Thursday, October 5, 2023

Morning Note: Bad News is (only for now) Good News, No Need For Another Hike, and A Rally Right Here Would Not Be One (for the prudent investor) to Chase!

This from Investopedia on yesterday's equity market action speaks to our latest messaging (video commentaries in particular):

"Index Rises as Hiring Slowdown Eases Fed Rate Hike Worries"

Yes, "hiring slowdown" is consistent with economic slowdown, and, yes, "the market" is obsessively focused on the Fed, as if the thing that ultimately matters most, corporate profits, does not in fact matter.

In our view, another rate hike is highly unlikely, as it is highly unnecessary, given that leading indicators are signaling uncomfortable odds of recession (and, thus, falling inflation) in the months to come.

Among our recent video commentaries, this one from September 15th is a must-watch (at least from the 4:00 to 14:20 mark) for those interested in a historical perspective on why -- despite what current trading action might otherwise portend -- an inflation-slaying economic slowdown will be problematic for stocks, even while the Fed is cutting rates in response:

In the meantime, and on the immediate-term plus side, in addition to yesterday's rally-inspiring weak (ADP) employment data, recall from yesterday's mid-week video update (the 7:40 to 8:05 mark), that the market was sitting atop a level that we suggested could provide some meaningful near-term support for stocks.

Here's that video, in case you missed it:

One other development that could support equities in the short-run is a recent shift in market sentiment -- from bullish to notably bearish... Yes, that's a contrarian indicator.

We acknowledged as much in our latest internal Equity Market Conditions Report... Here's a snippet from the excerpt we shared on Monday:
"As for the signal from the rest of the EMCI inputs, suffice to say that, while October may indeed see a snapback rally (should, for example, now-bearish sentiment see yet another fomo-fueled shift to bullishness -- on which we'll say odds presently favor), the current setup for equities remains difficult – to put it mildly."

Now, make no mistake, as the above quote implies, given present general conditions, a rally right here -- should one develop for more than a few days, weeks, or even months -- would not be one (for the prudent, long-term investor) to chase! 

Stay tuned...

Asian stocks rallied overnight, with 9 of the 16 markets we track (3 are shuttered for holiday week) closing higher.

Europe's mostly green so far this morning as well, with 12 of the 19 bourses we follow trading up as I type.

US equity averages (save for small caps) are down to start the session: Dow by 20 points (0.06%), SP500 down 0.36%, SP500 Equal Weight down 0.23%, Nasdaq 100 down 0.80%, Nasdaq Comp down 0.63%, Russell 2000 up 0.05%.

As for yesterday’s session, US equity averages closed higher: Dow by 0.4%, SP500 up 0.8%, SP500 Equal Weight up 0.61%, Nasdaq 100 up 1.5%, Nasdaq Comp up 1.4%, Russell 2000 up 0.1%.

This morning the VIX sits at 18.89, up 1.67%.

Oil futures are down 0.13%, nat gas futures are up 3.17%, gold's down 0.02%, silver's down 0.31%, copper futures are down 0.44% and the ag complex (DBA) is up 0.47%.

The 10-year treasury is up (yield down) and the dollar is down 0.24%.

Among our 34 core positions (excluding options hedges, cash and money market funds), 16 -- led by URNM (uranium miners), Range Resources, Johnson & Johnson, VPL (Asia-Pac stocks) and XBI (biotech stocks) -- are in the green so far this morning... The losers are being led lower EWW (Mexico equities), Albemarle, REMX (rare earth miners), VNM (Vietnam equities) and XLP (consumer staples stocks).

Tuesday's quote is worth repeating:

Unequivocally, if we interpret "human" as "emotional,"
"The human side of every person is the greatest enemy of the average investor or speculator." --Jesse Livermore

Have a great day!

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