Ponderings

Today, we take a meandering path through a few recent thoughts and reviews of the past. Everything from the neartermed look at the NASDAQ, a very interesting take on the “sticky-ness” of inflation, and a quote from an EWT expert who has a pretty pessimistic view on the recent rally. Finally: a re-visit of a couple of my past rants that now seem to be “Well, everyone knows that” topics.

NASDAQ approaching neartermed sell signal

The NAZ has been the market leader in the recent rally. Keep in mind a few things. First, we have a report from the FED this week (Wednesday)- then the “Jackson Hole” meeting August 25- 27. Read the inflation notes below, and you might ponder on just how aggressive the FED may have to posture. Also, lets not forget that August to September can bring bad tidings to the markets, especially to the higher beta stocks within the NAZ.

Finally, we can observe a few things on the daily chart suggesting the NAZ is approaching a technical neartermed sell signal. Like the end of 2021, we have the index running along its top Bollinger Band, coinciding with an overbought Stochastics signal. RSI has yet to cross the line. But…its getting there.

Inflation

“We expect core PCE inflation to fall back toward 2% by late 2023”, the Fed stated early this summer. Now the consensus of economists hosted by Bloomberg sees an annualized 2.5% at the end of next year.

We say – there is a ZERO percent chance core PCE inflation averages 2-2.5% in 2023 without the worst recession the U.S. has seen in decades.”- Larry McDonald, BearTraps

Inflation is NOT being driven solely by supply chain problems – which is why it will likely remain “sticky”. Please watch this video to understand the mechanics behind WHY inflation will remain around 8% for the time being, and NOT EVEN APPROACH 2% in 2023:

Campbell Harvey | Duke’s Fuqua School of Business

 

FYI: Here’s a cost of living chart (subtracting social security payouts) – note the jump off of the trendline. This looks a little like 2008, before the recession took hold….

Suckers Rally?

I’d like to draw your attention to a recent blog that outlined why recent market action is not typical of a bear market. These observations included the probability of more tightening before the easing cycle begins, the reality of inflation being more “sticky” than is thought, the relationship of the SPX to its 200 day SMA, seasonality and presidential cycles, and neartermed exuberance.

Other considerations I listed on this follow-up blog suggesting the bear may not be done. I listed a few other points:

  • The lack of a washout candlestick. Typically, investor panic causes some sort of high/low reversal or engulfing candle (again, refer to my Online TA course to learn what to look for). We didn’t get a reversal candle in June…. food for thought.
  • If June was the final washout, that was a pretty wimpy washout by prior bear market standards. This June saw about 10% downside since the May peak vs. 30% washout in 2002, and 40%+ in 2009.
  • The total bear market damage would have only fallen about 23% peak-trough if June 2022 was the bottom. That is vastly less pain than past bears.
  • This bear has only been in play for 7 months or so. The above two bears lasted 2 + years.

 

Below is an exurb from David Chapman. David is a respected Technical Analyst who has been around for many decades. He lately has a bit of a cynical view towards markets. Whether you share that view or not, he often offers very interesting and thought provoking insights. David is an EWT (Elliott Wave Theory) expert – something that I am not – so its always good to hear his viewpoint. David’s comments are a more poignant statement of risk than my own observations – worth consideration no matter what your view:

“Rally, rally, rally. The bear is over! Happy days are here again. Out with the Value Stocks. In with the growth and tech stocks. Risk taking is back. 

 We urge a high degree of caution. This is a bear market rally that is quickly approaching overbought levels. It’s the B wave, the sucker’s rally. No doubt we could even see small new highs. It’s the C wave we are concerned about. The C wave could take us down 50%+ from the highs. Famous C waves – 1930-1932 -86%, 1973-1974 -45.1%, 2008-2009 -50.7%. 

 The Fed is not finished hiking and the sudden elation over the lowering of inflation is misplaced. Inflation is not yet finished and no the Fed will not suddenly start easing as some expect. The Fed has as much as said so. More hikes are contemplated to take the Fed rate to 3.5% by December. Running off the Fed’s balance sheet is not over. Money growth is slowing.”

