Traders Ignore (But Shouldn't)*





Stocks endured deep losses at the open this morning before recovering slightly through noon. Overall, the market still seems shocked by yesterday’s afternoon plunge. On Wednesday, equities provided an eerily similar performance when the major indexes all opened higher before closing much, much lower.

This new pattern has bulls feeling wary about “buying the dip” for the first time in over a year. In fact, the S&P temporarily broke below its 200-day moving average (SMA) – a long-term trend identifying indicator – earlier this morning. If the index closes below the 200-SMA, it will be the first time it has done so in 409 trading days. That would measure the longest “win streak” above the 200-SMA for the S&P in over 8 years.

The last time the index closed below the 200-SMA was when Covid hit in late February 2020. Before that, the Fed’s rate hikes drove the S&P beneath it in late 2018.

And for the Nasdaq Composite, things are even worse. The tech-heavy index already closed below the 200-SMA last Tuesday and is having its worst January in more than 30 years.

Traders remained focused on the three major indexes – the S&P, Dow, and Nasdaq Composite – over the last few weeks, searching for signs of an upcoming rally or correction. These indexes were largely “rangebound” during that time, meaning that they were unable to make a concerted move either up or down.

Now, though, the S&P and Nasdaq Composite have broken past their December lows. The Dow remains above key support, but if the current trend continues, it will only be a matter of time before industrial stocks take out their December lows as well.

And while all of this was going on, most investors missed what the market’s “other” major index was doing.






The Russell 2000 (as represented by the iShares Russell 200 ETF) is a small-cap index, but it is seen by many as a better indicator of the US economy’s health than the S&P. The reason being that roughly 40-50% of the S&P’s revenues come from foreign sources while only around 10% of the Russell 2000’s revenues are foreign by comparison. That means Russell 2000 stocks are highly dependent upon domestic revenues to prosper.

And when domestic revenues are down, the Russell 2000 suffers for it. The index has fallen roughly 17.5% from its recent peak, almost qualifying it for bear market status (which most would argue requires a 20% correction from the recent highs) vs. the S&P’s much smaller 7.5% correction from its all-time high.

Worse yet, the Russell 2000 was effectively flat through the majority of 2021 while the S&P notched new highs week after week.

Historically speaking, whenever the Russell 2000 enters a bear market, the major indexes tend to follow. And the Russell 2000 is dropping for a very good reason. Investors are starting to realize that a rate hike is actually on its way in March, and according to the most recent crop of inflation data (the December CPI and PPI), inflation looks anything but transitory.

Don’t tell fund managers that, though. In the Bank of America Global Fund Managers Survey (released Tuesday), investors learned that 56% of the world’s top fund managers still think that inflation is merely transitory. Only 36% believe that it’s permanent.

This disconnect from reality is the kind of thing that drove the market’s wild price action in January. Money managers these days don’t know how to handle a portfolio while the Fed is tightening. Most have simply never experienced it, and they aren’t positioned properly as a result. This caused the market to become more prone to major price swings.

That's bad news for long-term, buy and hold investors, who have been forced to "white knuckle" their portfolios through January.

But for active, short-term traders? It’s been a bit of a gift, especially over the last week for any bears that took shorts on some of the market’s smaller-cap names. These are the same types of stocks included in the ailing Russell 2000, or as I like to call it, the “pulse index,” which traders should really be using to examine the state of the US economy far more than the foreign revenue-driven S&P.


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## DaveTrade

The Death of 60/40: Starting Valuations Matter… A Lot (Part I)​By Tim Fortier  January 21, 2022


Welcome to week three of my series, *The Death of 60/40*.

The 60/40 Strategy is ubiquitous in the investment industry, but will likely fail to deliver future returns that are substantial enough to match most investor needs.   

Last week I demonstrated how the historical returns for this strategy have been very dependent on the economic regime in play at the time.  

Today, we’ll take a deeper look into the equity component of the 60/40 Portfolio and will discuss the current expectations for equity returns.  

With 60% of the strategy allocated to stocks, stock market returns have been the strategy’s “muscle,” responsible for much of the overall return.

For purpose of analysis, *I have constructed a portfolio composed of 60% Large Cap U.S. Stocks and 40% 10-Year Treasuries*. My analysis period is from 1972 to 2021.  

This period covers the inflationary 70s, the boom cycle of the 80s and 90s, and the various boom and bust cycles of the past 20 years.   
From the beginning of 1972 to the end of 2021, $10,000 invested in this strategy produced a cumulative amount of $1,060,977 with a compound annual average return of 9.78%. Adjusted for inflation, the cumulative amount is only $156,405 or 5.65% CAGR.   

Of this total cumulative amount, stocks produced $835,794 while bonds provided $215,183. In other words, stocks have provided nearly 79% of the overall return. 

Additionally, in studying risk attributes to the portfolio, we discover that the 60% stock allocation is attributed to nearly 88% of the risk within the portfolio.  

Because of the dominance of equities within this strategy, it’s vitally important to have a realistic expectancy for the future returns of stocks.

From last week’s discussions of historical returns, we know that the period 1982–2000 was the single best period only to be followed the single worst period of the “lost decade”. 

My approach will be to examine stock market valuations at the beginning of each of those periods and then to compare them to the current market valuations.   

_NOTE: I am going to spend a little be of time providing some background information to help explain my main point. I will be breaking that into two segments to be continued next week.    _

*Stock Market Valuations – Part 1*​There are many different means to measure a stock’s valuation. Individual stocks can be measured on a Price/Earnings, Price/Cash Flow, Price/Sales, Dividend Yield, or a Price/Book Value.   

P/E ratios are a cornerstone of fundamental stock valuation analysis and are most commonly looked at for individual firms. The P/E ratio is a ratio of a stock price divided by the firm’s yearly earnings per share.

The same analysis can be done on the entire stock market. By adding up the price of every share in the S&P 500, and comparing that to the sum of all earnings-per-share generated by those companies, you can easily calculate the P/E ratio of the US stock market.

For instance, currently,  the trailing 12 months of earnings for the S&P 500 is $178.24.

The current P/E is 25.56 (as of 1/19/2022) 

If we take the current P/E x Earnings, we arrive at the current level of the S&P 500 Index ($178.24 X 25.56 = 4,555)  

Historically, the P/E has averaged about 16, fluctuating between a low of 5.31 (December 1917) and a high of 123.71 (May 2009 – the P/E was so high because reported earnings declined significantly during the Great Financial Crisis).   






There has been a clear relationship between earnings and price as both have steadily risen over time. 






If we were to apply the “average” P/E ratio to the current earnings of the S&P 500, the index level would be 1,979 or about 44% lower!    

I am not suggesting that S&P Index is heading to 1,979. I am only demonstrating that the multiple applied is extremely important. 

It would be easy to predict the level of the S&P IF the multiple remained constant. Then, if we had a reasonable estimate for earnings, we could easily multiply to arrive at our price target.

If it was only that easy. Unfortunately, it’s not.  

The multiple applied is determined by prevailing interest rates, investor sentiment, the macro environment, and of course, earnings to name a few of the important factors.  

An important point to take away from this discussion is that a stock’s price can move higher just on multiple expansions alone. A stock with $1/per share in earnings at 15 multiple is priced at $15/share. Take the exact same company and give it a 30 multiple and the stock is now priced at $30, even though it hasn’t sold any more goods or services than the $15 dollar stock.  

It’s just the multiple that is different (hang in there, I promise this is all coming together).

On January 1, 1982, at the beginning of the best period ever, the earnings for the S&P 500 were $45.56. 

On December 31, 2000, earnings stood at $80.12 representing a 76% increase in earnings.

In the same period, the S&P increased from 133 to 1335.63 representing a 9X increase!

It wasn’t entirely earnings that drove prices higher.  

When we examine more closely, the starting P/E on January 1, 1982, was 7.73.

One has to remember that interest rates at that time were 14.59% and investors’ confidence was quite low having had the recent experience of the 1970s stagflation.   

As interest rates steadily fell and investor confidence increased, so too did the multiple that investors were willing to pay for earnings. 

By the end of 2000, the P/E ratio stood near 30, up almost 4X from where it began nearly two decades earlier. 

*While earnings had risen during this period, so too did the P/E multiple and this accounted for the majority of stock market gains!  

Read that last sentence again.  *

On December 31, 2010, earnings for the S&P 500 had increased to $98.39 yet investors who had bought and held the index for the prior 10 years had nothing to show for it.  

This was because the P/E had contracted to 20.70 as investors had just been battered with the dot.com crash and the financial crisis of 2008–2009. It would take two more years for the P/E to bottom out and begin to cycle higher.  

The chart below smooths earnings and adds overlays showing the modern-era average (arithmetic mean) P/E value of 19.8 (baselined as 0%), as well as horizontal bands showing +/- standard deviation bands. *As of January 14, 2022, the S&P 500 P/E ratio is 90% higher than its modern era average*.






*What we can glean from this information is that the single best era began with a historically low P/E ratio which allowed for both earnings growth and P/E expansion.   *

The “Lost Decade” began with a P/E ratio that was historically high – over two standard deviations above the historical average. This led to a period where the market went nowhere for nearly 12 years. Even though earnings did manage to grow some, it wasn’t enough to compensate for the contraction in the P/E multiple.  

Which brings us to today, where we find ourselves facing a similar extreme high valuation reading.  

I will conclude my outlook for stocks next week in Part 2 of “_Starting Valuations Matter… A Lot,”_ where I will examine a variety of other valuation metrics that all bode similar warnings to investors.


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## Country Lad

DaveTrade said:


> *The "Other Index" Most Traders Ignore (But Shouldn't)* - iShares Russell 200 ETF




Just for interest and clarity, here is the above 5 month iShares Russell 200 ETF chart expanded to 5 year and 2 year charts.


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## DaveTrade

Country Lad said:


> Just for interest and clarity


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## DaveTrade

Compare the charts around the world;


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## divs4ever

i find the UK and South Korea charts  surprising  , could they have been accidentally swapped  

 just asking 

 cheers


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## Gunnerguy

Yep starting to get worried here. Spent the weekend reading and looking at charts. I’m a long term ‘buy and hold’ 27 years buy and hold but with some trend index in and out. Country and thematic  Index ETF’s. Went 25% cash in July 2021, yes missed a bit, but now 40% cash after some selling in Friday. I can’t afford ‘to loose what I got’ with living expenses and Ms.GG wanting to build a house.
Yes so far not a large drop in the big picture. Portfolio is only down 3% over the past 3-4 months. Portfolio has a Beta of about 0.7 but if markets tank 20% I can’t afford it (I’m retired).
Learnt about options ( and traded and did well) the last 10 months so considering buying ASX200 March/April puts at 6900 to reduce the pain if it happens.
Buying insurance tomorrow.
Gunnerguy


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## qldfrog

Gunnerguy said:


> Yep starting to get worried here. Spent the weekend reading and looking at charts. I’m a long term ‘buy and hold’ 27 years buy and hold but with some trend index in and out. Country and thematic  Index ETF’s. Went 25% cash in July 2021, yes missed a bit, but now 40% cash after some selling in Friday. I can’t afford ‘to loose what I got’ with living expenses and Ms.GG wanting to build a house.
> Yes so far not a large drop in the big picture. Portfolio is only down 3% over the past 3-4 months. Portfolio has a Beta of about 0.7 but if markets tank 20% I can’t afford it (I’m retired).
> Learnt about options ( and traded and did well) the last 10 months so considering buying ASX200 March/April puts at 6900 to reduce the pain if it happens.
> Buying insurance tomorrow.
> Gunnerguy



I bought this insurance 2w ago put at 7450 or so march april and doing well so far


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## Dona Ferentes

_*Consecutive days of losses, savage selling in the final hour of trade, and the reversal of intraday gains are all worrying signs on global markets*_.









						It’s the way markets are falling that’s really worrying
					

Consecutive days of losses, savage selling in the final hour of trade, and the reversal of intraday gains are all worrying signs on global markets.




					www.afr.com
				




Ursa Major or the Big Dipper??

we will see if some of the adages are true this afternoon or soon after ......  especially

_Amateurs open markets, Professionals close them_


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## DaveTrade

The Death of 60/40: A History​By Tim FortierJanuary 13, 2022





Last week I introduced the idea that the traditional 60/40 Portfolio, a common approach among investors, was no longer going to serve investors as intended in the coming years.

But in order to understand the future, we must first understand the past…

Model portfolios that adhere to a specific asset allocation have often been used by investors because of their ease of implementation.  

The 60/40 Portfolio consists of 60% allocation to diversified equities and a 40% allocation to a broad basket of bonds.

The reason many people will invest in both stocks and bonds is that they are often non-correlated, meaning, stocks often zig while bonds zag. 

While the relationship isn’t constant, combining two or more non-correlated assets into a portfolio results in a better portfolio than just either alone.

Due to the imperfect correlations between stock and bond returns historically, the 60/40 model has enjoyed decades of success at providing investors with strong absolute returns and suitable protection in a down market.   

*Historical returns *

Dating back to 1926, the 60/40 Portfolio has enjoyed an annualized return of 9.1%. Its best year (1993) saw returns of 36.7%, while its worst year (1931) experienced a loss of 26.6%. 

Over those 95 years, only 22 years saw the portfolio decline in value. The returns combined with relative stability have made the balanced portfolio ideal for retirees.

In fact, it has been cited that the concept of the 4% safe withdrawal rate can be attributed to studies done using portfolios similar to the 60/40.  

The problem with long-term annualized returns is that they mask shorter periods where market returns can be less meaningful. By definition, for there to be an “average” there must be returns both above and below the average.  

While recent returns have fared even better, with an annualized return of 11.1% during the past decade, it should be noted that the strategy does display sensitivity to starting equity valuations and economic regime changes.   

For instance, during the “Lost Decade,” the period between 2000 and 2009, the strategy provided a much lower annualized return of 2.3% (before inflation).  






This period was characterized by high starting stock valuations, the dot.com bubble and crash, and finally the real-estate and credit crash.   

During this period, an investor attempting to supplement living expenses from their portfolio by liquidating 4% a year would have eaten into principal well before the next decade of higher returns was experienced.

It’s worth pointing out that as investors we don’t get to choose the sequence of returns that we experience. More commonly referred to as “sequence risk,” a degree of luck is involved.  

For instance, a person who retired in 1982 (right before the single greatest period of annualized returns) had a much better experience than another person who may have retired in 2000, right before “the lost decade,” all else being equal.   

You might say there is luck in the stars because often this important factor is determined by when you are born!   

You may be asking yourself what I mean by the term economic regime. As a simple example, imagine that the global economy is defined by four regimes, each of which combines a growth axis with an inflation axis. 

A period of accelerating growth in combination with rising inflation might be termed an inflationary boom, while a combination of accelerating growth with falling inflation might represent a disinflationary boom. 

On the other side of the axis, a period of slowing growth, combined with rising inflation, is often termed stagflation, while a period of decelerating growth concurrent with falling inflation is a deflationary bust.





One of the problems with the ubiquitous 60/40 Portfolio is that it is really only suited to one of the four economic regimes that an investor is likely to experience over a typical long-term investment horizon. 

While it flourished in the disinflationary growth period experienced from 1981-2000, a 60/40 Portfolio proved relatively ineffective during the stagflationary regime of the 1970s as demonstrated below.

The average annual return during the 1970s was 6.12% before inflation (and included one large drawdown of nearly 28% between 1973-1974). 
















During the period 1982 -2000, the portfolio’s average annualized return was 15% and included only one negative year.















Why did this strategy perform so well in the 1980s but not the 1970s?  

Simply, interest rates respond predictably to inflation. When inflation is expected to decline, interest rates will soon follow, which causes bond prices to rise. 

From 1981 to 2000, we experienced falling inflation, falling interest rates, and economic growth. Hence, an allocation toward fixed income and equities performed quite well because both were rising at the same time. 

*Bonds like declining inflation, while stocks like benign inflation and strong growth.*

When considering any investment strategy it is critical to consider the economic regime in which the strategy will be operating. No investment exists in a vacuum and will be influenced by a myriad of market forces.   

*Thus, when choosing an investment strategy it is extremely important to consider both the current and expected economic regime.*


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## DaveTrade




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## DaveTrade

If we look at a Heikin-Ashi chart it is clear that momentum to the downside is still increasing making me think that the support zone on my chart above will be reached.


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## Smurf1976

DaveTrade said:


> If we look at a Heikin-Ashi chart it is clear that momentum to the downside is still increasing making me think that the support zone on my chart above will be reached.



I suspect you're right.

