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.