Trading Range For Now

The stock market has been in a trading range after a surge to begin the year. Actually, even the surge was within the range, depending on how you measure it.

Trading ranges are kind of dependent on the time horizon you're looking at. But rather than get side-tracked here, just look at chart of SPY, the ETF that accurately tracks the S&P. You can at the very least see that range over the last month or so.

Bonds, on the other hand, saw yields dip for awhile. Some folks thought the rise was reversing. They thought a recession was coming and that the dipping yields were a foretaste. But now they've headed back up. 

Does it mean there's no recession coming? Again, it kind of depends on how you define "recession." And, again, without getting side-tracked on that subject, we're still in the camp that we've already been in one. But you can disagree, of course.

Gold and the whole precious metals universe has seen a bit more drama. But that's mostly a function of the fact that it had a bit of a hopeful surge as 2023 began - hopeful for those who have been patiently waiting for what seems like forever for the Gold Bull Market to finally pick up steam and get going. Instead, after the surge there's been a correction, one we think may last for a bit. But we do think we're in a Bull Market nonetheless, no matter how frustrating things may feel.

Really, not too much is going on at the moment. So maybe it's a good time to share some recent analysis from our Brain Trust folks. We'll call the first BT#1 and the second BT#2. It just means they're two different folks.

These two don't always agree. And that's good. Studying sources that sing the same song won't get you far. We'd rather hear differing views and make up our own mind. It's a good practice. Here goes...

BT #1

-   Refutes jobs numbers put out by BLS – Not just most recent 517,000 jobs report, but all their numbers.

-   Gives opinion on the Chinese balloon issue – specifically why it was allowed to traverse the entire country

-   Stock: Next meaningful trend reversal should be followed by a “potentially sever” continuation of the Bear Market (buy anything is possile).

-   Bear Market rallies frequently end with big up-day on big volume and gains in popular names: to attract the last buyers before the plug is pulled.

-   PEs of tech stocks still sky high, but are expanding again: stocks becoming more overvalued as prices rise.

-   Large companies announcing very big stock buybacks to boost prices (and enrich executive option holders.

-   Internals: highest volume since June (a market bottom); but important market turns often see big volume as active trading outfits sell their stocks and sell short, creating high volume – Rising volume bullish requirement in an up-move, but also seen at bear market rally tops.

-   Looks like irrational behavior end 2021, which led to bad 2022 – If chart is correct about where we are in current cycle, next plunge should be far more severe than many think. (But no way to guarantee this.)

-   Gold: No hurry to get in at the moment – Long-term positions would be better than shorter-term trading.

-   HFTs appear to be more devious: to confuse investors as to whether this is bull or bear? – Keep exposure low during this craziness – When all the short-sellers have capitulated, next phase of Bear Market will begin.

-   Patience is greatest virtue of an active investor

-   Bonds/Interest Rates: Recent upturn in rates seems to suggests next rise in yields is resuming.

-   Recent big advance in yields started 2021, larger change in trend began 2020.

-   USD: UUP has put in a good bottom: strong rally in USD could follow. – If so, will see EEM decline

-   FED may have made monumental mistake in its 25 bps rate increase – If they want credibility, should start jawboning investors to reduce market enthusiasm: Hawkish words would signal short-term, possibly long-term top in stock market. But recent reduced rate increase contradicts what Fed has been saying.

-   Phase 2 of Inflation: If Fed doesn’t become serious about inflation, speculation could get worse, driving stocks to higher valuations prior to a crash – If they’re serious they will start to tighten “availability” of money, not just raise rates.

-   Decline (tightening) of liquidity has been minuscule – Reduction of Money Supply small 5% after a 50% increase – Revival of cryptos, meme stocks, big companies with poor earnings shows there’s still plenty of liquidity to feed speculation.

-   Recent dip in interest rates normal pullback – Next phase up will be much more stubborn

-   XLE still looks long-term bullish

-   Be cautious with UNG

-   Credit Card firms are hedge against inflation in early stages.

-   Conclusion: Seeing signs of excessive enthusiasm while major indices approach very heavy resistance.

 

BT #2

-   Review of FinViz Futures Charts – set to “Days” – 48 items: Since October, Gold only item up consistently

-   Worst-looking Currency: USD

-   Silver up October through mid-December; since in a trading range

-   Equity Indexes: Nothing special over last quarter – Vix has fallen

-   All Energy commodities have become cheaper last 3 mos.

-   Reiterates Buy/Hold UDN

-   Critique of Big Mac Index

-   Falling USD/rising PMs since start 2023

-   TBF and PSQ giving back some gains – as expected.

-   Bear Markets have to have people get excited and put in fresh money – Have companies look so bad, they “can only go up.” A lot of money is lost this way.

-   Content to stand aside except for UDN and PMs

-   People who think times are bad and can only get worse have not studied history – Bad times have become good times, even great ones.

-   Thinks Powell doing all the right things – But will “they” allow him to continue?

There you have it - two solid Brain Trust folks sharing their latest thoughts.

Until next time...