Monday, May 9, 2022

Morning Note: Maybe An Oversold Bounce in the Offing, But Still An Otherwise Messy Setup...

An oversold bounce makes some sense this week, but nothing here looks like a bottom's forming...

Here's from Saturday's entry to our internal market log:


Despite the abysmal reading from our equity market conditions index, generally softening macro conditions, and our on-balance negative technical assessment across our core positions, it wouldn’t surprise me to see equity markets bounce at some point during the coming week -- after 5 consecutive losing weeks…
All of the major averages enter the week in oversold territory…
The catalyst for a near-term relief rally could be this coming Wednesday’s CPI print coming in softer than expected. That said, if it comes in hot, the second half of the week could be ugly.

Plus, Fed members are hitting the speaking circuit in numbers this week. Rumblings late last week had several of them sounding a bit dovish… 

Note, however, that beyond the inevitable counter-(YTD)-trend rallies to come, among other things, the concentrated increase in volatility resembles bear market, or pre-bear market, action of years past… 

Well, if indeed the Fed's voting members are feeling rattled by the stock market action of late, this morning's offering them zero respite. It'll be interesting to catch their commentary this week... Bottom line, they simply can't have it both ways -- if taming inflation means tightening the screws on financial conditions, asset prices suffer... Which, by the way, aids them in that task (lower equity prices, for example, by itself tightens financial conditions).

Asian equities were, again, a mess overnight, with all but 2 the 16 markets we track closing lower.

Same for Europe so far this morning, with 18 of the 19 bourses we follow trading down as I type.

US stocks continue their descent to start the week: Dow down 436 points (1.33%), SP500 down 2.04%, SP500 Equal Weight down 1.74%, Nasdaq 100 down 2.56%, Nasdaq Comp down 2.74%, Russell 2000 down 2.53%.

The VIX sits at 33.47, up 10.86%.

Oil futures are down 3.48%, gold's down 1.12%, silver's down 2.47%, copper futures are down 2.44% and the ag complex (DBA) is down 1.53%.

The 10-year treasury is down (yield up) and the dollar is up 0.25%.

Among our 37 core positions (excluding cash and short-term bond ETF), only 2 -- MP Materials and Verizon -- are in the green so far this morning. The losers are being led lower by uranium miners, energy companies, Albemarle, AMD and solar companies..

"Why didn’t mainstream economists change their beliefs about the significance of money in economics after their failure in 2007? Here, paradoxically, economics is little different to physics, in that significant change in physics does not, in general, occur because adherents of an old way of thinking are convinced to abandon it by an experiment whose results contradict their theory. Instead, these adherents continue to cling to their theory, despite the experimental evidence it has failed."

--Keen, Steve. The New Economics  

Have a great day!

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