2021-09-21

More Bear Signals

I took a flier on a deep OTM Adobe put (ADBE) at the close, a weekly that expires on Friday. Just a general sense of bearishness, along with wanting to take a long-shot in honor of Norm Macdonald. It beat on earnings and revenue after the bell, but the stock sold off. Maybe that will be erased tomorrow, but if not, it is good news for bears. Adobe will be rejected at long-term resistance and despite good news. The only time above was the 1999-2000 blow off top for the dotcom bubble. I take a line as valid if it holds for all but an extreme move, simlar to how I will ignore the March 2020 drop when drawing support lines. It's best not to ignore them, but if a line holds and offers predictive value, then I keep it.
Far worse news came from FedEx (FDX). Inflation is taking the corporate margins down, namely higher labor and energy costs. The stock is already down 25 percent from its 52-week high.

This is the "game over" moment I've been waiting for. Maybe it won't kick off tommorrow, but the end game for the Fed is when their easy money sinks stocks via contracting corporate margins and higher unemployment, aka stagflation. Their two main choices are painful once this point is reached. Nip inflation in the bud, send the stock market down at least 20 percent and risk a recession or let inflation run and risk sinking the stock market more than 70 percent, plus mass unemployment, a bond market crisis and possible currency crisis. I know which door I'd choose, but the Federal Reserve hasn't shown it thinks beyond what the S&P 500 did yesterday. If they decide to save stocks yet again, there could be a rip roaring rally or even another leg up into a blow-off top later this year or into early 2022.

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