Revenge of the nerds

Here are some of my neartermed market comments, mixed in with some quotes from sources I respect. Weekend reading for all us market analysis nerds! I say: better a rich nerd, than poor & cool. Read on:

My thoughts on a neartermed rally:

Sure, a rally from here makes sense (three or four-day rallies often follow short-seller victory cheers, aka covering), but the technical damage is real and probably long-lasting. Note the lower low in August – below. The SPX still looks bearish from an intermediate perspective, and 4200, or even 3800 on the SPX look feasible. The neartermed timing system chart below suggests a neartermed pop. Note: Bollinger band test, RSI, stochastics hook on daily chart.

 

Some quotes on the intermediate outlook for stocks

“Global stocks also face the risk of further selling linked to a large options position held by a JPMorgan Chase & Co. equity fund. Tens of thousands of protective put contracts held by the fund will expire Friday at a strike price not far below the current level of the S&P 500, creating the potential for market dislocations.”– Barons News

“Anyone who puts credence on what the Fed has to say, an institution that moved from “transitory” to “higher for longer” in a span of less than two years, should be reminded that when the central bank develops labels like these, it typically is a time to place bets the other way.” David Rosenberg

 

Bonds – an opportunity?

Bond yields have spiked recently, after the Fed’s “Higher for longer” talk surrounding rates. But now they are at a multi-year point of resistance (back to 2008). Likely a pause in rates going up, or an outright decline in the rate. That’s neartermed bullish for bond speculators. Not so sure if its a longer termed trade yet. “Bottom line, inflation pressures are not abating and are far from transitory.” Larry McDonald, Beartraps

 

Commercial Real Estate risk

“Commercial Real Estate is at the beginning of a massive default cycle that is likely to pick up steam next year with over $500 billion worth of maturities occurring every year for the next four years. That doesn’t account for any monetary defaults along the way.” Beartraps

Energy rallied, may take a break. Materials may see the rotation.

Y’all know that I was pounding the table since early 2023 to buy oil. So, we got what we wanted (for those who acted on the trade). The charts suggest a point of resistance on the producers – so we took down our oil positions by half recently. We’ll re-enter on a pullback.

Meanwhile, metals are looking interesting particularly copper. Right at support, forming a right angled triangle. A pop to the top of that formation is a neartermed trading possibility. A move out of the triangle would be outright bullish.

 

Counter argument to commodities.

You know I like the hard assets – but its good to read another opinion. Here’s a counter argument to my bullish stance:

“As for the commodity complex, it’s a one trick pony: oil. If this was truly a demand-led inflationary boom, we would be seeing all commodity prices in rally mode. As the charts vividly illustrate, there is actually quite a strong deflationary undertone across most base metals and the food complex as well.” David Rosenberg

My counter to his counter would be that saying the word “commodities” is like saying the word “stocks”. There are lots of stock sectors, but the recent rally was largely driven by one overweight sector – tech. Same with commodities. Oil is an overweight position in the complex. Thats been the one sector of growth in the commodities space. Recently with stocks, we’ve seen rotations OUT of tech, INTO communications, energy, healthcare and financials this month. A broadening of breadth.

As noted above, there may be a rotation OUT of energy and INTO copper. We shall see. Here’s the relative performance chart for the SPX sectors over the past month:

 

That’s all for now folks. Have a good weekend!

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