Momentum is to the downside but I don't expect an actual crash simply because far too many people are calling for one. Everyone from regular commentators on YouTube through to mainstream non-financial newspapers are trying to call it and that's not what tends to happen at a real market top. Too many bears around in the mainstream calling for the end of life as we know it etc.

My guess - down to the support zone, then we get a decent rally that'll reassure everyone that everything's fine, nothing to worry about, all those warnings were just the merchants of doom. Once everyone's convinced of that, the actual top will be imminent.

Just my


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## ducati916

Smurf1976 said:


> I suspect you're right.
> 
> Momentum is to the downside but I don't expect an actual crash simply because far too many people are calling for one. Everyone from regular commentators on YouTube through to mainstream non-financial newspapers are trying to call it and that's not what tends to happen at a real market top. Too many bears around in the mainstream calling for the end of life as we know it etc.
> 
> My guess - down to the support zone, then we get a decent rally that'll reassure everyone that everything's fine, nothing to worry about, all those warnings were just the merchants of doom. Once everyone's convinced of that, the actual top will be imminent.
> 
> Just my





Agreed @Smurf1976 

Look at the extremes:









The bounce, probably will start after 1030am. The open will probably be weak.

I do think however the TOP is in. This is a bounce. Nothing else.

Until the Fed pivots, the market is cooked.

jog on
duc


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## Jeda

Smurf1976 said:


> I suspect you're right.
> 
> Momentum is to the downside but I don't expect an actual crash simply because far too many people are calling for one. Everyone from regular commentators on YouTube through to mainstream non-financial newspapers are trying to call it and that's not what tends to happen at a real market top. Too many bears around in the mainstream calling for the end of life as we know it etc.
> 
> My guess - down to the support zone, then we get a decent rally that'll reassure everyone that everything's fine, nothing to worry about, all those warnings were just the merchants of doom. Once everyone's convinced of that, the actual top will be imminent.
> 
> Just my




Your  is very valuable ✌️


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## DaveTrade

*Will the Next “Big Recession” Start on Wednesday?*





The S&P, Dow, and Nasdaq Composite plunged this morning as Wall Street’s no good, very bad January got worse. Bulls – the few that remain – were left seeing red today across virtually every sector and industry. Few stocks were spared in the selling.

All three major indexes have descended beneath support at their December lows as a result, led lower by the tech-heavy Nasdaq Composite.

And with a critical Federal Open Market Committee (FOMC) meeting coming up this week, the market could face yet another significant test as the Fed continues its fight with inflation.

Goldman Sachs analysts released a note over the weekend suggesting that Fed Chairman Jerome Powell may have a few hawkish surprises in store for traders in his post-meeting remarks.

“Our baseline forecast calls for four hikes in March, June, September, and December,” said Goldman economist David Mericle.

“But we see a risk that the FOMC will want to take some tightening action at every meeting until the inflation picture changes. This raises the possibility of a hike or an earlier balance sheet announcement in May, and of more than four hikes this year.”

This goes completely against commentary provided last week by Wall Street banks, the majority of which expected a dovish announcement from Powell in response to the market’s sudden downturn.

But now, midway through a rough earnings season (in terms of both profits and forward guidance), the Fed has been forced into even more of a “damned if you do, damned if you don’t” situation.

In March, the Fed will clearly be hiking rates into either:

A. Stagflation, which would undoubtedly cause a market meltdown. Or…

B. A rate hike-driven recession, which would potentially reduce inflation by not only raising rates but cooling red-hot economic demand as well.

Option A would be bad. Option B could be catastrophic. Both would wound bulls severely in 2022.

The small-cap Russell 2000, which some analysts view as a good indicator of the health of the US economy (myself included), has officially entered a bear market as of this morning. The index is down 20% from its November high, which was also the index’s all-time high.

The S&P, by comparison, is down roughly 10% from its all-time high. The Russell 2000 typically leads the other indexes when bear markets occur. Analysts from Jeffries pointed to the small-cap index as evidence of recessionary fears (and a future S&P bear market), courtesy of the Fed.

“We think the market is now thinking the 'R-word.' Why else would the Russell 2000 be down as much as it has been?” asked Jeffries strategist Steven DeSanctis.

“Investors see an aggressive Fed pushing the US economy into a big slowdown or even a recession over the next year.”

And so, when the January FOMC meeting wraps up this Wednesday, the market could face a true “make or break moment.” If it becomes clear that Powell is intent on sparking a recession to stop inflation, major pain could be waiting for bulls on the other side of the meeting, likely dragging each major index (and the Russell 2000) to even lower lows in the process.


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## DaveTrade

A picture of the Russell 2000 to go with the above post. As you can see the Russell is currently bouncing off support as are a number of other index's and stocks, the next couple of days will show us if this is a dead cat.


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## DaveTrade

MARKETS IN TURMOIL​By Mike ReillyJanuary 24, 2022






You fell for it didn’t you? The scary headline… works every time.

I wrote that headline to save you the trouble of turning on your TV or following your favorite fear-monger. You’re welcome.

Let me sum it up for you – *the bulls are currently in trouble*.

There’s not a lot to be optimistic about right now. Especially if you’re holding a bunch of long positions in growth areas like Tech and Communications.

Last week, I explained how we were seeing a rotation _within_ equities – not _out of _equities. 

The narrative coming into last week was rotation out of growth sectors and into more cyclical areas like Financials, Energy, and Industrials…

Which makes sense – cyclical stocks tend to do well in a rising interest rate environment where growth areas such as Technology can struggle.

Markets took on a very different tone throughout last week. 

Here are a few of the major indices… none are holding up under the pressure. The DJIA broke support and below its 200 moving average.





Transports are struggling to hold key levels…





The S&P 500 index broke previous support…






Keep in mind, we had already seen small-cap growth (IWM) fail on its attempted breakout and collapse below previous support levels.





And here’s the NASDAQ, which has begun breaking down in December, with over half of its constituents down more than 20% off their recent highs.





Up until now, it’s been high growth stocks getting slammed – just look at Tech. 

But now, the biggest question entering this week is – what do the bulls have left to hold on to?

I think the only things left supporting the Bullish argument are Treasuries and Commodity prices. 

This chart may be one of the most-watched and most important charts on the planet right now. The 10-Year has to hold 1.75%.  

And to be clear, it’s holding that area, so we haven’t seen a failed breakout in 10-Year Treasuries… 

Yet.





Can Treasuries hold? If they can, what does this look like?

Well, I’d expect Value stocks around the world are doing well. Financials are doing well, as are other cyclical areas of the market. And that is what we have been seeing, up until now. 

To be clear, we have not seen a break-down in the 10-Year Treasury – if we do, we’ll have to adjust our thinking.

That was the Bullish argument, but what’s the Bearish argument for equities? Particularly if the 10-Year yield breaks down?

It’s likely the selling pressure that was contained to growthy areas, such as Technology, spills over and begins to hit value/cyclicals. We’d expect to see Financials (specifically banks) fail, Energy sells off, as do Industrials and Materials. Bonds are getting bought in that environment, Gold probably catching a bid, as does the Japanese Yen.

*Understand this, markets are fluid. 

Markets tell you what they’re going to do – not the other way around. 

We have to adjust to markets, markets will never adjust to us. *


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## DaveTrade

A closer look at the 10yr Bond yield mentioned in the previous post;


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## DaveTrade

Because a lot of people on this forum trade the Australian market, I'm post the Aus 10yr Bond Yield charts;


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## DaveTrade

*Don't "Buy the Dip" Just Yet*





Stocks fell this morning after enjoying a massive afternoon surge in the trading session prior. Yesterday, the major indexes initially plunged before reversing, closing slightly higher following an afternoon rally.

And while rampant dip-buying certainly contributed to the bullish reversal, it was a single put seller that sparked the historic momentum shift. At around noon EST, the mysterious put seller appeared, flooding the market with puts. This caused dealers to suddenly pivot from selling S&P futures to buying them via a negative gamma feedback loop that forced an intraday short squeeze as shorts rushed to cover their positions.

Nobody knows who the put seller was. It may have been a hedge fund trying to make some money back before bailing on some losing S&P long positions. Or, it could have been an institutional dip buyer looking to catch the selloff low.

Regardless, stocks reversed again this morning and headed lower once more. The put seller did not return. And, if the S&P doesn’t descend below yesterday’s low, the put seller will have effectively tagged the selloff low to perfection (thanks mostly to the fact that they were responsible for jolting stocks higher).

However, if the S&P does fall below yesterday’s low, the put seller could be in big trouble. Selling puts is a bullish strategy. The put seller would be sitting on a huge loss if the S&P retraces significantly. And, if he/she tries to buy to close those puts to avoid further losses, we could see the market whipsaw lower in epic fashion as puts crowd out calls.

So, even though yesterday’s afternoon rally was a good sign, it’s not necessarily confirmation that bulls are out of the woods just yet.

“I don’t think it’s done,” remarked SoFi’s head of investments strategy, Liz Young.

“This [...] is a digestion process of a new environment that we’re not conditioned for.”

The “new environment” being a rate hike-hungry Fed, which will provide guidance to investors tomorrow afternoon following the January Federal Open Market Committee (FOMC) meeting.

“If you are trading this market, we continue to advise caution,” said DataTrek founders Nichola Colas and Jessica Rabe.

“Clarity on Fed policy will not come until Wednesday’s FOMC meeting, and even then, commentary from the Fed and Chair Powell may be insufficient to calm investors.”

During the initial Covid crash in February 2020, the S&P gave investors a “head fake” when it rallied 10% from trough-to-peak after plunging over 15% in the 6 trading days prior. Many analysts thought the bottom had been reached.

But a few days later, the S&P retraced and fell another 30%. Does a similar fate await equities this time? It’s not out of the question. In fact, these types of “dead cat bounces” often occur in the middle of prolonged selloffs. Bulls just can’t seem to help themselves when they see a sizable dip.

And usually, that dip buying works out. When it doesn’t, however, it only contributes to additional pain once those bulls eventually capitulate.

For that reason, buying into the teeth of the current dip may not be the wisest move, tempting as it may seem. Traders might at the very least want to wait until Fed Chairman Jerome Powell’s post-FOMC press conference tomorrow afternoon, which is shaping up to be a true “make or break” moment for stocks.


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## DaveTrade

NYSE BULLISH PERCENT​




​January 25, 2022 ~ Bill Spencer​

*This Recent Change Is: *A reversal from an X-column to an O-column.

*Date of Change:  *January 20, 2022*.

Number of Days Since Previous Change: *22.

*Interpretation:* The market should now be considered weak in the short term as well as weak over the intermediate- to longer-term.

******

And the beat goes on...

After spending just 22 days in a column of X’s, the NYSE BPI on January 20th flipped to a column of O’s.

This was the shortest stay in an X-column since the period from February 10 to February 26 when this indicator spent just 16 days in an X-column before flipping to O's.

The flip came on January 20, and over the subsequent two trading days the BPI managed to fill four additional boxes and to extend this newest bearish O-column into the "48 box."

Let me explain what that number means...

The New York Stock Exchange Bullish Percent Index (NYSE BPI) is what technicians call an "oscillator." It can move up and down between zero percent and one hundred percent.

What the BPI displays, at any moment in time, is the percentage of stocks trading on the New York Stock Exchange that are currently on point-and-figure Buy signals on their own respective price charts.

The more stocks on Buy signals, the more justified we are in considering the market to be strong. The fewer stocks on buy signals (which is the same as "the more stocks on Sell signals) the more justified we are in considering the market to be weak.

Right now, out of a possible 100 percent, just 44% of NYSE stocks are on Buy signals. By contrast, consider that in February of last year that number got as high as 76%.

Let's go deeper...

For a particular stock to go on a Buy signal, there has to be a lot of buying of that stock. So much so that the price (driven higher by that buying pressure, a.k.a "Demand") is able to penetrate above a historical _resistance_ level.

Deeper still...

A resistance level is a price where, experience has shown, _sellers_ of the stock will step in and distribute their shares. Those sellers/bears will distribute/sell so much of the stock at that price that they are able to overwhelm the buyers/bulls -- thus stopping the upward price movement in its tracks.

So when a stock's price, after failing to get past that resistance price so many times, is able -- finally -- to break above it... that means that the bulls/buyers are strong enough, or have enough conviction, that they overwhelm the bears. The bulls keep buying until the bears run out of shares to supply... or, defeated, throw in the towel and step aside.

Often, those former bears, realizing the truth of the old maxim "if you can't beat 'em join 'em" become bulls themselves. They begin buying, adding even further upward pressure to that stock's price.

The foregoing applies as much to _support_ levels as it does to resistance levels.

A support level is a price where, experience has shown, _buyers_ of the stock will step in and begin to accumulate shares. Those buyers/bulls will accumulate/buy so much of the stock at that price that they are able to overwhelm the sellers/bears -- thus stopping the downward price movement in its tracks.

So when a stock's price, after failing to fall below that support price so many times is able -- finally -- to do so... that means that the bears/sellers are strong enough, or have enough conviction, that they overwhelm the bulls. The bears keep selling until the bulls run out of cash to buy with... or leave the arena.

Often, those former bulls become bears themselves.

Most of the buying and selling these days is carried out by computers working with algorithms that automatically buy or sell once particular, pre-set support or resistance levels have been pierced. This phenomenon is one of the things that makes technical analysis and technical trading so reliable.

The point of all this is: Buy and Sell signals on price charts are a very big deal.

The NYSE BPI is shown on this page in point-and-figure style. This chart will not switch from an X- to an O-column unless the chart can fill _three_ O-boxes. And it won't switch from an O- to an X-column unless it can fill three X-boxes.

There are about 2,800 stocks traded on the NYSE. Six percent of 2,800 is 168. So 168 separate stocks would have had to have put in Sell signals for that January 20 switch to have occurred.

That's a _lot of selling of a lot of stocks_.

There's more...

Notice also that the current O-column has gotten lower than the previous O-column. This means that more stocks are participating in the current down move than participated in the previous one.

In fact, if you follow the current lowest O to the left (the dotted red line), you'll see that the last time the NYSE BPI was this low was back in May of 2020. (The '5' where the dotted line ends means the fifth month of the year -- May. Calendar years are marked along the bottom of the chart.)






The market will not be considered "oversold" until the BPI falls below 30%. So we still have a way to go. But as you can tell from looking at the right hand side of the chart, the BPI has been putting in one lower high and one lower low after another. The market is clearly in a sustained downtrend.

This downtrend has been a feature of the market/BPI since last February. The reason you didn't see it reflected in the Dow or the S&P is because those indices are dominated by a handful of gigantic firms, mostly tech. The Apples and Facebooks and Googles were advancing higher and dragging the averages with them.

But, again, the NYSE represents 2,800 tickers. It's a much more realistic picture of the "internal" stock market. And based on that view of the market internals, there has been more and more weakness "under the hood."

None of this means you should sell out of all your bullish positions and go to cash. It does mean that, if you aren't hedging your bullish bets with, say, 10% of your account devoted to bearish position, you should consider doing so.

If you're not ready or able to sell stocks short, you can always buy put options which will gain in value as the underlying asset -- as stock or sector ETF or even an ETF that tracks the market -- falls in value.

Now is the time to start laying in some dry powder against the day (which will come; it always does) when the market forms a true tradable bottom. On that day, you'll want to be able to swoop in and grab shares of companies that look good at prices that look even better.

And speaking of time, the NYSE BPI is not really a device for timing the market. That's not its primary purpose. It's a barometer of risk. And right now it's telling us that risk is to the bulls. So act accordingly.


----------



## DaveTrade




----------



## DaveTrade

*Why This Morning’s GDP Report Was “Fake News”*





Stocks opened higher this morning following a wild bout of premarket trading, in which futures plummeted alongside Chinese equities before surging in response to newfound economic optimism. Fourth-quarter Gross Domestic Product (GDP) in the US leaped 6.9% year-over-year according to the Commerce Department. By comparison, economists expected an annual increase of just 5.5%.

“The Q4 GDP report was a nice upside surprise in a string of recently underwhelming economic data points,” said Glenmede’s vice president of investment strategy, Mike Reynolds.

It was a huge “beat” to be sure of it, but not necessarily great news for bulls as the bond markets priced in a potential 5th rate hike this year. The yield curve collapsed, too, as the spread between short-term and long-term Treasurys slimmed dramatically.

Perhaps the most concerning GDP data point, however, had to do with product inventory. Despite stories about bare shelves across the country, Q4 saw the second-largest inventory restocking level in history. This trend won’t hold moving forward, which could severely limit GDP readings in 2022.