Following up on my non-investment analysis rant blogs (Warning: totally off topic!):

Told ya so…

If you follow my blogs with any regularity, you are probably aware of my occasional “Rant” blogs. One of those blogs was a deep dive on comparing Canadian vs. US healthcare. The myths surrounding the “free/ good” healthcare in Canada vs the “Unaffordable /bad” US system have been a particularly irritating bit of propaganda that was swallowed hook line and sinker by so many Canadians. Here is my healthcare blog – derived from a considerable amount of research into the comparative systems. On that blog, I presented a fair bit of evidence-based analysis completely dispelling the myth of Canada’s “free” and “good” healthcare system. Now, it would appear, the findings in my blog are finally, finally, being echoed by the mainstream!

Happy to see this article, and others, examining what I’ve been pounding the table on for years:

GOLDSTEIN: Canadian Medicare — high costs, long waits, mediocre outcomes
Long before the pandemic hit, the myth of “free” Canadian health care gave us one of the most expensive health-care systems, with some of the longest medical wait times in the developed world, with mediocre outcomes judged by international standards. Here’s the article.

Told ya so, part II

Back in 2015 I warned readers about the dangers of the newly elected Trudeau government policies. I followed that blog up with updates detailing my dismay at the lack of diligence never seen before by any party (Liberal or Conservative) in Canada. No other government in Canada’s history has been accused of and/ charged with so many, ethical violations and underhanded works. I was early in expressing concerns with the financial policies, and the controlled narrative.  When I first started warning of these concerns, I was in the minority. Too many people were captured by the good looks and soft voice, failing to heed the reality of what was actually happening. Now, it would appear, others are finally catching on:

Trudeau sees lowest approval rating, new poll finds – Canada News – Castanet.net

quote-teal

4 Comments

  • Good insight Keith. as usual, on the upcoming investment challenges we are facing in the coming months. Much appreciated.

    As an aside, you might be interested in a very frank view on the likely winner of the Conservative party election. If he should win, there could well be significant headwinds in their hopes of winning the next general election especially if your friend Justin Trudeau decides not to run personally.

    https://tinyurl.com/37uu9nmz

    Reply
    • Fred–the media is owned by JT. The propaganda would be extended to any PC candidate that wins – or, in PP’s case, appears to be winning. If it was Lesyn Lewis- they would make stuff up about her being anti-abortion (she is not, she believes in a cutoff period which makes more sense). Charest – they would focus on his poor job he did as PQ Minister. Aicheson- they would point out that he is too bland (aka like Scheer). Babar-they would pin him on his polarizing vaccine stance. I laugh when I read comments below PP’s twitter posts, calling him “Nazi” and “bigot”. These are words they use to describe anyone in the PC world- evidence free, of course. Ironically, PP is married to a Latino woman, and is all about freedom–which is anything but a totalitarian/ authoritarian “no “unacceptable views” allowed policy (like JT’s). Ironically–who’s the real Nazi? They will try to distort his “Pay as you go” program by saying he will destroy social programs. This is brainwashing – if anyone reads what he actually proposed, it is to ONLY spend NEW money buy cutting another less important program. It is not about cutting existing programs, it is about stopping the non-stop stupid spending (gender studies, hiring more government etc). Fiscal responsibility is so far gone that its “extreme” for PP to want to act like, well, Jean Chreitien- who was a Liberal who had common fiscal sense. One person I talked to said his ideas were “extreme”…I asked them to elaborate–they could not do so. Turns out, they had been told by the media he is extreme–devoid of any actual evidence. So no matter who gets in – the media will start /-or continue propaganda pumping.

      Reply
  • Just curious. You are still very skeptical of this rally but from recent posts suggested your system would force you to place some cash to work if the rally continued in to this week. Have you?

    Reply
    • Yes, we are “allowed” by our trading rules to classify a breakout by a 3+ day minimum, within a 3 week maximum timeframe to actually buy. We wanted to see what happens after the Fed-speak today, and may add a bit in next few days depending…

      Reply

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