Wednesday, December 22, 2021

Morning Note: A Quick Peek Under the Nasdaq's Hood -- And an Important and Timely Quote!

Per yesterday's peek at the S&P 500 daily chart, the technicals paint a somewhat concerning picture about the go-forward prospects for US equities.

Continuing with that theme this morning, recall our recent coverage of the breadth readings for the Nasdaq Composite Index (which contains what have been the dominant market leaders since the 2008 crisis); i.e., the concerning advance/decline line showing that all boats within the index have definitely not been rising with the tide.

Here's an update (index top panel, a/d line bottom):

Suffice to say that that's a troubling look heading into next year...

While the financial media will no doubt tout the index's impressive return in 2021, know that a look under the hood shows that presently ~65% of its members are currently suffering bear market declines (-20+% from their previous highs). And, as I type, 79% are trading below their 50-day moving averages, 75% below their 200-days'. 

History suggests (per the graph), that a breakdown in the troupes often precedes the demise of the generals, which is why this setup presently has our attention...

Asian equities leaned green overnight, with all but 4 of the 16 markets we track closing higher.

Europe's hanging in there nicely so far this morning, with all but 3 of the 19 bourses we follow in the green, as I type.

US major averages are modestly higher to start the day: Dow up 82 points (0.23%), SP500 up 0.31%, SP500 Equal Weight up 0.22%, Nasdaq 100 up 0.32%, Nasdaq Comp up 0.34%, Russell 2000 up 0.23%. 

The VIX sits at 19.71, down 6.19%.

Oil futures are up 0.91%, gold's up 0.25%, silver's up 0.77%, copper futures are up 0.89% and the ag complex is up 0.81%.

The 10-year treasury is up (yield down) and the dollar is down 0.27%.

Led by base metals futures, Indian equities, ALB (lithium miner), Nokia, silver and Mexican equities -- but dragged by AMD, carbon credits, uranium miners, Viacom/CBS and Verizon -- our core allocation is up 0.19% to start the session. 

Highly respected macro analyst and author Russel Napier (quoted here from a recent interview) agrees with our go-forward thesis around inflation and interest rates:   emphasis mine...
"...the more I look at the world and the need for massive capital expenditure for all sorts of things, the more I can see, yeah, absolutely, commercial bank balance sheets will be growing at double digit levels, so will money supply, and therefore inflation between four and six is perfectly normal and sustainable going forward.

And then the key question is, what on earth are they going to do about interest rates, because there is no way that interest rates can be allowed to reflect that level of inflation. "

"How do they keep them down when inflation is high? That's what everybody needs to know if they're trying to preserve wealth in the type of world we're moving into."

Have a great day!

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