Jefferies economists Thomas Simons and Aneta Markowska, on the other hand, believe heightened inventories are here to stay.

“The silver lining in today’s report is that the supply side of the economy is starting to catch up to demand, as evidenced by the large inventory build in Q4,” the Jefferies economists wrote.

“Although inventory levels are still low, they have clearly inflected, which should begin to take pressure off inflation fairly soon.”

The market just endured a disappointing earnings season. If we’re right (and the Jeffries economists are wrong like they were about inflation), GDP growth should slow in Q1 of this year as inventory levels remain restrained. That will only make the Fed’s already tough decision even more difficult.

Overall, Q4’s GDP number was certainly impressive, but it was driven primarily by a near-historic increase in inventories. This suggests that, sadly, Q4 2021 may have been the peak for the US GDP for quite some time.

On Wall Street, though, the dip-buying rhetoric has come back in full force as analysts eschewed the Q4 GDP report’s details in favor of its far more palatable headline number.

“We believe it’s now time to take advantage of the pullback opportunity and put sidelined funds to work in favored sectors,” explained Scott Wren, senior global market strategist at Wells Fargo Investment Institute.

“This is the type of market where longer-term opportunities often present themselves.”

Traders called Wall Street's bluff shortly around noon, however, as the major indexes all gave up the majority of their morning gains. The tech-heavy Nasdaq Composite even flipped negative on the day in response to rising rate hike expectations.

So, as is usually the case, it’s probably a good idea to wait before buying into the current dip. Until the S&P is able to put together a few positive trading sessions in a row, it stands at risk of plunging further. And with key support at the October lows lingering nearby, a breakout lower could result in another rapid downturn, no matter how many times Wall Street urges investors to buy back in - something most banks did back on January 10th, just a few days prior to the S&P falling over 7%.


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## DaveTrade




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## DaveTrade

*1 “Big Lie” Most Traders Believe (But Shouldn't)*






Stocks opened lower this morning following some wild futures activity. Today, it was the Fed’s favorite inflation indicator – the personal consumption expenditures price index – that had sentiment flip-flopping in pre-market trading. The index climbed 4.9% year-over-year (YoY) in December, slightly beating the consensus estimate (+4.8% YoY). That’s the largest yearly increase for the personal consumption expenditures price index since 1983.

Personal incomes, meanwhile, rose 0.3% month-over-month (MoM) vs. +0.4% MoM expected. Nominal spending fell 0.6% MoM, matching the consensus estimate. The last time spending dropped MoM was back in February 2021.

When adjusted for inflation, real personal spending sunk a whopping 1.0% MoM but remained up 7.1% YoY.

Overall, the data only provided further evidence for our current hypothesis: that the US economy is slowing down opposite inflation, which continues to rise.

This dealt a blow to dovish hopes this morning as the markets priced in almost five rate hikes for the year.

This kind of reaction from Treasurys makes sense if the Fed is truly set to raise rates in a meaningful way. But to any investors who’ve been paying attention since 2018, that should not be the expectation. Back then, the Fed tried to hike rates when the economy was strong, and inflation was below target. The market collapsed in response to the rate increases and plunged further through the 2018 holiday season. Fed Chairman Jerome Powell eventually capitulated and lowered rates.

In 2022, we’ll probably see a similar situation play out. The Fed will raise rates in March (and possibly even one more time after that) before lowering them by year’s end due to an equity implosion. Keep in mind also that March’s rate hike is unlikely to be a big one. The US government won’t be able to handle a sizable increase in rates due to its immense debt load.

Neither will debt-laden corporations nor consumers. Instead, Powell will barely nudge rates higher (if at all) while providing dovish forward guidance.

Amazingly, that’s not what Wall Street’s predicting. The major banks really believe that almost five aggressive rate hikes are coming down the pipe. JPMorgan (NYSE: JPM) CEO Jamie Dimon even said seven rate hikes wouldn't be out of the question.

Is that a realistic expectation to have, though? Over the last year, the Fed talked about raising rates and the dangers of inflation but did very little to combat it outside of a QE taper. And inflation is still rising despite the reduction in monthly asset purchases.

Remember how both Powell and Treasury Secretary Janet Yellen admitted that inflation was no longer “transitory?" late last year? Their recent actions (or inactions), however, suggest that they still think it is.

Powell and Yellen like to sound tough in their forward guidance, yet they refuse to make any truly hawkish policy decisions. Yellen even went so far as to berate Congress for penny-pinching last year during Biden’s push to pass a bloated infrastructure bill.

And so, as the February FOMC meeting inevitably arrives next month, all eyes will be on Powell’s post-meeting press conference. Will he say that a rate hike's officially on the books for March? If so, how big will it be?

Powell won’t provide concrete answers to either question, though. Instead, he’ll tell investors that a March rate hike is still “highly likely” without quantifying its size. Powell will then remind the market that the Fed wants to remain “nimble,” too, should things go bad.

This sets the stage for a few minor rate hikes followed by a market “crunch.” Several months later, Powell would then step in and lower rates as the US economy enters a recession.

Keep in mind, the scenario I just laid out is by no means guaranteed to happen. Nobody has a crystal ball. That’s doubly true when it comes to predicting monetary policy.

But it should be the working theory for rational investors who understand the relationship between rates, debt, and the US economy. I know it’s a grim outlook. And it’s certainly not what bulls want to hear with the major indexes sitting at the bottom of a rapid correction.

However, it’s what the market needs to realize as March approaches. If the rate hike comes in lower than expected, stocks could easily rally in response. Longer-term, though, a true bear market seems inevitable should the Fed continue down this path.

Which, according to Wall Street, involves raising rates to market and economy-wrecking levels.


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## DaveTrade

For me it's a waiting game at the moment, that's what the charts are telling me and I'm not sure if it will break down or up from this point. There is a lot of down momentum to turn around but I can see a glimmer of strength coming in, but no clear signs. Here are some charts of interest;


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## DaveTrade

*Get Ready for a Tech Rally*





Dow industrials down, tech stocks up. That was this morning’s trend as the market’s worst month since March 2020 drew to a close. Tech shares boosted the Nasdaq Composite in response to bullish calls from Wall Street. Citi upgraded its outlook on both Netflix (NASDAQ: NFLX) and Spotify (NYSE: SPOT), causing each stock to jump higher at the open.

Other tech stocks impressed, too. Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) continued their recoveries that began on Friday. Amazon (NASDAQ: AMZN) was up as well following a steep decline earlier in the month.

Overall, the S&P traded for a moderate gain, which was a great sign for bulls given how poorly the last few weeks have gone.

“Mostly, this week will be all about whether the correction low is already in or whether last Monday’s intra-day low is again challenged and breached,” explained Leuthold Group chief investment strategist Jim Paulsen.

“The longer the S&P stays above last Monday’s low or moves even further away on the upside, the more that calm will return, and fundamentals may again start to dominate emotions in driving the market.”

Aiding bulls is the fact that nearly every one of the market’s major players is hedged for a crash. Fearing a rate-driven plunge, banks loaded up on bearish positions seeking protection. But if equities rally into February, those same banks are expected to cover their shorts en masse, leading to a potential short squeeze that may even take stocks to new heights.

Don’t forget that last week, a mysterious trader single-handedly reversed sentiment by selling a massive number of puts. This effectively halted last Monday’s correction and led to an intraday rally of epic proportions.

If it’s clear that another uptrend is underway, this put seller may sell additional puts in order to capitalize on the bullish momentum, hastening the short squeeze in the process. This is the kind of thing that technical analysts live for: a sudden downturn followed by a face-ripping rally, easily identified with technical trading indicators.

But fundamental analysts would also be able to rationalize an early February rally after AAPL and MSFT both posted huge earnings “beats.” Up until these Big Tech names reported, it was a bit of an underwhelming earnings season.

Now, though, the stage is set for a short-term upswing. That doesn’t mean stocks will continue to climb into March as a rate hike approaches, or that a post-February FOMC meeting selloff is avoidable.

Short-term traders aren’t necessarily interested in a longer-term uptrend, though, and they really shouldn’t be. Anyone who called the recent correction made out with some impressive bearish gains. And if the bottom has truly been reached, bullish rewards await anyone willing to go long in the coming days.

Tech stocks seem the most likely to outperform given that they sold off so severely this month. Dow shares, by comparison, should lag.

But all three major indexes are likely to rise if the highs of today’s trading session are eclipsed. Especially as an enormous wave of shorts – all put on by hedge-happy Wall Street banks – simmer beneath the market’s surface, serving as potential “kindling” for the next bullish bounce.


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## DaveTrade

*Why "Buyback Mania" Is Almost Here*





Stocks ticked lower this morning following yet another wild premarket trading session that saw sentiment flip several times. The tech-heavy Nasdaq Composite fell the most of the three major indexes opposite the Dow, which only endured slight losses. The S&P split the difference.

Big Tech, in particular, dropped after a strong showing yesterday. Nvidia (NASDAQ: NVDA), Apple (NASDAQ: AAPL), and Microsoft (NASDAQ: MSFT) all sunk roughly 1%. Meanwhile, bank stocks rallied alongside oil shares.

"We believe that once the FOMC starts to raise the federal funds rate and details the pace of running off the Fed’s balance sheet, the financial markets will learn to live with tightening monetary policy as long as it doesn’t risk causing a recession,” said Ed Yardeni, president of Yardeni Research.

Exxon Mobil (NYSE: XOM) skyrocketed today after the company reported a blowout Q4 before the market opened this morning. XOM boasted $8.87 billion in quarterly profits, marking its largest profit since 2014. Biden’s push for renewable energy last year ironically boosted margins tremendously for the integrated oil & gas industry. This came at a great cost to consumers, but for XOM, it was a major boon.

The company distributed $15 billion to shareholders in 2021 while reducing spending. What’s more, XOM wants to slash spending further. The company just announced yesterday that it plans on closing its corporate headquarters in Dallas. Additional “belt-tightening” maneuvers are expected as well.

But the big news for XOM shareholders was that the company announced a $10 billion stock buyback program, which was roughly the size of the company’s revenues beat last quarter. This drove XOM shares over 5.50% higher through noon as bulls collectively laughed in the face of Biden’s green energy agenda.

And though most US stocks didn’t enjoy a Q4 as strong as XOM’s, the company may be setting a precedent for the near future. Additional stock buybacks from other corporations seem likely over the next few weeks. Share prices are trading at major discounts relative to their recent highs, after all.

For any company holding excess cash, buybacks are a bit of a “no-brainer,” even with many Wall Street banks predicting a recession later this year.

Wells Fargo strategists, however, still think there’s a good chance that the US economy will avoid a major slowdown.

“The latest decline is a normal market correction that does not signal a recession or the end of this bull market,” explained Wells Fargo global equity strategist Chris Haverland.

“We continue to believe that economic growth and corporate earnings will be solid this year, and that the Fed will not be overly aggressive in dialing back monetary policy.”

Haverland is probably right in that the Fed won’t dial up the hawkishness like most Wall Street analysts think it will. That doesn’t mean, however, that the US economy’s going to be firing on all cylinders through Q3 and Q4. Persistent inflation pressures should make sure of that.

But in the short-term, the stage is certainly set for a major rip higher despite this morning’s struggles as more companies prepare to unleash massive buyback programs alongside XOM.


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## DaveTrade

What January Means for the Rest of 2022​By Mike ReillyFebruary 1, 2022




Rather than guess at what might be happening in Global markets, let’s focus on what is happening. 

So, what do we know for sure today? 

We know January is in the books and it will go down as one of the more volatile beginnings to a year in recent memory.

We know that bond yields are rising and central banks are tightening… 

The Fed continues to chase inflation, but at least at this point they realize it’s not transitory – better late than never, I guess.

Rates, in general, have been moving higher, not just in the U.S., but around the world.

Although U.S. bond yields are off their recent highs, they remain above the important 1.75% level.






Globally, yields around the world are breaking out. German 10-year yields are trying to break above resistance at zero (yes, zero) and back into positive territory for the first time since 2019.






While Japanese 10-year yields are at their highest in over six years.






“So why should I care about rates?” you ask…

Because even if you don’t invest in the bond market, the biggest institutions in the world do, so it makes sense to know what they’re up to.

Individual investors should keep an eye on the direction of bond yields because rising yields mean we need to close our playbook that worked in 2019 and 2020, and dust off the playbook called *What Works in a Rising Interest Rate Environment*.

In the face of January’s volatility, we’re seeing the stocks that tend to do best in rising rate environments leading the market. 
*The two best sectors when rates are rising are Energy and Financials.*

And as it turns out, those were the only two sectors up in January – Energy (XLE) and Financials (XLF). 






So, as messy as January was, from a sector rotation perspective, markets are doing exactly what we’d expect.

Assuming rates don’t break down, we should ask ourselves, “how could investors take advantage of the rising rate environment?”

You could always look at the broad-based sector funds outlined above, or you could dig a little deeper into the industry group level and take a look at Oil Explorers and Producers. 

Take a look at the Invesco Energy and Explorers ETF (PXE). Or rather than the broad sector, take a look at Regional Banks – the iShares Regional Banks ETF (IAT) or the SPDR Regional Bank ETF (KRE) are worth a look… all three of these have shown both relative and absolute performance relative to the broader market (SPX) this year.

If individual stocks are your thing, take a look at Chevron (CVX). We like companies that show relative strength. And Chevron is an example of a company showing both relative and absolute outperformance. 






As you can see in the long-term chart above, CVX is soaring to new all-time highs as it breaks above resistance at its old high from 2014 and 2018. 

If this is a valid breakout, we’d expect a rally to follow this seven-year base breakout.

Here’s a close-up of Chevron using Fibonacci to outline levels of support/resistance and future interest.






A break below the 127 area would likely mean Chevron isn’t ready to break out just yet and could mean the price falls back to its previous range – something to be aware of from a risk-management point. If Chevron can stay above the 127 level, there’s potential upside all the way up to the 173 range.

I’m simply using Chevron as an example of how applying Relative Strength to markets allows us to drill down to sector strength, industry group strength… all the way down to the strongest individual securities. 

It just so happens that Chevron is a good example of our process at work…

HOWEVER, and there’s always a however, everything I’ve outlined above regarding the strength out of Energy, Financials, or even Chevron, is based on the current rising interest rate environment staying firmly intact…

If it doesn’t, all bets are off and the revised market environment will call for a different playbook.


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## DaveTrade

My personal opinion is that this year has potential to be a difficult year for the markets. First of all the companies holding larger debt will find it harder to handle rising interest rates. The rate of increases and the amount of each rate increase could be a make or break factor for some (or most), we don't even know for sure how many increases there will be. The small caps are most at risk and there are more of them, 2000 stocks small cap stocks;










There are other unknowns that could shock the markets this year and even though I think that it's a good practice to trade what you see, it is also important to maintain a situational awareness of the trading landscape that you're in. Some things to keep in mind this year, starting with what I just talked about;

Rising interest rates

Raging inflation

A fractured country, blue versus red

Russia invading Ukraine

China moving on Taiwan

Iran will not stop until it gets a nuke, and Israel will move to stop Iran

North Korea will lash out


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## CityIndex

You make a really good point. There are a lot of variables that could potentially weigh on markets and lead to heightened volatility this year.

Global equity markets seem to be trying to form a low after last week’s highly anticipated Fed meeting, but S&P500 futures also show that the last few days of gains have occurred on falling. This somewhat call into question the validity of this being the start of a new leg higher, or if it’s simply a bounce in the midst of a broader pullback.

All trading carries risk, but it should be interesting to see if markets can set the tone for the rest of the year as we continue to navigate through earnings reports, and the constant speculation of how aggressive central banks will look to be.


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## DaveTrade

*Amazon Could "Make or Break" the Market Tonight*





Stocks fell this morning after a major earnings “miss” jolted tech bulls out of their comfort zone. Facebook-parent Meta Platforms (NASDAQ: FB) reported earnings yesterday after the market closed, revealing a disastrous quarter and even worse forward guidance.

The company missed badly on sales and monthly active user estimates. What’s more, it became clear that CEO Mark Zuckerberg remains committed to Meta’s multi-year transition to the “metaverse” – a virtual-reality space intended to connect users within the Meta Platforms family of apps.

Wall Street banks were quick to cut Meta's projections for the year on concerns that Zuckerberg’s newest project would provide significant uncertainty at a time when advertising revenues are expected to slow. Competing social media platforms (like TikTok) are also drawing younger users away from Facebook and Instagram, which should only add to Meta’s growing list of problems, including a recent change to Apple’s privacy policy which severely limits how advertisers are able to target users on Apple products.

