Semiconductors: Bull or Bear?

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SMH at Potentially Important Juncture

I don't think this spot is crucual because I don't have high confidence in that blue sloping neckline. Yet if the market does start turning down or you're bearish here, that is a great spot for shorts. I'm waiting for confirmation from the major indexes.

Good Enough for a Top Call

If you're buying puts for October or later, the top is in as far as I'm concerned. Tesla was one of the few winners today among BigTech. Cryptos were down, ARKK barely up considering how the major indexes moved. You might not want to go all in on puts yet because the indexes can be funny. Apple hasn't filled its gap yet and I worry there could be a fakeout pop higher. Having said that, I also wouldn't be shocked if SPX is sub-4000 when the calendar rolls to September.

Divergences

A bunch of stocks haven't joined in today's pop. There were all doing well during the rally. There could be yet one more pop left. All these charts look like they'd produce a spike on a move up. Having said that, I think it would be a fakeout. This is the fumes stage of the rally.

SMH Fills Gap

Early in the day, but so far SMH only managed to fill its gap. If this can't go higher, that is an extremely bearish omen because it should go higher with the rest of the market.

Semiconductors Hint at Reversal

Another sign the rally may be ending. Note that SMH bounced before it made a final low in early July. It's possible an inverse plays out if the broader market has one more pop in it before it turns as well.

Chips Top, Maybe

SMH reached the lower end of my target range. MPWR surged on earnings news. The latter is heavily exposed to China with sales, plus it's entire supply chain bottlenecks in China with chips made in Taiwan and South Korea, along with those made in China, flow through Chengdu. MPWR does not have liquid options. If SMH gets to the $250 to $255 area, about a 50 percent retrace and at the late April high, that would be where I'd be looking to heavily short assuming nothing has changed with the macro picture.

Next Move for Stocks

Crude oil could play an important role in the next move for stocks. A pullback seemed likely though, so I'm not ready to write off the rally yet. The FOMC announcement comes in three more trading days...

SMH filled its gap yesterday and reversed today.

ECB Hikes 50bps, I'm Profit Taking on Rally

I am biased to the short-side on equities from here, but I don't think the rally is done.

My calls on EWG and EWI are liking the ECB rate hike this morning.

Equities and the euro rallied on the news. Crude oil and other commodities bounced on the news. Gold came very close to its last line of support before bouncing. It is dutifully returning those gains at the moment.

Long-term U.S. bonds still in a trading range.

Crude oil is halfway between $100 and $90. It needs to lose $90 for real bearish moves to kick off again.

NQ has no resistance above today. I don't expect a rally that would challenge the next resistance line. Gains may be hard fought because it is back to the early June consolidation zone. This is the last major resistance before the final leg of the bear rally kicks off. It won't guarantee the full 25 percent, but that'll be a stretch target should NQ climb 4 percent from here and break that resistance.

SMH popped again this AM and I closed my calls. I might go back into August calls, but thinking a pullback is coming. I am holding my XLC calls because they are too illiquid to trade. Between what I'd pay to get out, and back in again, plus if I mistake my timing, it's not worth it. If you have shorter-term options like $58 strike and can get a good price, maybe take profits. I'm thinking the market will meander ahead of the Federal Reserve meeting on July 27, which is the same day Meta reports after the bell.

Morning Brief: What Good are Economists and Rally

There are a lot of great economists out there. The majority of them work at the Federal Reserve, the Bureau of Economic Analysis, the Census Department and various private firms. They collect data, they clean up the data, they adjust for seasonal factors. They provide us with great resources.

How about the forecasters? the modelers at the Fed who estimate government reports ahead of time are useful. I don't know what the others are worth.

Retail sales were released this morning. Here's the rundown:

Retail Sales 1.0% M/M, Exp. 0.9%

Retail Sales ex-auto 1.0%, M/M, Exp. 0.7%

Retail Sales ex-auto and gas 0.7%, M/M, Exp. 0.1%

Retail Sales Control Group 0.8%, Exp. 0.3%

There figures are not price adjusted. The CPI increased 1.3 percent in June. One can't simply adjust the sales for the CPI to estimate actual sales, but for my purposes it's close enough. My estimate is headline sales were roughly flat. However, what I want to talk about are the forecasts. Look at what economists were forecasting, particularly the ex-auto ex-gas figure of 0.1 percent growth. Knowing these figures are not inflation adjusted and knowing roughly where inflation forecasts were, economists were forecasting that sub-category of sales fell at a conservatively-estimated annualized run rate of around 10 percent in June. 

