SPX breakout, recession, and energy

Today we’ll talk about the S&P 500 breakout. We’ll also discuss signs of recession, and how to invest in an environment of inflation & slowing growth (stagflation). Then we will look at the energy trade. Lets have at it!

Bullish breakout

There’s no arguing with a breakout to a new high. As I have noted numerous times on this blog and in my online course: We must remain fluid, and free from themes in our trading strategy. We must be wiling to change our prognosis as the market dictates. Case in point, I correctly called a pullback in early April. I then correctly anticipated the follow-up rally. As far as the target for that rally, my suggestion on this blog was that large resistance lay around 5120-5150. That was my target for the rally. Clearly, at 5300, that target has been taken out. Indeed, the former highs on the SPX near 5200 have been taken out. As such, until proven otherwise, we must consider this a bullish sign.

Correction coming?

“A mid-year correction is more likely than not given that a period of disinflation is behind us, a new wave of inflation has begun, and as a result, the Fed will cut rates later rather than sooner. Labor demand is greater than labor supply. Wages are and will remain resilient. Non-farm productivity will weaken. Core PCE will be above 3% for the second half of this year. Adjusted for inflation, the S&P 500 index has not made new highs. We believe the AI mania and the Meme mania will round trip, and retrace lower.” BearTraps

 

Investing in Stagflation


“Inflation has not ended. The Tuesday PPI 50bps rise reported annualizes at a 6.4% pace. Powell doesn’t look confident. He shouldn’t be.”
BearTraps

“Strong economy”?

My take: If the economy is strong, then why are typically defensive groups like Consumer Staples and Utilities, that perform well in recessions, doing so well? Meanwhile, why are sectors that outperform in a strong economy like Consumer Discretionary, Transports, and Banks/ Financials underperforming by so much? Here’s an economic cycle chart.

XLY, TRAN, BANKS: Weak

vs….

XLU, XLP: Strong

Oil & gas the best source of energy

Data energy use was near 460 terawatt hours in 2022.  Projections are 1,000 terawatt hours in 2026. Look at the chart below. By 2030,the energy use overall, and energy needed for AI and data/ cloud will be another 500% higher!!!
Big news for us who are looking at energy sources that meet these needs! When it comes to energy, guess which energy source is the cheapest, most realistically scalable, clean, and most efficient for storage and transmission? Nuclear! Guess how long it takes to build a nuclear reactor? 6-8 years! Smaller units can take 3-5 years, according to my research.

 

Ok, now…Guess what will be essential to fill the gap between:

  • the time needed to build the myriad of reactors necessary to meet the power needs of a growing world population
  • AND the growing demand as developing nations modernize
  • AND the added growing power demand of AI/ data storage?

Oil & Gas, baby!

IEA report continues to show growing demand for oil & gas to 2030 then high demand steady thereafter.

 

 

 

 

 

 

 

We like Oil & Gas for the interim (2030)

Note the breakout on the producers. Yes, a pullback near the $18 neckline is possible, but that probably represents an excellent point to add to positions.

We like Uranium for now, and the long term

This is the Sprott Uranium Trust. Uranium stocks, or ETF’s holding Uranium stocks, are another play on the Uranium trade.

You can’t fix stupid

Inarguable: The need to bridge the power gap demand to 2030 with oil & gas.

Stupid: Canadian government remains at war with our oil & gas industry in the face of this reality…

 

Inarguable: The Carbon tax is adding to rampant core inflation. Canadians in the poor & middle class are suffering.

Stupid: This was predicted 2 years ago here. As was the rampant inflation caused by the Liberal spending spree here

 No clear evidence the carbon tax will have a desirable environmental impact

After more than half a year and three separate document production orders (see below) – the Liberals refuse to hand over proof of their carbon tax reducing emissions….What are Trudeau & Guilbeault hiding?

“The only people prospering under this government are big pharma, big business, narcotic producers, illegal immigrants, and Trudeau’s friends & family. The poor & the middle class have been left in the dust”

4 Comments

  • Thank-you Keith for another great article. Unfortunately, we can’t fix “stupid”. I sure hope the massive amount of S. Ontario & Quebec voters who support Team Trudeau start to realize that Canada will be left in the dust & is becoming more like a Greek government job economy by driving our petroleum industry (& other industries) in the ground. In the meantime, all the other countries in the world with petroleum reserves are “full on” at getting those much needed reserves to market. So disappointing (and untrue) 2 years ago when JT told Chancellor Scholz of Germany that Canada can’t economically supply LNG to them (but we’ll get back to him on hydrogen solution someday???) …. many pipelines have been economically constructed all over the U.S. east coast in last 20 years which have made them the biggest world LNG exporter.

    Reply
    • Yes the failure to sell our LNG to Germany was not only a harm to our economy, but from a climate perspective, it is a clean fuel on a relative basis. Dumb, dumb, dumb! Ironically, Germany is even more fanatical about environmental policy than Canada–so the fact they are using gas might suggest something..

      Reply
  • How is labour demand/supply measured?
    The JOLTS data has been declining for a year.

    Some commented recently this run-up in XLP/XLU is just a catchup to the market leaders. Unless Im charting it wrong XLP has performed well (with a lag?) when the S&P is in an uptrend. What I see is that when this defensive stuff starts to overtake the leaders its a warning the main index is vulnerable to a correction.

    Yes XEG formed a nice base (2 yrs ago) & broke out last month & now has formed a bull flag?

    Reply
    • Mark–here is a reply from Craig on JOLTS:
      To get an understanding/ gauge of the labour market it is best to use a compilation of data. The way in gathering of the data has changed and will likely continue to change. An example is the University of Michigan data has been conducted as a survey over the phone. Hundreds of calls are placed and the questions /answers are fairly is easily interpreted. Recently a portion of the data is gather via on-line surveys. Apparently this data has become less timely and reliable. A greater percentage of this survey going forward is to be online. End result the interpretation will need to adapt.
      Employment surveys have similar nuances and collection sensitivities. The more statistics you are able to gather and interpret the more robust your analysis will be. Many of the statistics below are informative regarding the labour market but not so much individually.
      Statistics directly related to employment;
      Hourly earnings M/M, Y/Y
      Average Workweek
      Continuing Jobless Claims
      Initial Claims
      Unemployment Rate
      Participation Rate
      Part time employment

      JOLTS (Job Openings & Labor Turnover)
      The JOLTS data has been declining for a year…..this statement might suggest a tightening labor market. It is a factor but other statistics should be analysed in conjunction to try and get a better picture of the labor market.

      Reply

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