It was a shockingly bearish earnings call, and one that completely broke rank from the rest of Big Tech. Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Google-parent Alphabet (NASDAQ: GOOG) all enjoyed massive quarterly earnings “beats” by comparison. Amazon (NASDAQ: AMZN) reports after the close this afternoon, and following Meta’s terrible showing, it’s shaping up to be a true “make or break” moment for tech.

“Facebook is a confidence builder,” said TD Ameritrade chief market strategist JJ Kinahan.

“It’s a super widely held stock and a core part of many portfolios, so when it has such a difficult time, it just shakes overall confidence. The question right now is, is this a Meta-specific issue, or is this going to be an overall issue?”

If AMZN surpasses analyst estimates, the market’s recent bullish reversal should continue. If the e-commerce giant “misses,” though, a further retracement seems likely. And not just because of how it would impact sentiment among other stocks.

A deep AMZN selloff would drag the Nasdaq Composite and S&P lower all on its own. This morning’s Meta plunge, for example, was the worst one-day correction by a stock in the market’s history. It wiped out $195 billion in market cap, narrowly beating the $190 billion lost when AAPL “flash crashed” back in September 2020. FB also commands 2% of the total S&P market cap, which means today’s drop in FB shares single-handedly dragged the broader market index roughly 0.44% lower.

Through noon, the S&P is down roughly 1%. Almost half of that loss can be attributed entirely to Meta’s bad earnings call yesterday.

A repeat performance from AMZN this evening could have a similar effect on the major indexes. The silver lining today is that the market’s losses have mostly been “compartmentalized” to FB. But a rough earnings call from AMZN could indicate that there are bigger problems afoot, which may cause the bearishness to spread.

This could ultimately result in a major S&P correction, in which the index is pulled down by both losses from a heavily weighted company (AMZN) and other, smaller tech names. That’s what makes tonight’s AMZN earnings so important, especially if the major indexes close down on the day and within range of a bearish continuation past last week’s lows.


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## CityIndex

That's a really good analysis. It definitely does seem like the market’s focus has shifted away from interest rates, and other macro factors, and towards company earnings.

With this being the case, underwhelming reports over the rest of the US earnings season could easily force stocks into another round of selling. However, the relatively positive results this morning already appear to be providing some solace as US index futures are trading broadly higher at the time of writing.

All trading carries risk, but it should be interesting to see if these disappointing results can be contained within a few stocks, or if it will weigh on the broader market.


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## DaveTrade

*These Stocks Could "Beat Big Tech" in 2022*





Stocks traded relatively flat this morning after enjoying a major bounce back in the week prior. The market rallied fiercely before falling last Thursday in response to a poor Meta Platforms (NASDAQ: FB) earnings call, in which CEO Mark Zuckerberg provided dismal forward guidance.

Investors were initially worried that this could indicate a wider-spread issue for tech shares. Then, Amazon (NASDAQ: AMZN) reported a blowout quarter one day later, effectively stopping the Meta-driven selloff.

A major January jobs “beat,” reported on Friday, seemed to stabilize stocks as well even though it was the result of a massive, unprecedented seasonal adjustment by the Bureau of Labor Statistics (BLS). Last month’s real, unadjusted jobs data saw a loss of 2.8 million payrolls. Had the BLS used an apples-to-apples seasonal adjustment, mimicking its adjustments of the past, the headline number would’ve come in at approximately -301,000 jobs.

The most important part of the January jobs report had nothing to do with payrolls, however. Instead, rising hourly wages (+5.7% year-over-year vs. 5.2% expected) should’ve scared bulls. The Fed’s watching inflation – not employment – as its key metric for hiking rates. In that regard, the January jobs report provided a highly bearish impulse.

But stocks rallied through Friday’s close nonetheless. Today, the major indexes largely stalled as sentiment wavered once again.

“Investor psychology is shifting almost week-to-week, meaning sticking to one’s investment convictions is about as hard (or painful) as ever, but also never more important in driving outperformance,” explained Raymond James strategist Tavis McCourt.

“Our conviction remains that economic strength will keep [earnings per share] going higher along with interest rates, as we suspect we remain a long way from higher rates materially slowing demand in the economy.”

As we saw in 2018, back when Fed Chairman Jerome Powell raised rates several times, the market tanked before the rate hikes really impacted earnings.

These days, though, earnings have suffered for many of the market’s smaller stocks. Meanwhile, Big Tech names (minus Meta) feasted.

“It has been a raging bear market for high multiple stocks and for anything speculative in nature. It’s just been taken out to the woodshed. So, there’s probably some value being created there now,” said Morgan Stanley’s Mike Wilson.

He’s absolutely right. For Big Tech, the top might be in as interest rates threaten to surge in the coming months. There are plenty of beaten-down stocks following the latest earnings season, too, especially in the small-cap Russell 2000 index.

In 2021, the S&P ripped 26.89% higher while the Russell 2000 gained just 13.46% by comparison. This year, the S&P is down over 5.50% and the Russell 2000 has almost doubled that, falling roughly 10%.

Investors searching for value need look no further than small-caps. On the other hand, there’s nothing to suggest that the small-cap rout is over just yet. The Russell 2000 plunged below its mid-2021 lows back in January.

And the index won’t hit key support unless it drops another 10% from here. It’s been said that small-cap stocks provide a clearer picture of the US economy than the S&P because only 10% of the Russell 2000’s revenues come from foreign sources. The S&P derives roughly 40%-50% of its revenues from overseas.

This suggests that, contrary to most of Wall Street’s opinion that "the going is good,
the US economy is in serious trouble. And the Fed’s about to hike rates into economic weakness.

Once the dust settles, small-caps could be set to finally overachieve as rising rates limit high-growth (and as a result, high-debt) tech firms. But until the pain stops and small-caps show signs of reversing higher, Big Tech could continue to steal the show in the short term.

Even if, macroeconomically speaking, Big Tech's dominance may be drawing to a close as early as next month.


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## DaveTrade

Country Bias Could Cost You the Gold​By Mike ReillyFebruary 7, 2022




In the spirit of the Olympics, let’s discuss the idea of home-country bias as it relates to investing – particularly here in the United States.

As part of what I do here, I’m often asked to review prospective clients’ portfolio holdings and allocations to provide feedback…

And I must admit, it’s been a long time since I’ve reviewed a portfolio with anything more than the occasional token International stock – this is particularly true of American investors.

Talk about home country bias! It’s as though investors here in the U.S. think we always win the gold medal.

I realize for a lot of “newer” investors, all they’ve known is a market in which U.S. growth stocks have overshadowed their International value peers.

And it’s true that, with few exceptions along the way, growth has been the place to be for the last decade with the greatest gains found in tech-heavy, U.S. stock markets.

It’s been this way for a long time and for a very simple reason: *There are far more value and cyclical stocks overseas than in U.S. markets*. 

And the last decade has been a market dominated by growth stocks.

So I can understand a little home bias for those of us residing here in the United States. 

But it would be a mistake to think that the U.S. will always sit atop the podium…

So, is now the time to expect a new gold medalist?

It’s possible. We’re beginning to see the tide shift in favor of value – something I’ve written about extensively the last several weeks.

And with that shifting tide towards value over growth, we’re also beginning to see early signs of reversals in the U.S. vs. World relative trends. 

Today, I’m going to give you a look behind the curtain, to see a few developing trends that we’re watching closely.

The chart below is a Relative Strength ratio chart comparing the strength of Global equities excluding U.S. stocks compared to the S&P 500.

There’s a clear trend of outperformance by International equities over the domestic S&P 500, beginning in late December 2021.





We can see a similar trend developing in Emerging Markets as well.

Here is a Relative Strength ratio chart comparing Emerging Markets to the S&P 500.





After being in a significant downtrend vs. the S&P 500, Emerging Markets (EEM) is now favored over U.S. markets (S&P 500). 

And Emerging Markets (EEM) just broke out above a year-long downtrend line (the red arrow). This is a positive development adding to a narrative of International Markets over the U.S.

We’ll want to keep an eye on EEM to see if it retests that down trendline and/or can continue higher from here.

In the “did you know” column… China makes up over 30% of EEM.





That matters, because China’s stock market has gotten smoked over the last year causing a drag on the performance of EEM. 

Below is a Relative Strength chart comparing EEM to the S&P 500 vs. an RS ratio of EMXC vs the S&P 500. EMXC represents emerging markets excluding the China drag.





What I want to point out is the strength in emerging markets excluding China (black line) vs. EEM that includes the China drag (shorter blue line).

Even with the significant strength of Emerging Market countries, excluding China, there is still more work to be done before we have the conviction to favor international stocks outright, but the weight of the evidence continues to move in that direction.

*And now, I’m going to share a market I’ve had my eye on since the early days of January ‘22. *

Brazil – yes, Brazil. Among one of the worst-performing global equity markets since the COVID crash.

But before you scratch your head, take a look at the Relative Strength coming out of Brazil today. 





And as the saying goes, “Where there’s relative outperformance, we expect to find absolute outperformance.”

And that’s exactly what Brazil has provided since January 1, 2022.

*Brazil (EWZ) has more than doubled the return of U.S. growth and the S&P 500 Index. *

Check out this Year-to-Date Performance chart – Brazil (EWZ) +*12.86%* vs. United States (SPY) + *5.57%.*





I’d venture to say that, if investors had more of their capital allocated to countries like Brazil, rather than the U.S., they’d be singing a very different tune about how they feel about “markets” in 2022.

See what home country bias can do?

Oh well, back to Brazil for a moment…

Here’s a long-term ratio chart comparing Brazil to the U.S. S&P 500 index (SPY) going all the way back to 2002.

It’s interesting that Brazil is finding support in the same area where they began their incredible run 20 years ago. Coincidence? Probably not…





This is definitely a solid start for Brazil, but structurally, Brazil (EWZ) is still in an ugly downtrend, so investors will want to see some additional follow-through moving forward to confirm this reversal is legit. 

There’s another very good reason why we have a close eye on Brazil right now – it’s the same reason we’re watching many countries overseas right now.

*It’s because of their heavy exposure to value stocks. *

Over 2/3s of Brazil’s index is allocated to Materials, Financials, and Energy stocks, all of which we’ve discussed for weeks, as an area to overweight right now. 





Because of Brazil’s heavy tilt towards value stocks, their newfound relative and absolute outperformance shouldn’t be too surprising. 

It’s what we’d expect to see if the rotation from growth to value persists.

The message I want to get across here isn’t just about Brazil. 

Yes, Brazil’s chart is cool and investors could certainly consider it, assuming it fits with your own risk tolerance, time horizons, etc.

*What I think is more important than just Brazil is that for the first time in years, we’re seeing strong evidence of a reversal in these relative trends that would favor international indexes and their value components over the S&P 500 index or NASDAQ and heavy growth allocations.*

And just to prove this isn’t just a Brazilian phenomenon… here’s one more example: a country that shares a border with the United States.

Canada: Look at the move off the 2020 COVID lows. 





And see how price is consolidating _above _its pre-financial crisis highs, instead of _below _them, like so many others? The ability of this index to remain above those levels reflects the strength out of the Canadian market. 

There is a lot to like about Canadian stocks. When we talk about value stocks around the world, Canada should be one of the first countries that comes to mind. 

So, assuming these trend reversals stick, a shift away from U.S. markets in favor of International stocks would make a lot of sense.


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## DaveTrade

*Why Stocks Could Be “Stuck” Until Thursday*





Stocks climbed slightly higher through noon after opening lower this morning. Intraday sentiment flip-flops have become the norm over the last week, as have muted trading sessions. Today was no different with a critical Consumer Price Index (CPI) reading due out this Thursday.

Mixed quarterly results from America’s top corporations certainly didn’t build any “breakout momentum,” either. Pfizer (NYSE: PFE) reported earnings, missing estimates while providing disappointing forward guidance. PFE shares fell in response.

Overall, though, it’s been a better-than-expected earnings season. Roughly 77% of 300 S&P companies that reported exceeded estimates. But thus far, forward guidance has left many shareholders feeling uneasy about the future.

“Despite a solid beat this quarter, guidance weakened significantly. [...] Guidance is also sparser than usual – we note only 76 instances of [earnings per share] guidance issuance in [January], slightly below last Jan and the lowest of any Jan,” wrote Bank of America’s Savita Subramanian in a note.

With many companies now thinking that a significant slowdown is on its way, bulls have lost much of their initial February enthusiasm.

It’s something Wall Street hinted at over the last few weeks; the idea that the US economy is on a path toward slowed growth, if not a full economic contraction. This outlook could worsen if the next batch of inflation data proves to be hotter than expected.

“The tumultuous market action continues as the combination of Fed policy uncertainty and economic transition remains in focus,” said Canaccord Genuity analysts.

“Unfortunately, this is the environment we are going to be in for a while as the monetary and economic mid-cycle transition unfolds.”

Oanda strategist Edward Moya expanded on the topic of inflation, adding that the market’s recent bout of choppiness could easily persist until Thursday’s CPI release.

“US stocks will struggle for direction until the latest inflation tilts market’s expectations as to how aggressive the Fed will tighten into what is still deemed as an overvalued stock market,” Moya said.

Historically, the first rate hike in a tightening cycle has usually been met with an equity correction. If that’s the case this time around, stocks should fall through the second half of March.

In addition, this has typically been a good dip-buying opportunity. But in 2022, economic expectations are far worse than they were during the last few tightening cycles. That could mean the first rate hike-driven selloff may only intensify as the year progresses and more hikes arrive.

“We consequently see the announced combination of tapering, hiking and balance-sheet reduction in the same year as too risky for financial markets,” Guilhem Savry, Unigestion’s head of macro and dynamic allocation.

“The risks for US growth are greater than highlighted by the Fed, and we see little room for a strong upside in risky assets.”

Other analysts disagree.

“Markets will get used to the tightening regime at some point,” explained AXA Investment Managers chief investment officer Chris Iggo.

“The growth and earnings forecast revisions in the next few months will be key.”

So, as has been the case since last Thursday, the market remains split on what’s going to happen when Fed Chairman Jerome Powell finally announces the first rate hike. There’s always a chance that he “chickens out,” of course. And our own hypothesis suggests we'll see a few rate hikes followed by a rate reduction in response to a major equity slump, similar to what happened in 2018.

Everyone has their own theory, and for that reason, stocks may not move in a deliberate manner until March arrives. Inflation reports, like the Producer Price Index (PPI) and aforementioned CPI, could certainly tip the needle one way or the other, but the market’s moderate-term destiny lies in the hands of Powell, who isn’t set to speak (and potentially reveal a rate a hike) until after the March FOMC meeting on the 16th.


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## DaveTrade

The markets will most likely be volatile next week due to the unscheduled meeting the FED called for 11:30am Monday, and the looming situation with Russia/Ukraine. A lot of volatile uncertainty, not for me. Very short term traders may love the environment next week but I'll be sitting on the sidelines watching the show with interest and waiting for some clearer direction to re-enter the markets.

What will you be doing? Drop a note here and let us know.


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## divs4ever

i still have some spare cash  .. and some targets that maybe within reach 

 i will be looking to cherry-pick ( for long term holds )

am MUCH MORE worried about inflation  than war-talk/false flags  

 PS keep watch on oil there seems to be games being played there  as well


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## DaveTrade

divs4ever said:


> PS keep watch on oil there seems to be games being played there as well



Yes agree, oil, bond yields and gold.


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## divs4ever

Interest-Sensitive Funds Showing Big Topping Patterns









						Interest-Sensitive Funds Showing Big Topping Patterns | Investing.com
					

Stocks Analysis by Tim Knight covering: Barclays PLC, iShares iBoxx $ Investment Grade Corporate Bond ETF, iShares iBoxx $ High Yield Corporate Bond ETF, SPDR® Bloomberg High Yield Bond ETF. Read Tim Knight's latest article on Investing.com




					www.investing.com
				




 i have been watching this trend with interest 

 ( i have about 3% bond exposure via two LICs i hold )

 some might notice several bond/fixed interest ETFs  have been testing 12 month lows


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## DaveTrade

*This Could "Make or Break" Stocks Tomorrow*





Stocks were up big this morning as tensions cooled between Russia and Ukraine. The Nasdaq Composite led the way while the S&P and Dow trailed closely behind. Treasury yields marched higher, too, but did little to stop a strong tech rally.

As we mentioned in yesterday’s commentary, the likelihood of a Russian invasion was vastly overblown by the mainstream media. Reports that Russian forces had moved into “attack formation” sent the market temporarily lower yesterday.

