Sector Funds vs S&P 500

New Bull Market

Seeing reaction to the CPI report, I am concerned the rally could go on longer than anticipated. My sense is many bears are all-in on the "inflation bad" formula. The zero print for July isn't causing a reassessment. It's only one month, but it's a significant move from 1.3 percent in June alone to 0.0 percent in July. I expect August will be negative and the 12-month CPI will start plunging.

Look at prior CPI spike peaks. They came in February 1970, November 1974, March 1980, October 1990, July 2008 and June 2022. 

Stocks bottomed in: May 1970, October 1974, March 1980, October 1990, March 2009 and June 2022. 

The only case where there wasn't a low at the CPI peak was in 2008, and only in 1970 was the low months later. Whether this proves to be a major low or merely a blip will become evident rather quickly because a continued move higher will eventually take out key resistance levels.

The bear case is something more like 2008 unfolds with an ongoing recession that doesn't bottom until 2023. If inflation doesn't crater at least several percentage points, it will break with history.

For the bulls, peace with Russia is the "free lunch." If sanctions lift and energy prices come down, there's the fuel to run much higher. Recession would probably be avoided and new all-time highs on the indexes wouldn't be out of the question.

XBI is one of the most bullish charts out there in terms of arguing for a major bottom in stocks. ARKK, XLC, META and so on are also bottoming if the market is going higher.

I'm not bullish yet. I'd be more confidently bearish if bulls picked up the argument laid out above and ran with it. I'd love to see Apple fill its gap around $173 for example.

Meta Kills XLC

The rally in the market could have a bit more to go, but Meta all but killed the XLC trade following weak earnings. Weakness in the chart also makes it a good short candidate as soon as the market turns. I went looking for gaps. There's a big one that runs from $26.53 up to near $33 per share.

Here is Meta ratio with XLC and QQQ. I was expecting Meta could outperform QQQ, and had it, the XLC would easily be well into the green now. Instead, a small loss here. Earnings are a nice excuse, but other firms reported bad results and still rallied.

Telecoms Kill XLC

AT&T and Verizon both tanked on earnings. They aren't huge portions of the fund, but they're large enough.

Another Look at TLT, Short Apple

TLT basing off a big volume area. My portfolio is currently 25 percent in TLT related calls and 12 percent in USO related puts.

ZB and NQ are very similar, both attacking their early June consolidation area, but I think ZB/TLT can pop without NQ following if the next pressure on stocks comes from recession fear rather than inflation fear.

I shorted Apple late in the day. As I said this morning, I was looking for the bearish side. I lost money trying to short around 3980 on the S&P 500 and Nasdaq, but will see how it turns out. I don't think the final blow-off phase of the rally is underway. If I'm wrong, I should do fine with TLT because today's rally was partly fueled by the pop in bonds. I like the candle on Apple for a reversal.

I held on to XLC and it may be wrecked come morning. SNAP is down 15 percent on earnings after hours and crushing META and GOOGL along with it.

Crude oil looks fine, still holding here.

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.

XLC Gets to Gap

A pullback is increasingly likely.

The Tech-Oil/Bond Seesaw

Although tech is rising, bonds are rising and oil is falling, I noticed that most days I'm either losing money on the tech positions while gaining on oil and bonds, or vice versa. This morning is one of those days, with bonds up and oil down, and maybe an unsurprising pullback in stocks, or not. Maybe today will break the pattern. NQ is down 0.09 percent as I'm typing.

The charts aren't terribly interesting at this point. The bases are complete. The two most important breaks for a stock market rally will be ZB completing the inverse H&S and CL descending into the $80s. The only thing I'm inclined to do here is manage my USO put position. I actively trade crude because it is volatile, and will likely close the position if CL clears $99 again. Otherwise, I'm going to focused on looking for setups that could profit on the next leg of the bull rally.

Comments on a few other charts.

I think BTC is more important in the grand scheme of things, but right now Ethreum is leading. If this can crack the $1700 area that is a massive wall of resistance, it will suprise even many bears who like me, expected a rally. It won't suprise me because I understand what crack-addled specualtion can do to asset prices, and how junkies cannot quit. I also won't be shocked if the rally dies there and signals this bull run could terminate much earlier than I anticipate.

I'm not in biotech at the moment. I want to show a couple of lines here to give my thinking. The line on IBB isn't clean, but it illustrates how prior rallies all fizzled after moving a little above this trendline. Right now, it looks like IBB and, much more cleanly XBI, could be ready to push off this line. Conversely, breaking lower would also be a sign the bear market rally could be terminating.

A 1 percent gain in XLC will complete the small base that points to potentially 10 percent more upside.

The Running of the Bears Begins

It felt like a big rally was building because even into late day trading yesterday, bulls ran scared from every rally and bear poured in. Many days would see a rally that collapsed in the afternoon. Bears were confident the market would turn lower and bulls fearful they were right. That's how a day like today eventually arrives, completing a month-long base.

Once ES clears 3950, the target off the base is 4250 area. Another 8 percent rally ahead.

NQ has a target of 10 percent off the base, taking it to around 13500. That takes it into spitting distance of clearing the consolidation zone in late April and early May. It would only need another 3 percent from there to tag the 25 percent rally line I drew on the chart.

Bonds aren't cooperating yet, but they might struggle until the Fed meeting next week. This is my biggest loser in the portfolio.

I bought puts on $USO when CL was at $99 and got out before that surge, then shorted again when it was in that consolidation pattern. I think there's only risk up to around $102 or $103 from here.

Stocks can get squeezed for no reason at all except the prices rises, but my assumption is that oil will fall and bonds will rally, and that will provide some "fundamental" support for a rally. I also thought earnings might be less bad. Netflix delivered on that score after hours. It beat on earnings, missed on revenue and beat on subscribers (losing less that forecast). I don't trust AH gains, but Netflix is up 7 percent after hours. If Meta delivered that same jump, it would translate into a 1.25 percent rally in XLC. Netflix's after hours gain is included on this chart:

If XLC breaks out of the same base formed on ES and NQ, the target is near $63 per share. If Nasdaq can rally 10 percent though, I think XLC can go a bit further.

Finally, another fundamental is Europe's energy disaster. I didn't think Russia who shut off the gas because it makes them into the bad guys. Why turn it off if Germany is shooting itself in the foot? Today, Gazprom did a test to turn on the gas. German stocks rallied strongly. The Germany ETF gained 4.64 percent. I have some August calls at $24 strike since I thought Russia would not turn off the gas, and that the euro would bounce a little. EWG fell nearly 40 percent from January high and has plenty of room to dead cat bounce before. The DAX has about 3 percent and 6 percent to rally before filling the gaps from June. Whatever percent the EURUSD rallies, tack that on.