2022-09-16

Olé

The bull case for stocks has taken both barrels of the shotgun this week. First it was a higher than expected CPI report. Even though inflation is peaking, the Federal Reserve is institutionally and politically constrained by the data sets it uses. They won't reverse policy until it is obvious. Second was FedEx earnings and warnings. The economy was weak and they dropped guidance because the economic slowdown accelerated into the end of the quarter. Exactly what the deflationists and bears have been looking for, but still not being reflected in long bonds or the broader market, at least when it comes to the major indexes which are propped up by stocks such as Apple.

Support is at 3875 and 3820 on the ES. After 3820 is the 52-week low. Today is quad witching and everyone thinks they know what that entails. My view is we entered wave 3 and everything could turn into a bearish weapon. I would not be shocked if 3820 is taken out today. Bear moves happen with shocking size and speed. I also would not be shocked by a rally back up to the 3930 area.

Bears want Apple below $150. The stock has been pulling the broader market lower since the August rally peak. Apple is also becoming an ever stronger short because bulls are hiding in it. The stock crossed 25 percent of XLK yesterday:
ZB is at a 52-week low. Game over for bulls. As I said earlier this week, one can make a logical case for why stocks should catch-up. If ES falls 7 percent today and makes a new 52-week low with ZB, it makes sense. i have some OTM calls on TLT that will lose money today, but more than offset by gains in my stock puts.
Finally, remember how bear markets work. Bad news follows the stock market. Financial media write the story of the decline after it happens. "Now they tell us!" Case in point: Tech giants have bigger problems than rising interest rates. It's newsworthy not because of the article content, but because the article was written at all.
Some of tech’s underperformance might come down to vibe. Speaking to Yahoo Finance's Brian Sozzi this week, Goldman Sachs Managing Director Eric Sheridan pointed out that tech is an inherently risky sector — and right now, investors crave safety because they're uncertain of the Fed's next moves.
This isn't wrong, but think of the mentality of people who buy Apple stock. Do they realize they're taking on a bigger risk or do they think they're buying a safe stock? You'd think people would know Tesla is a big risk, but do they really understand how big a risk they're taking with a start-up car company? We're about to find out.

I had a couple posts on gold yesterday. The futures contract bounced at the very last line of support in the wee hours of the morning:

If gold can put in a bottom, I expect ZB would also bounce. That's something to keep an eye on. A rally in gold and government long-bonds would not be bullish, but would instead reflect the bond and gold market realizing the Federal Reserve will be forced off rate hikes much sooner than expected. And if both continue their sell-offs, then its likely the stock market decline could turn into a chaotic panic in the days and weeks ahead.

As for the U.S. dollar, it's a bystander today. The euro and yen are higher, but not significantly.

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