For weeks, the White House insisted that an attack was “imminent” as well. But Russia never invaded. And today, Russia claimed that it pulled some of its forces off the Ukrainian border.

Igor Konashenkov, a spokesman for the Russian Ministry of Defense, said that troops “have already begun loading onto rail and road transport and will begin moving to their military garrisons today.”

He continued, adding that additional troops engaged in military drills in Belarus (which also shares a border with Ukraine) would return to their bases on February 20th.

Ukrainian Foreign Minister Dmytro Kuleba then responded to Konashenkov’s announcement.

“We in Ukraine have a rule: we don’t believe what we hear, we believe what we see,” Kuleba said.

“If a real withdrawal follows these statements, we will believe in the beginning of a real de-escalation.”

Julianne Smith, Biden’s Ambassador to NATO, warned that Russia may simply be attempting to mislead NATO forces.

“We’ll have to verify that and take a look. You may remember, in late December, there were some similar claims that came out of Moscow that they were de-escalating and in fact, facts on the ground did not support that claim,” Smith said.

“This is something that we’ll have to look at closely and verify in the days ahead.”

And though NATO didn’t believe Konashenkov’s statement, investors certainly did. Stocks rallied on what was the first piece of good news in almost a week. Crude oil prices plummeted in response as well, only adding to the market’s big morning gains.

If energy costs fall further, this will help slow the pace of inflation.

What won’t do it, however, is additional economic activity by way of tumbling Covid cases.

“De-escalating tensions between Russia and Ukraine are helping overall sentiment today, but that isn’t the only good news. US Covid cases are now down 80% from their January peak, another sign the reopening will be moving forward,” said LPL Financial’s Ryan Detrick.

If it were up to the Fed, though, the “reopening” would be put on hold indefinitely as rising demand has only made inflation worse. It’s gotten so bad that Fed officials are officially sounding the alarm on inflation in premarket interviews.

“I do think we need to front-load more of our planned removal of accommodation than we would have previously. We’ve been surprised to the upside on inflation. This is a lot of inflation,” said St. Louis Fed President Jim Bullard on CNBC’s _Squawk Box_ yesterday.

Tomorrow, the Fed will release the minutes from its January FOMC meeting. Bullard’s comments suggest that the Fed believes it is behind the curve on raising rates. If the meeting minutes show that’s the case, additional selling should follow as the market prices in an even more aggressive rate hike schedule.

So, while today’s morning rally was a welcome sight, it doesn’t confirm that a larger upswing is on its way. There could easily be more pain in store for bulls tomorrow afternoon if the minutes release goes poorly, regardless of whether Russia continues pulling troops off the Ukrainian border or not.


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## DaveTrade

*How Putin's "Secret Plan" Could Hurt Stocks*





Stocks fell today as tensions on the Ukrainian border continued to flare. The Dow, S&P, and Nasdaq Composite all traded lower through noon.

Russian President Vladimir Putin extended several olive branches earlier today in a possible attempt to calm invasion fears. In particular, Putin said that he would be open to talks with the US on new security proposals. He also insisted that Russian troop movements in Belarus, which borders Ukraine to the north, were only defensive in nature.

Following a series of mortar attacks yesterday (credited to a separatist faction within Ukraine), US Secretary of State Antony Blinken said this morning that Russia is attempting to create “false provocations” to justify a full invasion.

“What’s at stake is, first yes, the lives and wellbeing of Ukrainians, but what’s at stake are larger principles that are the foundation of the entire international order,” Blinken explained.

“Those principles are being challenged right now by Russia in Ukraine, principles like you can’t change the borders of another country by force, principles like you can’t dictate to another country its choices, its decisions, its policies including with who they associate, principles like you cannot exert a sphere of influence to subjugate neighbors to your will.”

That’s pretty rich given the US’s early history, which quite often involved changing borders by force and telling other countries what to do - the latter of which is a practice that persists to this day. On one occasion (right after the Civil War), the Union amassed 40,000 troops on the Mexican border. They wanted France to leave Central America so that it would remain under the US’s sphere of influence. And it worked.

That sounds oddly similar to Russia's goal with Ukraine, doesn't it?

Despite earlier remarks, Putin ultimately dashed the hopes of many bulls today when he said that “we are seeing a deterioration of the situation” in Ukraine.

And this was all before the market opened.

Around 9:50 am EST, civilians were evacuated from the region of Donbas (in southeastern Ukraine) as heavy fighting broke out between Ukrainian forces and pro-Russian separatists.

A little over an hour later, a car bomb exploded in the Ukrainian city of Donetsk outside of a separatist government building in an apparent assassination attempt.

Thus far, no formal military action has occurred between Russian and Ukrainian forces. For now, the two pro-Russian separatist factions – the Donetsk People’s Republic and Luhansk People’s Republic – have been the ones stirring things up.

It could be argued, however, that both groups are acting on the behalf of Russia, if not receiving orders directly from Russian officers.

Nonetheless, stocks won’t collapse so long as Russian forces remain on their side of the border. If an incursion does happen, though, it’s likely to occur under the guise of a peacekeeping mission. Putin will probably claim that Ukraine has lost control of the situation in Donbas if the violence continues. The Russian military would then cross the border to enforce a ceasefire between the pro-Russian separatists and Ukraine.

This is entirely a hypothetical situation, of course. But investors should ask themselves:

If this actually happens, would it be interpreted as a true invasion by the West?

It might not be enough to provoke a military response from the US. Although that doesn’t rule out economic restrictions being placed on Russia by the Biden administration, which could have dire consequences on the price of oil, inflation, and equities.

We’re not there yet, but it’s something to be mindful of. Despite today’s provocations, odds still favor a conclusion that doesn't result in a full-scale Russian invasion. A smaller incursion, on the other hand, still seems to be on the table. And with stocks trading near their January lows, that's serious "correction fodder" as a rate hike approaches in March.


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## divs4ever

DaveTrade said:


> Nonetheless, stocks won’t collapse so long as Russian forces remain on their side of the border. If an incursion does happen, though, it’s likely to occur under the guise of a peacekeeping mission. Putin will probably claim that Ukraine has lost control of the situation in Donbas if the violence continues. The Russian military would then cross the border to enforce a ceasefire between the pro-Russian separatists and Ukraine.



 while i agree , i think stocks are in danger from several other vectors 

 OFFICIALLY Libor is supposed to be replaced which could cause all sorts of dramas in the derivative market  , AND big chunks of the global economy are flat out lying about their financial health 

 now an interesting  twist i hear the odd mention about  is some trying to remove Zelensky  and replace him with the previous ( Biden-friendly ) leader  ... what if this is a power struggle dressed up as a civil war  , with one group  hoping the US will step in and reappoint a puppet government 

 after all the pro-separatists are militarily strong enough to actually separate  ( but maybe not take  all the territory they desire  to take with them )

 i think Putin would be quite content to see the Ukraine become the  'Libya of Europe ' further destabilizing both NATO and EU  and all he needs to do is rattle the sabre occasionally  .. after all he can sell plenty of oil and gas to China and India   and not care about the fate of the aging Ukraine pipeline ( let the fools buy expensive US LNG )


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## DaveTrade

Michael Reilly sent me an email, see below;

_Hey Dave, 

Over the past 20 years, it's been nearly impossible for any asset class to displace U.S. Equities as the strongest asset class on a relative basis.

But as of this week, Commodities have rolled over Equities to be the strongest of the six major asset classes that we track. 
You want to know where to invest? Start at the top with the strongest asset class.

And as of today, Commodities are king. 

That's a pretty big deal considering it doesn't happen often.

We can't be sure how long Commodities will hold the reins of Relative Strength leadership, but what we do know is that it's often a mistake to fight the trend. 
_
_Investors now have an opportunity – not only in Commodities themselves but in stocks supporting the Commodities as well._


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## DaveTrade

*How Ukraine and Russia Could "Spike" Stocks Lower*






The market’s closed this morning in observance of President’s Day, but that doesn’t mean traders are completely tuned out. The Russia/Ukraine situation, which has completely stolen the Fed’s thunder as a rate hike approaches in March, went from bad to worse following an alleged clash at the border.

Russia says five Ukrainian “saboteurs” were killed by border guards today as they attempted to breach Russian lines. The Ukrainian government refuted the claims, saying that not only did no such attack occur, but that there weren’t even any Ukrainian military assets operating in the area.

Russia then doubled down on its allegations, adding that one Ukrainian prisoner of war was taken in the skirmish and several armored vehicles were destroyed.

Shortly thereafter, leaders of the two pro-Russian separatist factions – the Donetsk People’s Republic (DPR) and Luhansk People’s Republic (LPR) – asked Russian President Vladimir Putin to formally recognize the independence of both territories (Donetsk and Luhansk).

Members of the Russian Security Council called upon Putin to do so as well in a meeting televised by the Russian state media.

Putin responded that he would reach a decision on the matter by the end of the day.

But less than an hour later, an official from Russia’s state media network said that Putin had already made up his mind to recognize both Donetsk and Luhansk as independent territories.

We mentioned in Friday’s commentary that Putin’s endgame likely involved absorbing Donetsk and Luhansk as part of a “peacekeeping” strategy. Nobody really knows whether Ukrainian forces actually attempted to cross the Russian border this morning. From Ukraine’s point of view, such a move would be a fruitless endeavor. Ukraine would have little reason to cross Russian lines at the moment.

In all likelihood, it was a “false flag” attack orchestrated by either pro-Russia forces (at the direction of the Kremlin) or NATO-allied intelligence in an attempt to spark a conflict between Russia and Ukraine. The former would potentially give Putin a _casus belli _(or "just cause") to carve off Ukraine's Donbas region for himself. The latter would warrant a major Western military presence right alongside the Russian border, which the US seems very interested in.

Oanda strategist Edward Moya stated the obvious in a Friday note to clients.

“Investors are having a hard time holding onto risk as the likelihood that the standoff between the West and Russia will ultimately lead to some ground conflict,” Moya said.

“Wall Street will remain jittery until we see a major de-escalation.”

Instead, the threat of war has only escalated since Moya’s note went out.

Richard Bernstein Advisors CEO Rich Bernstein was one of the few analysts over the last few days that managed to keep his eye on the ball.

“Whether it’s geopolitics, whether it’s the labor market, whether it’s supply disruptions — no matter what you look at, everything is pointing to inflation being front and center,” Bernstein said.

A Russian incursion in southeastern Ukraine (but not a full-scale invasion of the country) would likely serve as the bearish “appetizer” to a “main course” crash if the Fed hike rates more than expected next month. Fed Chairman Jerome Powell wants to get inflation under control, but to do so, he’d have to take rates to prohibitively high levels.

Powell might actually do it, but there’s a far better chance that he won't. Investors are more likely to see a few small rate hikes followed by a capitulation once things go bad. Stocks would continue to march higher in this situation, but probably not as fast as inflation, resulting in only nominal gains (and real losses) for long-term holders.

It’s a grim future to think about, but one that the market arguably deserves after almost 14 years of uber-dovishness. And should Russia cross the border this week, starting a minor conflict in Ukraine, the next short-term (bear) market cycle may begin as well.


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## DaveTrade

Just to show how we're tracking in the $SPX so far this year;


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## DaveTrade

*Putin Just "Shocked the Market" Again*





Stocks opened flat this morning following a tumultuous premarket trading session. Last night, after Russian military forces entered Ukraine, equity futures plunged while oil skyrocketed alongside gold.

This morning, however, stocks recovered all their premarket losses as gold gave up most of its gains. Investors were hopeful that Russia would go no further than the Donbas region of Ukraine, which it breached last evening, where pro-Russia separatist factions welcomed Russian forces with open arms.

Then, shortly before noon, stocks dove lower once again after Russian President Vladimir Putin requested Russian Parliament’s permission to use the country’s military forces abroad.

CNN reported last night that “the US is still seeing preparations for a potential broad invasion including loading amphibious ships and loading equipment for airborne units.”

Russian Parliament has yet to reach a decision on Putin’s request, but the Russian media said that it "has been already weighed by the Senate’s committees” according to the Speaker of the Russian Federation Council, Valentina Matvienko.

NATO Secretary Jens Stoltenberg called the request "the most dangerous moment in [European] security in a generation.”

Mainstream media outlets took Stoltenberg’s remarks and ran with them, claiming that Putin’s request is likely the precursor to a full-scale invasion of Ukraine.

Ukrainian President Volodymyr Zelensky went one step further this morning, saying that the “first step of invasion has happened.”

The question now is whether the West interprets Russia’s incursion into eastern Ukraine as a true invasion. If the US does, major sanctions (which would have a significant impact on the global economy) could be coming for “Putin & Co.”

Already high oil prices could potentially soar further, making January’s surge seem relatively small in the process. UK lawmakers got things going early yesterday when it slapped five Russian banks with economic sanctions along with three wealthy Russian oligarchs. Each bank and individual has been barred from doing business in the UK.

“We will not give up,” UK Prime Minister Boris Johnson said.

“We will continue to seek a diplomatic solution until the last possible moment but we have to face the possibility that none of our messages have been heeded and that Putin is implacably determined to go further in subjugating and tormenting Ukraine.”

Johnson then went on to “torment” bulls, adding:

"This the first tranche, the first barrage of what we are prepared to do and we hold further sanctions at readiness to be deployed alongside the United States and the European Union if the situation escalates still further.”

Johnson’s saying that if Russia heads further west into Ukraine, NATO’s prepared to wage a full-scale economic war. And they may still do that even if Russia stays put in Donbas.

“The Russia/Ukraine situation remains very fluid, and tensions remain high, and in the short term that will remain a headwind on stocks,” said Tom Essaye, founder of Sevens Report.

Essaye’s right in that the mere potential for additional sanctions should, at the very least, limit the market until Russia orders its troops to stand down. And with the S&P now very close to key support at the January lows, stocks are well within range of a major bearish breakout should Putin “press his luck” in the coming days.


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## DaveTrade

It Never Pays to Trade the Headlines​By Mike ReillyFebruary 22, 2022


It’s always something…

Today Putin, last week it was the Fed and inflation, and for so long before that, it was COVID…  the _headlines du jour_. 

Most of it is baked into the price of stocks, bonds, or commodities by the time journalists turn your attention to it anyway. 

So please tell me, when has it ever paid you to trade based on headlines? 

Putin is still hellbent on advancing mother Russia’s position on the world stage beginning with Ukraine, inflation remains at a 40-year high, and the Fed still intends to raise rates in 2022.

It’s mind-boggling… but when you get right down to it, the big question investors should be asking themselves is: Is now the right time to invest, or is it time to be more defensive?

Is the market signaling opportunity or risk? You won’t find the answer in the headlines.

What you want to focus on discovering is if investors, both institutional and retail, are seeking the relative safety of consumer staples, or are they leaning into growth assets.

Two charts we track as a means to visualize these relationships are the relationship between Consumer Staples and the S&P 500 and Consumer Staples vs. Consumer Discretionaries. 

Think of them as Opportunity and Growth vs. Defense and Preservation.

Here is a ratio chart comparing the S&P 500 relative to Consumer Staples (SPY/XLP): Growth vs. Defense.






In November of ‘21, this risk-appetite ratio hit its highest level in over 20-years. But in the months since, it has collapsed and flipped from bullish to bearish or risk-on to risk-off. 

This didn’t happen last night because of Putin – this has been in play for months, giving investors an opportunity to reallocate part of their investable assets away from growth to more value-centric assets.

What to know: As long as we’re stuck beneath the 2021 first-half highs of 6.10, this signals we’ll remain in a risk-off environment.

It’s too early to tell if SPY/XLP is forming a legitimate trend reversal, but the ratio continues to look more and more like a large topping pattern, which would signify a risk-off environment for investors.

We’re monitoring this one closely for signs of further deterioration.

Another one of our favorite risk appetite ratios is the Equal Weight Consumer Discretionary versus Equal Weight Consumer Staples:

Here, I’m using the equally weighted sector proxies (RCD/RHS). This helps to eliminate the “Amazon effect” as Amazon makes up over 20% of the Consumer Discretionary sector XLY and I want to mute their impact on the direction of the ratio.






Much like SPY/XLP, the Equally weighted RCD/RHS ratio sits just slightly below what I’ll qualify as our long-term risk level of 0.890. 

Investors want to see a sustained move above the 0.890 level before we can say risk-on over risk-off.

On a shorter-term basis, RCD/RHS has been a sideways mess for the past year.

What we’re seeing isn’t new. This isn’t something that snuck up on investors in the dark of night. 