In what type of economy do sales fall 10 percent annualized? Why do only a minority of mainstream economists predict a recession in 2022? I don't know of any that say the recession is already underway. I know economists out there have forecast that, but they don't work as the face of Wall Street firms. 

Probably no shock for readers here, but this is yet another example of the failed "intermediary class." We have fairly good information systems, but terrible analysis in the mainstream. You can profit in the markets and in life by ignoring mainstream information filters that are biased to the point of being subversive of truth.

On to the charts.

There is no confirmed rally until ES cracks the 3950 level, which is about 3 percent away. I'm long and staying long because I'm betting on a rally and as levels such as 3950 fall, it will ignite more short covering and bull buying. There could be pullbacks at the 3875 level, plus the prior two areas of consolidation that led to reversals. Once those are gone, a move into the prior congestion area from 4070 to 4200 is likely. That's the potential terminus zone for a decent rally of 15 percent. A rally of 20 percent off the low would take the ES to 4370 area. The gains from pre-market levels: 6 percent to 4070, 9 percent to 4200 and 14 percent to 4370.

I have been focused on areas such as biotech, semiconductors and social media because the stocks are most depressed and offered cheap OTM options, as opposed to ARKK. If the market goes up 15 to 20 percent, I expect individual stocks in these areas of the market can rally as much as 50 percent and the ETFs will outperform the overall market. XBI is already up about 35 percent from its low and may not have much further to go from here. Another 10 percent would take XBI up around 50 percent from its low. SMH looks better here, with an uncompleted reversal pattern. If it completed, a move into the prior consolidation area around $250 is possible. That would be a 30 percent rally from the lows, but about 17 percent from here. That seems extremely possible for three reasons: Nasdaq should lead the ES, semiconductors should lead the ES, and my "middle" target for ES is a 10 percent gain.

I took profits on oil puts yesterday because as I discussed here, oil has been rising with stocks. That'll be negative for the rally if it keeps up. I suspect it may not, but I'm not shorting oil yet.

A Whole Lot of Work for Nothing

Very frustrating days in the markets. I did very well with trades during the rally, gave back some. Since then seesaw up and down days. Until I see the long-side totally wrecked, I will keep sniffing out long plays.

SMH is flirting with going green on a horrible day. Looks like a high probability winner if the market pops.

IBB broke a similar horizontal as the one that XBI is holding below. I view XBI as the leader. I don't like this trade as much as in June because it has much more potential downside if the market sinks, but the relative strength could unleash a still more powerful rally.      
I'm still positioned long on TLT. Added a little near the lows today.

XLC is the most depressed piece of trash that I'm willing to take a flyer on. August $60 calls look good if can get in cheap. They remain horribly illiquid. Direct play via NFLX and META more expensive, but very liquid.

On the downside, oil and related stocks remain my favorite, but as I discussed earlier today, the correlation between Nasdaq and oil gives me pause. The stock market needs something to send oil plummeting by itself, like peace in Ukraine, and that seems impossible right now. With oil following Nasdaq or vice versa, I expect a rally in stocks could pull oil higher. Perhaops soaring TLT could split the difference by signaling both a recession threat to hurt oil and the need for the Fed to slow its hiking speed to benefit stocks.

Inflation Comes in Scorching Hot, Sub-$80 Crude Soon, Rally Now?

Well, I was wrong. The CPI came in much hotter than expected. Cleveland Fed way way off on their forecast, missing by 30 percent. Surging inflation collapsed equity and bond prices before the market open. Barring some kind of technical reversal, markets are in trouble. That said, it's always darkest before dawn. The Federal Reserve is probably going to blow up the world in two weeks. That seems likely here barring the world blowing itself up in the next two weeks. If the world doesn't blow up...rally.

There's not much to say for the economy or markets. The U.S. is led by a President suffering from severe dementia. He is possibly a pedophile. There are photos of a naked Joe Biden with a naked female, age unknown but she's small enough in stature that she could be underage, from Hunter's phone or laptop. The picture at the link is edited. It is on Twetch (sign up link), was screenshot from 4chan. Most sites will probably delete it and while the photo is "safe for work" thanks to editing, I hesitate to post it for fear of political censorship. It is undeleteable on the blockchain though. Biden is also potentially corrupted by dirty deals with Ukrainian and Chinese companies.

In all, Hunter Biden made more than $30 million from entities affiliated with China's communist government. Hunter Biden's biggest deal with China involved a Chinese investment fund called Bohai Harvest RST or BHR. In December of 2013, Hunter Biden and Joe Biden flew to Beijing. It was a government trip on a government plane and that's when Hunter introduced his father to a BHR executive. Again, that's a flat-out violation of law. You can't take Air Force Two to China to lobby on behalf of the Chinese government, your own father. Full on time. The Bidens denied it, but Hunter eventually took a 10% stake in that company, a stake worth about $20 million.

