Last Stop for Bulls and Bears and Clueless Fed

The blips are no longer all bullish. Mexican peso and treasuries are red this morning along with stocks, while the USDJPY and crude are down too, but those moves aren't as cleanly bullish. The yen was, prior to recent history, inversely correlated with stocks. Crude oil has to fall for a sustainable stock rally, but it can also fall with stocks. Hence why my highest conviction trade has been short energy.
Note that the oil futures curve is in backwardation. The December 2022 contract is at $103 per barrel. If at any moment there is peace in Ukraine, I suspect around $20 will come off the price of oil.

All of the major stock indexes have broken to new lows in the past day. The ES and RTY contracts made new lows this morning, the NQ made a low in the 3pm hour yesterday.

Various pummeled stocks are above their lows in pre-market trading such as ARKK and biotech. Tesla and Amazon are of their lows. New lows are coming in sectors such as financials, maybe industrials if they market indexes go to a new low after the open. I will be watching stocks and ETF such as TSLA, ARKK and XBI for a tell and as the final signal to sell. If those don't make new lows, then the market is experiencing chop and could be headed for a reversal. I will remain short energy though.

Finally, the Federal Reserve delivered a 75 basis point hike as expected yesterday. There was lots of commentary on whether this was good or bad, including that the Fed took 75 bps away in May, only to do it in June. Even the Fed worshippers were asking about the Fed's credibility. If this is what makes you question Fed credibility...you're not gonna make it.

There was one big misstatement. A "subprime is contained" level of stupidity. I say misstatement because the Federal Reserve is incompetent to the point where they don't know what's going on in the economy. In his press conference, Chairman Powell said there was no sign of a recession. He said that the same day the Atlanta Fed's GDP Now model projected 0 percent growth this quarter. They have been cutting forecasts for weeks, which doesn't bode well for the GDP report in July. If the BEA reports a negative number though, then not only are there signs of recession, but we are in a recession and have been for six months. Powell didn't take the view I have which is, signs of recession are everywhere although we might escape a technical recession. No, he's saying there are no signs, and that's ludicrous. All workers who haven't received a double-digit wage increase the past two years have taken a huge pay cut and those cuts will keep hitting as the lagging impact of higher costs roll in via higher energy bills, rent resets, higher mortgage payments, etc.

No comments:

Post a Comment