*More often than not, rotation like this isn’t an event, it’s more of a process. A process that has been in the works for months. *

So until the broader market (S&P 500) and specifically Consumer Discretionary stocks can regain control, this market will remain mixed at best, with an emphasis on a defensive investment posture.


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## DaveTrade

U.S. Stock Indices Tumble Amid Russian Aggression​By Tim FortierFebruary 25, 2022

_





“There are decades when nothing happens and there are weeks when decades happen.”_
–Vladimir Lenin

As the world now knows, Russian president Vladimir Putin announced the start of a “military operation” in Ukraine, attacking several cities in the Eastern European country after months of amassing troops at its borders.

This act of aggression will likely reinforce global macro trends already in place – *namely that of rising inflation and soaring commodity prices*. 

Even before tensions between the Ukraine and Russia escalated, the Dow Jones, S&P 500, and Nasdaq saw major declines across the board.

By February 23, the day before Russia’s military started its operations on Ukrainian territory, the Nasdaq had declined 16.7% this year, while the S&P 500 and Dow Jones Industrial Average had lost 11.3% and 8.9% compared to the end of 2021, respectively.






The impact of soaring inflation and rising interest rates was already having an impact on the markets.

*iShares 20+ year Treasury Bond (TLT)* is also negative, as I warned previously that bonds would not provide the safe haven as they have in the past. Here’s your evidence.  

With Russia and Ukraine being some of the largest exporters of commodities like oil, gas, wheat, copper, and nickel, *the ongoing conflict** will most likely result in price hikes as well as a further exacerbation of supply chain disruptions*.

The reaction to the Ukrainian invasion is as expected. Impacted commodities (EU natural gas, oil, palladium, wheat) initially ripped higher.  






Year-to-date, there’s been a significant performance differential between U.S. stocks and commodities. 






This trend is likely to persist.  

Sanctions against Russia are designed to severely restrict Russia from selling oil and other essential commodities in the international markets. Without an emergency supply response by OPEC, oil could surge beyond $150 per barrel. 

Other commodities are vulnerable too. Russia is now by far the largest supplier of natural gas to Europe.* It is also the world’s largest supplier of palladium and the second-largest producer of cobalt (EVs)*.

A surging oil price has caused almost every recession in the US since 1945. Global growth could be reduced by 75% this year if oil jumps to $135 per barrel.

It is almost certain that the result of all of this will be *stagflation*. Personal disposable income has recently weakened and it is almost certain that higher energy costs will continue to put pressure on the consumer. 

*





Strategy *

One of the most important points to understand is how economic regimes dictate asset mix.  My fear is that too many investors will be slow to recognize this important distinction.  

Investors have not had to deal with rising interest rates, soaring inflation, and commodity supply restrictions since the 1970s.  

As a result, investors remain overweight in traditional stocks and bonds and underweight in hard assets.  

The problem with accommodative Fed policy is the markets are NOT prepared for exogenous events such as this. *There are still trillions of US Dollars in financial assets that must move into hard assets*.   

This will provide opportunities in *precious metals mining stocks* and reinforce trends already in place in key *commodities*.  

*The Stock Market*

This daily chart of the S&P 500 shows key support areas.






On the right side of the chart is the volume profile. This indicator reveals significant price levels as determined by the volume traded at each level. The most significant bar is around the 3200 level. This is key long-term support for the market.   

Looking more close up, the price action on Thursday broke the last significant price level of what some technicians might call the neckline of a head-and-shoulder top.  

This has initially been met with “buy the dip” as U.S. stocks finished higher on Thursday and formed a bullish daily hammer. Traders felt that the war would lessen the likelihood of the Fed raising interest rates.






I do believe though, that this rally will be short-lived. The panic-low had caused prices to stretch away from trends and what we are seeing is a more likely reversion to the mean price action.    

There should be a confluence of resistance with the 5, 9, and 20 exponential moving averages defining the trend until proven otherwise. I’ll place the current resistance on the S&P 500 around 4260.   






Bearish sentiment has also reached an extreme. This can often be a short-term contrary indicator. If prices can consolidate around current levels, it should help work off some of the bearish sentiment.    

*





I believe that Sectors that are highly dependent on consumer spendings, such as retailers and home builders (all part of the broader Consumer Discretionary) should be avoided.  *

Even if issues between Ukraine and Russia can be resolved soon, the factors that have brought us inflation will remain.


----------



## CityIndex

It’ll be interesting to see if the ASX200 and S&P500 follow a similar trajectory in the near-term, with both indices finally managing a close back above their respective 200-day MAs on Tuesday.

The ASX200 is currently up 0.39% today, extending yesterday’s gains. All trading carries risk, but if both indices can hold their breakout, it might open the possibility for an extended rally as long as new macroeconomic and geopolitical developments don’t spark a return to risk-adverse flows, dragging equities lower.


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## DaveTrade

CityIndex said:


> It’ll be interesting to see if the ASX200 and S&P500 follow a similar trajectory in the near-term, with both indices finally managing a close back above their respective 200-day MAs on Tuesday.



The question that is starting to materialise inside my mind and others I suspect, is, 'have we put in a bottom?'. Watching and waiting for the market to answer.


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## CityIndex

DaveTrade said:


> The question that is starting to materialise inside my mind and others I suspect, is, 'have we put in a bottom?'. Watching and waiting for the market to answer.




That definitely does seem to be the question on everybody’s mind.

From a technical standpoint there is a case to be made that we have seen a bottom, but it never pays to predict the market, especially when there are still so many factors that could potentially create headwinds.

As you said, looks like we are just going to have to wait and see.


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## DaveTrade

*This "Major Recession Warning" Is Almost Here*





Stocks roared at the open this morning before giving up some of their gains through noon. Hopes for peace between Russia and Ukraine swelled after negotiators hinted that progress had been made in talks between the two countries.

Russia’s chief negotiator Vladimir Medinsky called the ongoing discussions “constructive,” and added that he would take Ukraine’s proposals directly to Putin himself. The New York Times then reported that “the Kremlin’s spokesman, Dmitri S. Peskov, told reporters that the talks, which he said could continue on Wednesday, could be of great consequence, without offering details on the shape of a possible deal."

Russian Deputy Defense Minister Alexander Fomin compounded the bullish enthusiasm with a statement on how Russia would reduce its military presence in response to productive talks.

"Due to the fact that negotiations on the preparation of an agreement on the neutrality and non-nuclear status of Ukraine, as well as on the provision of security guarantees to Ukraine, are moving into practice, taking into account the principles discussed during today's meeting, by the Russian Ministry of Defense in order to increase mutual trust and create the necessary conditions for further negotiations and achievement of the ultimate goal of agreeing on the signing of the above agreement, a decision was made to radically, at times, reduce military activity in the Kiev and Chernigov direction,” Fomin said.

On the Ukrainian side of the bargaining table, negotiators confirmed Fomin’s remarks. Ukraine seems willing to maintain NATO neutrality and recognize Crimea as an independent region – two things Russia wants.

Shortly before the market opened, Russia began to withdraw its forces from Kiev and Chernihiv.

This unsurprisingly launched stocks higher at the open today. A few hours later, however, US Secretary of State Antony Blinken dashed hopes for peace when he said that he had not seen signs of “real seriousness from Russia” in regard to negotiations with Ukraine.

Then, shortly before noon, Medinsky noted that this morning’s de-escalation didn’t necessarily suggest that a ceasefire would soon follow. Thus far, talks have yet to produce any concrete results despite Fomin’s assurance that the Russian military pullback was done to “increase mutual trust” in negotiations.

In other words, barely anything has actually changed in Ukraine. And if talks deteriorate again (like they have several times now), Russia could very easily take another stab at Kiev. This isn’t helped by recent footage that's surfaced showing Ukrainian soldiers torturing Russian POWs.

It’s highly unlikely that this behavior is widespread, however even one isolated incident may be enough to sour negotiations.

And as the “will they, won’t they” Russia/Ukraine talks continued, a far more sinister danger emerged for bulls:

The market's most-watched yield spread (2s10s) is now on the precipice of inverting.





The 2s10s plunged today, falling to just 0.029% after the 2-year Treasury yield surged while the 10-year Treasury yield sunk. The 5s30s inverted yesterday for the first time since 2006. It seems now that it’s only a matter of time before the 2s10s inverts as well.

“With the Fed set to hike into restrictive territory, the curve will invert,” said Morgan Stanley economist Seth Carpenter yesterday.

“As has always been the case in the past, markets will debate whether an inversion presages a recession. A policy mistake that causes a recession is clearly possible, but our baseline is that an inversion without a recession is more likely.”

Carpenter will be proven right if the Fed “chickens out” and calls an end to the rate hikes in the next few months. If the Fed keeps hiking, however, a recession is virtually guaranteed. Historically, yield curve inversions as the result of a hiking cycle have always resulted in a recession.

Because of this, bulls are starting to hide out in value and financial stocks, which typically beat the general market during tightening cycles.

But if the Fed goes all-in on hiking, these sectors probably won’t rise. They’ll simply fall less than the broader indexes do.

That’s considered a “win” for the buy-and-hold investing crowd. Pockets of active traders, on the other hand, have already cashed out of equities by now. More will join them as the yield curve inverts further.

So, as tempting as it may be to remain fixated on Ukraine, investors need to instead focus on the yield curve. The 2s10s is on track to invert by tomorrow morning. If it does, the market may not react favorably.

And that’s potentially a big problem with stocks looking vastly overbought in the short-term following several weeks of runaway gains. Which, in the event of a 2s10s inversion, could come to a screeching halt.


----------



## DaveTrade

*Russia’s “Secret War” Against the US*





Stocks fell modestly this morning as the market melt-up finally took a breather. The Dow, S&P, and Nasdaq Composite all dropped while tech stocks endured the brunt of the selling.

Short-term bulls have little to complain about, however, given how much stocks have risen since bottoming out in mid-March.
Nonetheless, uncertainty reemerged today following setbacks in the Russia/Ukraine peace talks. Negotiators from both countries said yesterday that discussions had been “productive” over the last few days. This culminated with a Russian withdrawal from the cities of Kiev and Chernihiv yesterday morning.

But optimism concerning a ceasefire was short-lived. US Secretary of State Antony Blinken commented that the recent de-escalation may simply have been a Russian diversion intended to draw out Ukrainian defenders from heavily populated civilian centers. Russia’s continued shelling near Kiev and Chernigov suggests this may be the case.

The narrative then flipped back toward peace after the Kremlin released a statement this morning claiming that Ukraine “has essentially agreed” to maintaining NATO neutrality. Ukrainian negotiators also said that a peace deal with Russia was in the works.

Following these remarks, the Financial Times dashed hopes for a ceasefire – again, just like yesterday – when it reported on the Russian withdrawal.

"We have seen the Russians begin to draw away from Kyiv. But we have little confidence at this stage that it marks some significant shift or a meaningful retreat," a US official told the Financial Times.

Ukraine’s Defense Ministry drove sentiment lower, too, after a spokesperson said that Russian forces were preparing to “resume offensive operations.” Russia then issued another statement, saying that “the Russian army has created conditions for the final stage of the operation to liberate Donbas” and “all main tasks of the armed forces of Russia in Kiev and Chernigov have been completed."

Stocks traded lower through noon as oil prices continued climbing.

“We’re already seeing signs of what I call a countercyclical inflation environment, sometimes called a cost-push inflation environment, where inflation gets so high that it starts putting pressure [on growth],” said Liz Ann Sonders, chief investment strategist at Charles Schwab.

Rising oil prices remain a bearish impulse as the Fed battles inflation. Only energy stocks (specifically oil-linked ones) seem to like it when oil rallies.

The rest of the market slumps in response.

And while it’s true that the conflict in Ukraine prodded oil higher today, an emergency measure to ration gas in Germany likely did as well. Russia said last week that “hostile states” would need to start paying for Russian oil in rubles.

Since then, Russia has only doubled down on this demand. German Energy Minister Robert Habeck activated the “early warning phase” of Germany’s gas emergency law in response, which means the government will begin alerting German consumers and businesses on how to conserve energy.

If the gas emergency law progresses to later phases, strict rationing will limit the amount of gas individuals and businesses are allowed to use.

Russian lawmaker Vyacheslav Volodin felt little sympathy for Germany after his country was aggressively sanctioned by the West.

“If you want gas, find rubles,” Volodin said.

Germany is still refusing to pay in rubles. As a result, rationing may soon begin, and not just in Germany. Russia dominates gas and oil exports to the EU. In 2020, Russia exported 167.8 billion cubic meters of national gas to the coalition of European nations. That’s more than any other natural gas exporter in the world.

As a result, more rationing could emerge from EU partners that don’t make the switch to paying in rubles.

It should also be noted that, as of this morning, the ruble has completely erased its post-invasion losses vs. the dollar.

It begs the question:

Who is supposed to be sanctioning who again?

Right now, it seems as though Russia’s in the driver’s seat. Yes, the country has been completely cut off from the West.

But Russia is rich in natural resources and carries a very low debt-to-GDP ratio (just 17.8% as of 2020). The US, on the other hand, saw a debt-to-GDP ratio of 128.1% in 2020 and 137.2% in 2021. That makes it difficult (if not impossible) for the US to fight inflation via monetary policy adjustments.

And Russia is doing all it can to drive up inflation in the West while protecting its own currency. Case in point, in addition to forcing oil customers to pay in rubles, Russia began buying gold at a fixed price of 5,000 rubles per gram, roughly 1,000 rubles below the going rate.

That’s a bad deal for sellers at the moment, but consider that Russia will find plenty of willing business partners if the ruble continues to recover, thus causing Russia’s fixed price for gold to exceed the spot.

So, despite assurances from the mainstream media that Russia’s economy is in a completely hopeless position, the truth is that Putin has waged a relatively effective campaign against the West in a new kind of economic war. We’re still in the early stages of it, but make no mistake, so long as the sanctions against Russia continue, it’s only going to get worse for the West.

For that reason, investors need to maintain realistic expectations about what’s going to happen the rest of the year. The war in Ukraine will eventually end, but the damage being exacted upon the US economy has only just begun. That’s made Fed Chairman Jerome Powell’s job even harder.

It also makes aggressively hawkish monetary policy look more attractive as the lesser of two evils, which would ultimately crash stocks as rate cuts and a new round of QE – both things investors assume are coming this year – fail to arrive.


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## DaveTrade

S&P500 has started to pull-back in all sectors;


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## DaveTrade

An update is required here, as can be seen there has not been a follow through on an all-sector pullback;


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## DaveTrade

Some good analysis here;


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## DaveTrade




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## DaveTrade

*Markets Don’t Go Up Forever*

By Tim FortierApril 12, 2022





​Trees don’t grow to the sky and markets don’t go up forever.

Over the course of a lifetime, an investor is likely to experience both bullish and bearish cycles.

As defined by Investopedia: “A bull market is a market that is on the rise and where the conditions of the economy are generally favorable. A bear market exists in an economy that is receding and where most stocks are declining in value.”

Historically, there have been 26 occurrences since 1929, when the stock market has fallen by 20% or more.

What makes bear markets somewhat deceptive is that they often begin very stealthily.

Prices will continue going up while the market internals begin to erode – exactly as we have witnessed over the past 12 months.

In the chart below, the percentage of stocks above their 150-day (30-week) moving average has been steadily falling.

This means that as the market peaked in early January of this year, it did so with much fewer stocks that were in uptrends.






This divergence was evident across a large number of internal indicators that we follow.

Investors who were simply following price could have easily been fooled as the rug has been being pulled out from under investors’ feet for over a year.

The other deceptive characteristic of bear markets is that some of the largest market rallies have occurred during bear markets.

For instance, in the 1929 crash, the crash phase lasted from October 10–29 and was then followed by a 36% rally, which then gave way to a drop to new lows.





In 2008, the initial decline was followed by a 24% retracement, which then gave way to fresh new selling.





Now it may seem puzzling to some that bear markets can spawn such large moves up, but it really makes sense.

First, there are many buyers who are hopeful that they just “caught the bottom.”

Second, there are those investors who sell “short” on the way down, and begin to panic and buy back their short stock, adding additional buying pressure.

This is how and why bear market rallies can look so impressive. In fact, half of the S&P’s strongest days in the last 20 years have occurred during a bear market…

Which brings me to our current market.

The January 4 high of 4818 was preceded by months of internal decay. The initial leg down fell just shy of -15% and was followed by a 12.70% rally to the recent high of 4,637.





I’ve seen many on social media calling for new all-time highs – the weight of the evidence suggests otherwise.

From a pure price perspective, the impressive rally of the last few weeks has backtested a two-year channel and reversed with a bearish engulfing candlestick pattern. This coincided with a close below both the .618 retracement level and the 20 SMA.






