Friday, February 11, 2022

Morning Note: Short and Sweet -- And Why We Do Technical Analysis

Keeping this morning's note short and "sweet" before jumping into our weekly macro deep dive (there's much to parse this week).

Besides, there's not a lot to add right here to yesterday's commentary (here and here).

Here are a couple snippets:

"So, we could get deep into today's CPI number and separate the components -- food's up X, used cars Y, household furnishings, energy, services and so on -- but suffice to say that nothing's getting any cheaper these days.

The headline number was +7.5% year-on-year, ex-out food and energy and it was +6%. And while CPI entirely misses the mark on things like housing rent (get that right and inflation's notably higher), we're looking at 1982 inflation even by way of the reported numbers."


"At least one Fed governor found himself alarmed enough by this morning's inflation data to rattle markets with a call to do more, sooner, than, clearly, the equity market has priced in.

I'd instruct both short-term bulls and bears to not hold their breath right here (this market is bound to remain uber volatile, in both directions). I'd instruct portfolio managers to actively manage the risk of something potentially big to the downside going forward..."

Asian equities (Japan's market was on holiday) struggled overnight, with all but 2 of the markets we track closing lower.

Same for Europe so far this morning, with 16 of the 19 bourses we follow in the red as I type.

With tech and materials the only sectors in the red so far this morning, US equities are mostly higher to start the session: Dow up 112 points (0.32%), SP500 up 0.15%, SP500 Equal Weight up 0.35%, Nasdaq 100 down 0.14%, Nasdaq Comp down 0.03%, Russell 2000 up 0.57%

The VIX sits at 23.92, unchanged.

Oil futures are up 1.42%, gold's up 0.30%, silver's up 0.16%, copper futures are down 3.07% and the ag complex (DBA) is up 0.45%.

The 10-year treasury is up (yield down) and the dollar is up 0.26%.

Among our 39 core positions (excluding cash and short-term bond ETF), 32 -- led by oil services stocks, MP (rare earth miner), Latin American equities, energy stocks, Viacom/CBS, metals miners, Nokia, utilities stocks, carbon credits and South Korean equities -- are in the green so far this morning. The 7 losers are AMD (chip maker), base metals futures, Indian equities, Eurozone equities, SOXX (chip makers), XLK (tech stocks) and solar stocks.

We consider ourselves to ultimately be fundamentally-driven money managers. That said, we indeed perform a good amount of technical analysis across asset classes and each of our core positions. Here's why, from John Murphy's absolute must-read for anyone interested in technical analysis; Technical Analysis of the Financial Markets:
"The fundamentalist studies the cause of market movement, while the technician studies the effect. The technician, of course, believes that the effect is all that he or she wants or needs to know and that the reasons, or the causes, are unnecessary. The fundamentalist always has to know why."

"The problem is that the charts and fundamentals are often in conflict with each other. Usually at the beginning of important market moves, the fundamentals do not explain or support what the market seems to be doing."

"One explanation for these seeming discrepancies is that market price tends to lead the known fundamentals. Stated another way, market price acts as a leading indicator of the fundamentals or the conventional wisdom of the moment. While the known fundamentals have already been discounted and are already “in the market,” prices are now reacting to the unknown fundamentals.
Some of the most dramatic bull and bear markets in history have begun with little or no perceived change in the fundamentals. By the time those changes became known, the new trend was well underway."

Have a great day!

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