Tuesday, December 6, 2022

Morning Note: What a Difference a Data Point Can Make!

So, China ramps up its own breakout from covid restrictions and the ISM US Services Index comes in (yesterday) at a surprisingly optimistic 56.5 (above 50 denotes expansion)!

The former rings bullish in terms of Chinese assets, and the yuan, and bearish in terms of the US dollar and, thus, at first blush, rings bullish for US equities… Beyond first blush, however, China coming back on line -- while some might say that it further alleviates production bottlenecks -- clearly, net net, the consumption that comes with it can only serve to exacerbate the current inflation setup.

As for ISM Services, that’s very good (surprisingly good) news with regard to the present state of the US economy, and for the US dollar, and, thus, it’s bad news for the US stock market… I.e., the market’s not looking for good news right here, as good news is anathema to the Fed’s inflation fight… Remember, the Fed’s trying to slow things down right here.

My, what a difference a day, and a data point, can make! Seems like only yesterday, cuz it was, that stocks were beaming over the prospects for the Fed lightening up on the tightening up, as inflation was looking to be coming off the boil... 

So, then, if you're trying to make sense out of the current short-term setup, and the volatility that's destined to come with it, just know that traders are currently keying primarily, if not entirely, on the prospects for higher interest rates/tighter financial conditions going forward... 

I.e., for the time being, when the data says things are cooling off, look for stocks to heat up... Conversely, when the data comes in hot, stocks will go stone cold in a hurry!  

And then there's the technicals (btw, if you're not watching the twice-a-week videos you're missing an important aspect of what's happening under the surface).

Here's that one-year daily SP500 chart (I cleaned it up for this morning's purposes)... Note how the price once again kissed that bear market trend line (red), only to once again reject it, teasing the bulls to no end! A strong break below the current rally's up trend line (yellow) would be no bueno from here... It came close yesterday:

That MACD (bottom panel) is beginning to look suspect right here as well:

And here's one more here-we-go-again chart (top panel VIX [spot is the green, the rest are 1 thru 8-month futures], bottom is the SP500):

While that may indeed be the look that signals yet another failed attempt at breaking out of the current bear market (our present base case), keep in mind (an open mind), it'll also be the look that ultimately precedes the beginning of the next bull.

Stay tuned...

Asian equities struggled overnight, with 12 of the 16 markets we track closing lower.

Same for Europe so far this morning, with 15 of the 19 bourses we follow trading down as I type.

US stocks are mixed to start the week: Dow up 39 points (0.11%), SP500 up 0.01%, SP500 Equal Weight up 0.11%, Nasdaq 100 down 0.16%, Nasdaq Comp down 0.21%, Russell 2000 down 0.14%.

The VIX sits at 20.49, down 1.29%.

Oil futures are down 0.60%, gold's up 0.44%, silver's up 0.84%, copper futures are up 1.29% and the ag complex (DBA) is flat.

The 10-year treasury is up (yield down) and the dollar is down 0.12%.

Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 23 -- led by AT&T, base metals futures, Brazil equities, silver and base metals miners -- are in the green so far this morning. The losers are being led lower by Dutch Bros, AMD, Disney, communication stocks and Nokia.

"As soon as you leave school, get ready to exchange obedience with curiosity, logic with psychology, risk-management with risk-taking, and theory with experience – otherwise, you won’t survive."

--Andrei, Vizi. Economy of Truth 

Have a great day!


  1. Chinese stocks are interesting and on the rise recently.
    As far as PPI, CPI and Fed Powell's rate hike, things may not be that bad. 50 basis point is baked in. PPI and CPI may be soft as gas prices and other prices are falling like a rock. Consumers actually had deep discounts with 50%-60%-70% off from Black Friday and Cyber Monday. We will see what happen this Friday and next week.

    1. Yes, Sam, the next couple of weeks will be interesting... For a longer-term perspective on the prospects for inflation, check out the book "The Great Demographic Reversal" when you get a chance...

    2. Thanks Marty! I got the book!