So the setup as we entered this week was looking more bearish than bullish.

Shifting to market internals, each of the key bullish percent indexes has reversed down in a column of Os, after yet again failing to reach a higher high.

Check out the Russell 2000 Bullish Percent Chart.





The S&P 500 Bullish Percent and the Nasdaq Composite Bullish Percent present similar messages telling us that institutions have used the recent rally to sell, not accumulate, shares.

*This is bearish.*

Looking further, the NYSE Advance-Decline line has rolled back over and failed to get above its moving average during the recent rally.






This too speaks to internal market weakness.

The Nasdaq Advance-Decline looks absolutely horrible. Note that this peaked over a year ago!






*Sector Analysis*

Sectors provide invaluable analysis given their interrelationship and significance to the overall economy. When you follow these relationships, you can easily see where the market is going.

Before each of the last three recessions and bear markets, consumer discretionary equities were significantly underperforming defensive consumer staples. The discretionary/staples ratio is now at its lowest level since the US election in 2020. The ratio is also diverging lower from the S&P 500, just as it did prior to the last three recessions.






The steepness of the white line is telling.

The JNK High Yield ETF hit new lows on Monday while the S&P 500 is still well above its March lows. Credit was never truly buying into the recent relief rally in stocks. Remember, credit tends to LEAD equities to the downside.






The SOX Semiconductor Index as a whole is now just above horizontal support at the 2022 lows set back on March 14. Semiconductors are now down -22% YTD.






The semiconductors are considered an important bellwether for technology in general and the industry plays an important role in the overall economy.

The Home Builders (XHB) is a sector I have been especially bearish on. Coupled with extreme construction costs and higher mortgage rates, new homes have become unaffordable for many.

The XHB Homebuilder ETF is not only in a downtrend but is accompanied by heavy volume as well. This sector exemplifies the growing problem of stagflation where the consumer is unable to keep pace with rising inflation costs.

*CONTINUED IN NEXT POST, HIT MAX ATTACHMENTS*


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## DaveTrade

One particular worrisome tell is the recent weakness in the Transports. A reliable measure of the supply versus demand, IYT tells us if goods are moving or not. What we do not want to see in a strong economy, is for supply to outweigh demand. IYT tells us about that relationship, hence, about the health of the US economy.






According to Dow Theory, any rally in the Dow Industrials must also be accompanied by price strength in the transports. The recent weakness in shares of IYT was accompanied by the highest selling volume seen in several years – and a break below the recent low would solidify a major top for this critical sector.

*Inflation is here.

You can see it everywhere you spend – food, travel, even used cars. Nobody is immune.*

Today’s print of 8.5% CPI was the highest since 1981 and reflected price increases not seen in the U.S. since the stagflation days of the late ‘70s and early ‘80s.

Strong inflation means the Fed has to change policy direction to fight it. They now must tighten policy rather than loosen it to stimulate economic growth.

The Fed policy of the last 40 years was managed in a deflationary backdrop, but the backdrop now is inflation so that changes all of the rules.

Strong inflation changes valid investment strategy because stocks and bonds can correlate to the downside thus removing the diversification benefit of traditional risk management.

You need different risk management rules to control portfolio losses (see this investment resource for a smart solution).

Stocks tend to perform poorly during inflationary periods, which is counterintuitive to most investors’ expectations.

*In summary, downside risk management is paramount at this time.*


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## DaveTrade

This Market Calls for Defense & Caution​By Mike ReillyApril 26, 2022

Here’s what sector performance looks like right now:


Consumer Discretionaries (XLY) is down *-13.2%*. 
Technology (XLK) is down *-16.32%*.
Communications Services (XLC) is off by* -19.78%* year-to-date…
And it’s still only April! Think about this for a minute… 

These three sectors XLY, XLK, and XLC account for two-thirds of the market cap of the S&P 500, and collectively they have lost -16.43% on average… 

The performance of these three goes a long way in determining the overall direction of the S&P 500 index. 

The S&P 500 is a large-cap growth index led by Technology, Communications, and Consumer Discretionaries. These are the growth trades of the S&P. The problem is they’re not very growthy right now. 

Not to say “we told ya so,” but we’ve been pounding the table for the last six months about the rotation out of growth and into value. No, we didn’t have a crystal ball or some kind of magic spell…

Instead, we understand how to interpret the very charts and indicators we’re sharing with you every week.

The narrative of value over growth or defense over offense hasn’t changed. That’s very clear in sector performance. 

Energy, Utilities, and Consumer Staples are the only three sectors with positive returns in 2022. 


Energy (XLE) is *+34.07%*…
Utilities (XLU) is up *+3.71%*…
Consumer Staples (XLP) has positive returns of *+3.68%*.
From a Relative Strength perspective, Energy has slipped a little while Utilities and Consumer Staples are taking over the leadership – these are the most defensive sectors.

The problem for all you index watchers (and investors) out there is these three sectors only account for 14% of the total market cap of the S&P 500.

That’s a big problem if you’re an index investor because it means you own too much of what isn’t working and not enough of what is.

This continues to be a market that calls for defense and cautiousness. 

Yes, we will certainly see the headlines and hear the heroes out there telling you how it’s time for Tech to reemerge as a leader. 

_“Stocks are cheap – it’s time to buy…” _

My reply? There’s a good reason growth stocks are “cheaper” than they were a year ago.

So, before you decide to jump into these growth sectors with both feet, I’d suggest you take a good look at the charts below. 

And, if after careful consideration, you still think now is the time for tech and communications to go into full-on rally mode – well, may the investment gods be with you…

Let’s focus our attention on how to spot a market that is distributing stocks (to unwary souls) vs. a market where accumulation is taking place by some of the biggest investors in the world.

Let’s start with this: Four times as many NASDAQ stocks have been cut in half as have rallied 50% from their 52-week lows.






Or this little investor factoid: We have continued to see more stocks making new lows than new highs in both the NYSE and NASDAQ – 22 consecutive weeks of more new lows than new highs, making this the longest such stretch since the Great Financial Crisis.

*Call me cynical, but this stat alone makes it difficult to make the case we’re in a bull market. Much easier to make the case this is indeed what a bear market feels like.*

Here’s a chart of the NYSE Common Stock only Advance/Decline line or A/D line for short. 

If you’re not familiar with it, it’s just a fancy title for a line chart comparing the number of stocks moving higher (advancing) in price vs. the number of stocks moving lower in price (declining). 

*What investors need to know: Healthy bull markets will see more advancing shares than declining shares. *

However, today’s current market environment has been anything but bullish over the intermediate-term – as expressed through the NYSE A/D line peaking last November. Since November (when stocks peaked) more stocks have been declining than advancing.

*Investor Tip: Line charts moving down and to the right are not bullish.




*

In the lower pane of the chart above, we can see the S&P 500 index looking like it wants to test the March lows. 

The million-dollar question is: Will it hold here and mark the lows for April or will the index break below the 4200 level and continue its descent to 4100 or even lower?  

Unfortunately, we don’t have tomorrow’s newspaper today…

This is why we rely on breadth indicators like the A/D line in order to visualize what is happening under the surface – out of sight to many individual investors. 

Continuing with the idea of tracking advancing shares vs. declining shares, here’s a chart of A/D lines of the S&P 500, NYSE, and the A/D lines of both mid-cap and small-cap stocks.

The theme remains very constant – it doesn’t matter where on the cap scale we are looking, from large-cap stocks to small-cap stocks or the NYSE vs. the S&P – since the beginning of 2022, we have continued to see more declining shares. Lower highs are another indication of weakness.






We are very interested to see if the A/D lines up and down the cap scale will continue lower and form new lows, indicating the selling pressure has not yet abated.

*It’s a simple story, bull markets are not made when more stocks are declining than rising. *

Investors will want to follow the A/D line as a means to track what is happening under the surface – away from the noise of many indexes.

*While intense selling can signal exhaustion, it can also just reflect an acceleration of the weakness that has been seen for months now. *

If selling is getting exhausted, then Friday’s downside volume should soon be followed by two or more days with similarly-sized upside volume… 

Until then, the bearish case gets the benefit of the doubt.


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## DaveTrade




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## DaveTrade

*Did Amazon Just "Kill" the Bull Market?*





Stocks plunged this morning as investors digested the latest Big Tech earnings. Amazon (NASDAQ: AMZN) and Apple (NASDAQ: AAPL) both reported after the closing bell last evening, revealing forward guidance that ranged from underwhelming to downright bearish.

Apple posted major beats in both EPS and revenue but warned investors that persistent supply chain issues, coupled with the recent Covid outbreak in China, could cost the company billions of dollars next quarter.

Amazon, meanwhile, missed on revenue while providing a major downward revision to guidance that caused AMZN shares to crater after-hours. It’s clear that inflation has cut into Amazon’s margins significantly.

Instead of passing these costs on to customers, though, CEO Andy Jassy is making investors foot the bill – something Jeff Bezos was famous for doing in the past.

AAPL was down roughly 1% shortly before noon today while AMZN effectively crashed, falling over 12% through the morning.

The three major indexes dropped as a result. Now, the S&P and Nasdaq Composite both seem as though they’ll test support near their 2022 lows in the near future.

“The current market performance is threatening to make a transition from a longish and painful ‘correction’ to something more troubling,” wrote Marketfield Asset Management Chairman Michael Shaoul.

“March 2020 for instance saw very sharp declines, but equally fast recoveries. The current episode looks much more likely to impose long-lasting losses in investors that piled in during the 2021 rally, and is best thought of a ‘creeping bear market,’ that is steadily widening its net over prior market leadership.”

During every bear market, most investors believe that the next bull market is right around the corner. Plenty of otherwise successful traders were caught in this trap after the Housing Bubble burst in 2008. The S&P rallied 13% from March to May of that year after falling almost 20% the five months prior.

Wall Street advised its clients that the worst was over. The S&P then crashed another 50% after the bear market rally peaked, eventually bottoming out nine months later. Macro concerns scrubbed away any enthusiasm generated by earnings.

A similar situation has formed over the last week.

“Despite what we view as a solid overall earnings period so far, the positive results look to be getting overshadowed by some of the broader concerns related to inflation and the Fed,” said BMO’s Brian Belski said in a note.

The Nasdaq Composite is already in a bear market, having fallen over 20% from its recent high. The S&P needs to drop another 8.5% to join it.

Will that happen? If the Fed sticks to its guns and aggressively tightens this year, it probably will. Should the Fed capitulate in response to recession fears, however, an enormous rally would follow.

But for the time being, it looks like the Fed’s going to stay the course. The central bank’s favorite inflation gauge – the personal consumption expenditures deflator – rose 6.7% year-over-year according to a reading from this morning. That’s the highest it’s been since 1982. Spending rose 1.1% month-over-month, outpacing the 0.5% monthly rise in incomes.

In other words, the inflation situation has not really improved. It arguably got worse.

And that should keep stocks subdued, especially after AMZN and AAPL revealed disappointing Q2 projections last night that have only intensified slowdown concerns.


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## Ann

DaveTrade said:


> Did Amazon Just "Kill" the Bull Market?



I normally don't bother to chart US stocks but after reading your post I decided to look at AMZN.

I am trying to find a pattern with large volume spikes, volume is something I have ignored in the past, I think this was a mistake.

One of the patterns I am finding is a good volume spike at the bottom of an extreme fall, in a quality stock or ETF, appears to send it back up again. I see just such a volume spike with Amazon, let's see if this plays out as I am feeling it might....up with possibly an energetic lift.


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## DaveTrade

Ann said:


> I am trying to find a pattern with large volume spikes




Ann I noticed a strange thing when I looked at my chart after seeing your post, I noticed that I have a different volume. I tried to make my chart look like yours to see if there was any other differences. I will see if my volume changes when I download data on Tuesday morning. Here's my chart;


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## DaveTrade

I just checked on Barchart and the volume there is 13.633M, I've got some questions for my data supplier.


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## Ann

DaveTrade said:


> Ann I noticed a strange thing when I looked at my chart after seeing your post, I noticed that I have a different volume.






DaveTrade said:


> I just checked on Barchart and the volume there is 13.633M, I've got some questions for my data supplier.




I am not sure but it may be figures taken after the close. Your figures may cut off at the equivalent of 4pm and IC may cut off at the equivalent of 4.10 if you follow me.

I often see slight differences in the commodity prices as well from US charts. I think they must do a European close. Truly don't know and I am only guessing.


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## Ann

@DaveTrade just as a follow-along related to volumes it may be your volume data is taken at 4pm and my volume data may have been taken at 8pm. That four extra hours of trading would certainly explain the volume difference.


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## DaveTrade

Ann said:


> it may be your volume data is taken at 4pm




Yes that may be it or there may be something related to volume at close of the market or volume at settlement. I'll ask my data supplier to clarify to issue, it's important to me because I use volume in some of my indicators. Thank for your interaction, without that I may not have seen this problem.


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## DaveTrade

How low will we go, that is the question. Are we there yet?, this guy puts up some evidence to say that we could be there or close to the bottom; take a look.


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## DaveTrade

No Banks, No Bull​By Mike ReillyMay 11, 2022

Regardless of daily headlines about the current direction of equity markets, what the Fed is thinking, or what Elon is doing, there are a few tried and true rules that remain pretty consistent.

And one of those rules is that without banks, there are no bull markets. 

That doesn’t mean banks have to be the life of the party, but they have to at least show up.

And the problem is – they haven’t.  

At a time when banks should be basking in the glory of higher rates (and a higher bottom line) banks are acting more like growth stocks than cyclical value plays.






The SPDR Financial ETF XLF now sits at 52-week lows and its year-to-date performance is in line with the overall market – not with value stocks.

XLF has shed over 13% of its value this year, while the S&P 500 has a 16.51% drawdown. 






And XLF would likely be enduring even larger drawdowns if it were not for its 15.22% stake in Berkshire Hathaway, Inc. (BRKB) 

Some of XLFs biggest holdings (banks) are getting smoked in 2022.

We’re seeing real drawdowns in JP Morgan, Bank of America, Wells Fargo, Goldman Sachs, and Morgan Stanley – none of them have been immune to this year’s sell-off.






Here’s the thing… this isn’t just a story about a drawdown in Financials.

There are broader market implications when banks struggle.

The price chart below tracks the performance of the Financial sector using XLF as its proxy and an overlay of the S&P 500 index. 

I’ve outlined two historic market breakdowns below in 2008 and 2020 that proceeded or accompanied breakdowns in the S&P 500.

*The question is, are Financials foreshadowing a more significant collapse in equity markets?*






*Where go banks, go the market…*

Digging deeper into breadth in Financials we can see the percentage of stocks in the sector trading above their 50-day moving average just fell below 5% after diverging from index prices for much of the past year.






During healthy markets, the percentage of stocks in an index or sector that are trading above their long-term 200-day moving averages tends to stay above 60%. 

During _unhealthy _markets, we usually see the opposite – fewer than 40% of stocks tend to hover above their averages.

For Financials, that’s what we’ve been seeing – the percentage of members above their 200-day average falling below 40%. 

Key points:


Fewer than 5% of Financials are trading above their 50-day averages.
Fewer than 40% are holding above their 200-day averages, a worrying decline in long-term trends.
Similar combinations have preceded poor returns in the sector and the broader market.
*This vital sector is seeing souring trends.*

For anyone other than the most current generation of investors, trouble in Financial sector stocks sends a shiver down the spine. 

The meltdown in 2008 leaves the kind of scar that never fully heals. It seems hard for U.S. citizens to imagine now, but there was a daily worry about whether we would even be able to withdraw our own funds from banks the next day.






Equity investors do not want to see trouble in Financials. Traders tend to sell these stocks and ask questions later because a single over-leveraged client can bring down an entire institution. 

With coincident and severe declines among a broad array of stocks and bonds, there is almost assuredly a large client somewhere that has blown up or is about to. 

*With investors avoiding stocks in this sector to the degree that they are now, it’s a worrying sign for all of us.*

*Financials remain an important key to the success of the broader market.*


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## DaveTrade




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## DaveTrade

*The July Jobs Report Is a Lie*





Stocks fell this morning after the Bureau of Labor Statistics (BLS) revealed a way stronger than expected July jobs report. The Dow, S&P, and Nasdaq Composite all sunk on the “good news is bad news narrative.”

“This is hot. For the Fed, this is another 75 basis point hike,” said Diane Swonk, KPMG’s chief economist.

