Tuesday, October 25, 2022

Morning Note: Ideology Aside

Yesterday was an absolute blood bath for Chinese stocks. So much so that, frankly, it was amazing that US stocks were able to turn in a positive performance on the session. 

The signal -- an albeit one-day signal -- was loud and clear; the world's second largest economy being held hostage by a communist party ideologue who just consolidated his power is a most bearish development. 

Now, and nevertheless, keep in mind the point I made yesterday:
"... while the party in power's platform may on the surface appear to be everything investors would typically reject, make no mistake, at the end of the day, it will do what it can to keep its nation's markets afloat, and indeed competitive, on the global stage."

Ideological ramifications aside, I can assure you, Xi has no interest in crashing China's economy... The question at this juncture is simply one of pressing need, or priority.

The fact that US equities didn't flinch in the face of China's epic selloff yesterday suggests that the world agrees that Xi is not out to shoot off China's nose to spite the West's face, and it is simply uncertain about the when and the wherefore around zero-Covid, fiscal stimulus, etc. Or, for the moment, the short-term setup for US equities is simply too strong to ignore... Or maybe both??

As for that short-term US equity setup; seasonality right here is a given, and, per recent video commentaries, the technicals are turning notably constructive...

Here's a cleaned-up 1-year daily SP500 chart:

That, frankly, is a resoundingly bullish setup! I'll explain in tomorrow's mid-week video update.

Now, positive seasonality and technicals aside, let's not forget that this remains a bear market... And as I've explained herein, and on the videos, it's during bear markets where bullish technical setups are the most fragile, and prone to failure.

Plus, this is a monster week for earnings, with a third of SP500 members reporting... It wouldn't take much (during a bear market) in terms of a big fish (like, say, an Apple) or two missing the mark to have traders quickly turning tail... Of course, given the bullish (near-term) backdrop, positive earnings surprises could see stocks gaining some serious upside momentum from here.

Stay tuned...

Asian equities struggled overnight, with 10 of the 16 markets we track closing lower.

Europe's mostly green so far this morning, with 13 of the 19 bourses we follow trading up as I type.

US major averages (save for the Dow) are up to start the session: Dow down 31 points (0.10%), SP500 up 0.28%, SP500 Equal Weight up 0.35%, Nasdaq 100 up 0.61%, Nasdaq Comp up 0.60%, Russell 2000 up 0.83%.

The VIX sits at 29.75, down 0.34%.

Oil futures are up 0.31%, gold's up 0.39%, silver's up 0.27%, copper futures are down 0.89% and the ag complex (DBA) is down 0.30%

The 10-year treasury is down (yield up) and the dollar (coming way off its premarket high) is down 0.69%

Among our 34 core positions (excluding options hedges, cash and short-term bond ETF), 22 -- led by AMD, long-term treasuries, Nokia, Sweden equities and Albemarle -- are in the green so far this morning. The losers are being led lower by Brazil equities, base metals miners, military defense stocks, energy stocks and base metals futures.

"If you don't overthink, you feel better..."
--Tim Grimes
And you invest better 😎!

Have a great day!


  1. Marty: thanks for today's updates. thanks for the reminder that we are still in the Bear Market. There are two (2) things that worry me. You will be laughing as you read on. I worry:
    1. Phillies winning the World Series. Every time Phillies won the World Series, we had bad markets (1929, 1930, 1980, 2008, and yet 2022?) (LOL)
    2. Japan exiting Yield Curve Control (YCC). Japan's bond market is out of control.
    What do you think of my worry?

    1. Hi Sam, I have absolutely! no comment on #1, I'll pretend you didn't suggest it... LOL... Re: #2, if Japan abandons yield curve control, I suspect, initially, big disruptions across markets... There's a lot of Japanese money circulating throughout global markets, the impact of YCC abandonment on the yen would see money scurry back to Japan in likely a panicky way, potentially playing havoc across the globe...

      Given Kuroda's resolve, at most, we could see a relaxing of the YCC "limit", which would be net Yen-positive, dollar-negative, which, given the "dollar-negative" aspect, might not be all that bad...

      Total abandonment of YCC at this week's BOJ meeting is unlikely, but of course anything's possible...