Then a Chinese company called Harvest Global wired another $5 million to another company controlled by Hunter Biden, this one called Burnham Asset Management. He's got more companies than your average Mafia's done. According to the Washington Free Beacon, Hunter Biden, "reached out directly to the firm's chairman" and said the investment and we're quoting "would be important to the Biden family." Biden family, including his dad, the vice president, United States.

So, what's in it for Harvest Global? Well, per the Free Beacon, "Biden put together a financial proposal for Burnham to pitch to Harvest that promised 'Washington, D.C., access’ for investors." They're selling influence, selling influence with the U.S. government. Again, not to Belgium, not to Swaziland, to China, the country that has the United States in its sights.

None of this is surprising to most readers here, but if that's news to you, start reading some other sources because the media has a 100 percent blackout on the Truth, and the Truth has a way of eventually coming out. The 1973-1974 market collapse came in the context of the Nixon impeachment hearings. I expect extreme political volatility in Washington, D.C. and it will destabilize the financial markets and economy. Hunter's laptop and iPhone are the rough equivalent of Nixon's tapes. If the GOP Congress doesn't cuck with excuses of "this is so bad it shouldn't be made public," then Biden will fall simply by this information being made public in Congressional hearings. It's that bad.

As for the market, there is nothing except local lows holding up the market. Below 3750 and it's on to test the lows and probably new lows. On the flip side, the "local" worst-case scenario is in. CPI is much hotter than expected, guaranteeing no Fed pivot in two weeks, but the economy and inflation are already in freefall, all but guaranteeing a Federal Reserve "overshoots" as deflationary forces kick in.

Deflationary collapse is the big threat now. Long-bonds should rally from here as the yield curve inverts like it hasn't in 40 years.

Speaking to chart damage, here's my SMH play getting smashed with an island reversal. That is a very ugly chart if the downside continues.

Market is moving very fast such that island closed as I'm composing the post:

Aaaannd I've taken too long in composing this post...SMH is now green on the day.

Watch gold and gold miners. They are green this morning. It is meaningless within the trend and support isn't that close, but a turn here could come via macro forces. Gold-copper is threatening a new high.

My take: I took a hit this AM on the SMH and TLT positions, USO is stable. I was wrong on my timing, but the thesis for a rally is intact. Or at least, the thesis for collapsing oil and soaring long bonds is strengthened by the CPI because it is backward looking. The Federal Reserve has trapped itself in its own web of stupidity and lies. Inflation is falling. The economy is in recession. Inflation will drop if they do nothing. Yet the high CPI has much of the market looking for more Fed tightening. There will be more deflation, ceteris paribus, than there would have been had CPI been on target.

Nasdaq is now leading ES again despite the news being horrible for the Nasdaq relatively speaking. A rally needs to clear the 0.76 ratio (green line) of QQQ to SPY.

Portfolio & Biotech Update, Fake CPI Boosts Squeeze Odds

If symmetry holds, XBI takes a run towards $87 tomorrow. I have a little left on the position, as my calls were for July 15.

My main holdings now are long TLT and SMH, short oil. The XLC trade goes on, but it is far OTM and not a significant amount of capital. Notice the correlation of QQQ and TLT, or below SMH and TLT. The seeds are there for a rally and if the relationship between TLT and SMH holds up, and TLT hits my target of around $120, OTM calls on SMH are dirt cheap. That's a lot of pieces and SMH can plummet with the whole market even as TLT rallies, but if I'm right...

The market plunged into the close. The peso has a clean breakdown and it is positively correlated with VIX:

A crash window is open. However, the rallies have been sold into the close on most days. Going back to what I've been saying the past couple of weeks, a big rally could be building because nobody believes a large rally is possible, not bears, not bulls. I also suspect there is frontrunning of what everyone knows will be a very bad CPI report. Witness crude and copper today as evidence.

There also was a fake CPI number going around. I don't know if that impacted the sell-off or not late in the day. CNBC was reporting on it, so maybe. If yes, my expectation of a squeeze tomorrow goes up. The number was obviously fake because a quick calculation showed it would take a 2.44 percent month-on-month increase, which ain't happening. How stupid is CNBC? The Cleveland Fed Nowcast rounds to 1 percent mom and 8.7 percent yoy. The market is very jittery and could go in either direction, but my gut says the market goes up. And if not, I have USO and TLT for a reason.