“The Fed is dealing with strong demand in a supply-constrained economy, and that demand extends to labor,”

According to the BLS, the US added a stunning 528,000 jobs last month, beating the 250,000 job estimate with ease while hitting a monthly payroll gain unseen since February (when 714,000 jobs were added). Last month’s jobs tally was revised to 398,000 (up from 372,000) as well.

“Anybody that jumped on the ‘Fed is going to pivot next year and start cutting rates’ is going to have to get off at the next station because that’s not in the cards,” said B. Riley Financial’s Art Hogan.

“It is clearly a situation where the economy is not screeching or heading into a recession here and now.”

Unemployment slid from 3.6% to 3.5% as a result despite a puzzling reduction in the labor participation rate, which fell from 62.2% to 62.1%. Labor participation has been trending lower since March.

Wages also climbed 5.2% year-over-year, beating the +4.9% estimate. This perhaps scared bulls the most as the Fed is expected to view red-hot wages as a reason to raise rates aggressively.

And, below the headline jobs gain (as reported by the establishment survey), the household survey was somewhat underwhelming once more. Showing little gain in the number of US workers (just +179,000 in July), the discrepancy between the household and establishment surveys grew to 1.8 million, up from 1.5 million in June.

Keep in mind, too, that July’s major beat was driven by a heavy-handed seasonal adjustment – something the mainstream media seemed to miss today.

The BLS applied a seasonal adjustment of about 900,000 jobs last month. No, you read that correctly.

Unadjusted, the US economy actually lost roughly 385,000 jobs. July 2021’s unadjusted jobs number was just -41,000 jobs by comparison.

That’s probably why the household survey hasn’t tracked the headline jobs gains month after month; the BLS is going way overboard with seasonal adjustments to the upside.

Meanwhile, the number of multiple jobholders continues to climb opposite full and part-time workers. In fact, multiple jobholders whose primary and secondary jobs are both full-time positions just hit a record high in July.

And so, really, the situation isn’t at all different from June. More importantly, the jobs data coming in is persistently confounding.

That’s why investors should probably ignore it moving forward. In January, the BLS revised down March-July 2021’s jobs reports by a total of 1.061 million payrolls. Then, they revised August-December 2021’s tally higher by 817,000 jobs.

In other words, investors were virtually flying blind for the entirety of 2021. Seasonal adjustments were to blame.

Come January 2023, I bet we’ll see a similarly impressive downward revision for March-July of this year for the same reason. And, just like last January, the BLS will quietly slide the correction in under a major headline jobs beat, once again obscured by a stiff seasonal adjustment that makes US labor look far stronger than it really is.


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## divs4ever

getting to the stage where we are comparing  apples with elephants


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## DaveTrade

A Must-See S&P 500 Chart! (Market Video Update)​





						A Must-See S&P 500 Chart! (Market Video Update) – The Steady Trader
					






					thesteadytrader.com


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## divs4ever

interesting  ,  i kinda hope he is wrong  

 but i can't see  how they will dig themselves out .

 i assume he means  single digit returns  ,  after inflation is factored in .

but what does HE call 'inflation '  if it is the official CPI we are heading into a very dark place


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## qldfrog

divs4ever said:


> interesting  ,  i kinda hope he is wrong
> 
> but i can't see  how they will dig themselves out .
> 
> i assume he means  single digit returns  ,  after inflation is factored in .
> 
> but what does HE call 'inflation '  if it is the official CPI we are heading into a very dark place



He is using ppi fir the chart so that is the reference


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## Telamelo

Note above video uploaded on Friday night 12th Aug aest before US market session


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## DaveTrade

Telamelo said:


> Note above video uploaded on Friday night 12th Aug aest before US market session




Borrowing an expression that is used by another contributor of this forum, I think this guy "nailed it". I've looked at $SPX from every angle I can think of and I keep saying to myself "I just can't see it, I need another week".


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## DaveTrade




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## DaveTrade




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## DaveTrade




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## DaveTrade




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## peter2

I think this would make a good print to frame and hang on the wall. 26/8/2022. Source finviz.com






or maybe a monitor background.


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## DaveTrade




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## divs4ever

DaveTrade said:


>




raises some concerns i have over ( Australian ) index funds as well  ( which isn't so badly endangered  by non-profitable big-caps )


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## DaveTrade

__





						Loading...
					





					view.go.wealthpress.com


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## DaveTrade

*Don’t Fight the Fed*


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## divs4ever

DaveTrade said:


> *Don’t Fight the Fed*



fine , but don't expect me to believe it either ( the Fed )


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## divs4ever

DaveTrade said:


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> view.go.wealthpress.com



 am expecting more wiggles and venom ( from the Dems ) than  a tonne of rattlesnakes 

 the Republicans may grab some ground , but not uncontested ( by extraordinary tactics , including trying to provoke a full-on nuclear war )


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## DaveTrade

divs4ever said:


> am expecting more wiggles and venom ( from the Dems ) than a tonne of rattlesnakes



What the polititians say is all part of stage show for the people, especially in the US. Guess who blew up the pipeline, Russia, no it was the UK together with the US.


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## divs4ever

if Russia was to blow up a pipeline ( it owned ) it would have been the one through Ukraine  ( with the turbines awaiting maintenance ) and calling up the insurance company ( blaming Ukraine ) 

 Putin is about profit  ( and how to make it ) but some fail to understand that ( even some of the Russian oligarchs )


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## rcw1

divs4ever said:


> ...  ( even some of the Russian oligarchs )



Good afternoon 
The dead cannot express an opinion.  

Kind regards
rcw1


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## divs4ever

not all the Russian oligarchs are dead  ( many changed their names when they migrated )


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## rcw1

divs4ever said:


> not all the Russian oligarchs are dead  ( many changed their names when they migrated )



Smart move
kind regards
rcw1


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## divs4ever

i am assuming they learned  that from the Germans  in the middle of the 1940s  , but it has been used over several centuries , when trying to escape  a reputation .

 by the way  , many of the Russian oligarchies were created in the Soviet era ( consider that  )


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## rcw1

divs4ever said:


> i am assuming they learned  that from the Germans  in the middle of the 1940s  , but it has been used over several centuries , when trying to escape  a reputation .
> 
> by the way  , many of the Russian oligarchies were created in the Soviet era ( consider that  )



self-preservation, human trait designed to live abit longer....

Kind regards
rcw1


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## CityIndex

It will be interesting to see what sort of lead local equities get from Wall Street overnight with the US mid-term elections today. Historically speaking, the stocks has tended to benefit from the mid-terms, but is at risk of a highly contested result adding yet another layer of uncertainty to the market and dragging shares lower. 

All trading carries risk, but it will be worth keeping an eye on tonight's session in the US as the result and initial reaction could set the tone for near-term direction.


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## divs4ever

i am expecting an uncertain outcome ( one that will not be accepted  by one side  or the other )

i also worry something else important will happen while many are distracted   by the event ( there are a couple of high level meetings happening this week )

 am looking at the Central Banks for unusual events ( interventions , or maybe another bout of Repo antics )

 good luck  everyone


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## DaveTrade

divs4ever said:


> i am expecting an uncertain outcome ( one that will not be accepted  by one side  or the other )
> 
> i also worry something else important will happen while many are distracted   by the event ( there are a couple of high level meetings happening this week )
> 
> am looking at the Central Banks for unusual events ( interventions , or maybe another bout of Repo antics )
> 
> good luck  everyone



Whatever happens tonight in the mid-terms the markets will most likely move as a result. The thing that I'm less certain about is the direction of that move. If your right about other issues coming into play, then the uncertainty will be magnified.


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## divs4ever

am expecting a sequence of moves , but have no idea which way  , since many big corporations are pro-Biden ( when in previous decades you would think a Republican gain would be a positive )

 oil/gas might be the place to watch


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## DaveTrade

Stay with the market, see what is changing;


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## DaveTrade

November 21, 2022  |  Michael Reilly​
It looks like the S&P 500 is running on fumes.

One chart has signaled the beginning of the end for the last three rallies of 2022.

The Bullish Percent Index of the S&P 500 offers a consolidated measure of the percentage of S&P 500 members trading on buy signals on their respective individual P&F charts. It’s also a great measure of overbought or oversold market conditions.

You can take a lot of time and energy looking through 500 individual charts and tracking the number of stocks on buy vs. sell signals, or you can do what I do – pull up the BPI.

It’s a single chart of all members trading on the S&P 500.

And here’s what it’s saying right now.

For the fourth time this year the Bullish Percent Index for the S&P 500 pushed above 70%, indicating that more than 70% of all the stocks trading on the S&P 500 are on buy signals on their individual charts.

The 70% level is considered an overbought market. That’s not a bad thing – it signals a lot of buying and that’s bullish. And we’d like to see that strength continue..

The problems arise when the BPI moves from above 70% back below it.

It’s a tell that there isn’t enough strength in the market and buying is waning.

And each time the BPI has moved back below 70 this year, it marked the end of a current stock market rally.
I’ve highlighted this in the chart of the S&P 500 BPI below.






Take a look at what the S&P 500 index did after its BPI moved from above 70 to below 70. That was the peak. That was it. The S&P sold off as the BPI fell below 70.

And that looks to be what is happening right now. The BPI moved above 70 showing lots of buying.

Unless something changes in the next day or so, the BPI will once again fall below 70. And when it does it will be the end of yet another rally within an ongoing bear market.

I’m keeping a close eye on the BPI and several other key indicators, so check back later, as I’ll have more to share…
But until then, invest wisely.


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## CityIndex

DaveTrade said:


> It looks like the S&P 500 is running on fumes.
> 
> One chart has signaled the beginning of the end for the last three rallies of 2022.



You could be right. Even looking at the fundamentals, the continuing global recession fears point to this post-CPI rebound just being another one of this year’s bear-market rallies.

If the S&P500 closes below last week’s lows and the key 3900 level over the coming days it could open the door to another sharp pullback.

Of course, all trading carries risk, and FOMC Minutes this week will also be worth keeping an eye on. Any sign that the Fed may consider slowing their hiking cycle next month could reignite risk sentiment.

Either way, this is a really interesting analysis, and it’ll be worth watching how it plays out in the market.


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## CityIndex

A broad-based rally on Wall Street overnight which looks like it will carry over into early local trading. However, might be worth noting the slight decline in volume in the move higher. 

Might be traders waiting for the FOMC Minutes before making bigger bets, or maybe just less activity ahead of Thanksgiving.


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## DaveTrade

*Is a "Short Squeeze" Coming December 2nd?*






Stocks traded flat today as the market remained quiet during its shortened holiday session. The Dow, S&P, and Nasdaq Composite were mostly unchanged through noon. China lockdown concerns lingered, limiting the market's upside in response to a well-received Fed minutes release on Wednesday.

“A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” the minutes said.
There were some hawkish remarks, too, but the general tone of the minutes leaned dovish. Stocks rallied modestly in response.

Today, however, trading volume has been low, and equities refuse to budge. China's central bank confirmed this morning that it would cut rates by 25 basis points in an attempt to stimulate the Chinese economy.

That would normally be received as bullish. The central bank also cut the reserve requirements for lenders, hoping to increase loans.

But with restrictions being reactivated by Beijing, investors have had a hard time getting excited about China's rate cut.

“How effective [easing] will prove to be when cities are seeing restrictions and effective lockdowns reimposed is hard to say,” said Oanda analyst Craig Erlam.

“But combined with other measures to boost the property market and ease Covid curbs, the cut could be supportive over the medium term when growth remains highly uncertain.”

Meanwhile, in the US, investors anticipate a softer Fed even though its target rate has not changed.

“The Fed needs to continue to hike rates reasonably to the 5% to 5.25% levels, so there are still some rate hikes to come, so markets are a little bit optimistic right now," said Stephane Monier, chief investment officer at Banque Lombard Odier & Cie SA.

So long as nothing drastic happens in China in relation to lockdowns, though, most investors expect the market's seasonal tendency to take over in December.

Historically speaking, the period spanning Thanksgiving to the new year has been a great period in which to be a bull. The S&P has gained roughly 2.65% on average over this time frame going back to 1950. The index only fell during this period about 20% of the time, giving it an 80% win rate for bulls.

Conditions are obviously not normal this year in terms of rates, but the same could be said for the market's current valuation. Stocks haven't typically been so far below their all-time highs around Thanksgiving.

That could result in a major move higher, especially in a market that's grown less liquid, lending itself to increasingly explosive rallies.

We've said this many times before, but it bears repeating:

The November jobs report on December 2nd could see stocks absolutely erupt if the unemployment rate increases substantially.

A string of enormous corporate firings in November suggests this will be the case.

Until that report comes out, expect stocks to continue chopping sideways. But when the jobs report does hit, be ready for what might be the biggest short squeeze of the year, as a number of other key reports and meetings occur in the weeks that follow that are expected to look equally bullish as well.


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## DaveTrade

*My Top Watch and Trading List for December*






Dear Reader,

I like to have a good set of rules when it comes to trading stocks.

I start with the most conservative trading strategy I have...

At the beginning of each month, I examine three unique metrics to help build a list of low-risk, high-upside stocks with rock-solid balance sheets.

It can be a good strategy for first-time investors and options traders. That said, I know plenty of advanced traders who also love to employ this strategy in positive momentum markets.

This is free — I know people who charge thousands of dollars for some of this analysis! Which is silly because it’s quick and simple... You just need to know how the data works.

And by sharing my research with you, it helps me master it. So let’s take a look at our metrics.

We have:


The Piotroski F-score.
The Altman Z-score.
A _valuation rank._
It also helps if there’s an options chain for these stocks.

Our first metric — the Piotroski F-score — gives us a clue into positive financial growth and low debt exposure.

The F-score is a nine-point system that rewards each company for meeting a certain criterion on its balance sheet. It was created by a Stanford University and University of Chicago professor named Joseph Piotroski.

If the company meets all nine criteria, it has an F-score of 9. That means its balance sheet has greatly improved year over year.

Then we have the Altman Z-score...

This measurement is a weighted average of five different metrics to determine whether a company might go out of business.

If a company falls below 2.6, it has a risky balance sheet. That risk is tied to lots of debt or weak cash flow.

I like to look for stocks with a Z-score of 3 or higher. That severely reduces any credit concerns I have.

Finally, there’s a valuation metric. Different industries require different valuation methods. So, I’m not going to share this because it’s my secret sauce.

These stocks are cheap compared to their own historical valuation and/or to their sector rivals.

Here Is My Lovely 11​Below is a list of 11 names, and their metrics at the start of the month.






How I Trade These Stocks​If I want to start trading these great names, I don’t have to buy the stock or call options. I could go deep out of the money on puts and trade credit spreads.

I’ve discussed various approaches to these stocks that offer unique upside and reduced risk. Again, with these trades, I can improve my probability of profit, generate large income payments from a small position, and pick my preferred entry buying price.

And what happens with these trades?

If the stocks go higher, I’ll make money.

I’ll also make money if the stocks don’t reach the strike price.

And if the stock falls to the strike price, I’ll get a great stock at a much cheaper valuation than today.

It’s win, win, win.

Friday, I’ll find a trade for one or two of these stocks. I prefer to focus on the Energy sector, although I’m expecting a bit of a pullback — a buying opportunity — due to recent overbought conditions in the sector.

Enjoy your day,




Garrett Baldwin


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## qldfrog

Not sure where to put this but something happened last night.
The US market rebounded a bit +1%..that happens even in bear market.
Usually in such cases, USD goes down,the euro, pound and yen up.and AUD follows up.
NOT last night 
As expected gold down but Euro unchanged and both AUD and Yen down sharply????
That is highly unusual and must have burn many.


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## DaveTrade

qldfrog said:


> Not sure where to put this but something happened last night.
> The US market rebounded a bit +1%..that happens even in bear market.
> Usually in such cases, USD goes down,the euro, pound and yen up.and AUD follows up.
> NOT last night
> As expected gold down but Euro unchanged and both AUD and Yen down sharply????
> That is highly unusual and must have burn many.



I thought I'd throw up a big picture chart of the $SPX. I think that markets may more sideways waiting to see what happens with the interest rates next week.


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## qldfrog

DaveTrade said:


> I thought I'd throw up a big picture chart of the $SPX. I think that markets may more sideways waiting to see what happens with the interest rates next week.
> View attachment 150425



Interest rate will go up .5% and the market will jump as it could be worse, then hard results of falling real term results will damp the mood again


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## DaveTrade

There is some good information in this video before some sales comes in towards the end. I hope I'm not breaking any rules by posting it, I don't think so. It explains a bit about the type of market that we have currently.

*Listen to what Garrett has to say here.*


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## DaveTrade

Some words of wisdom;


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