Weekend Daily: Precarious Action in the Bonds and Stock Market
It was a wild ride on Wall Street this week, with stocks swinging wildly in both directions before closing overall a little lower for the week. The CPI data indicates inflation is entrenched in the economy, squeezing household real income, and is a significant concern for businesses.
This year also brings into question historical relationships and market adages. For example, the breadth thrust the market saw this past Thursday brought out the “historians.” Analysts and researchers claimed that double thrusts in the market have always preceded positive returns. Always, huh?
This is precisely why we have the Economic Modern Family, as each member has some very interesting analysis (and to us way more reliable than number crunchers) to examine. Besides the Family whom we will analyze in a moment, here are three things to watch next week:
The VIX is still elevated. The VIX, a measure of market volatility, spiked to 33 on Tuesday—its highest level since February 2018. While it has come down slightly since then, it is still elevated at 32.All except for two of the Modern Family members are in weekly distribution phases. One is in a caution phase and the other in a bearish phase. All are still above their 6-/7-year business cycle, although testing the lows. We find this intriguing and quite pivotal. (Recent media clips go into more detail).Long Bonds (TLTs) are still under intense pressure. The 2- and the 10-year Treasury bond yields keep rising.
Click this link now for three indicators to watch next week and the Modern Family, plus read actionable trading levels for ETFs.
A Closer Look
Top right is the weekly chart of Granny Retail (XRT). Retail sales were flat last week. This is a worrying sign for the economy, as consumer spending accounts for a large portion of GDP. Technically, XRT must hold above 54-55 (6–7-year bullish business cycle low) or we can assume things will only worsen. Under the 200-week moving average already and in a distribution phase, only a relaxing U.S. dollar and yields can help push Granny back over 62.00.
Next is the Russell 2000 (IWM). Also in a distribution phase, IWM at least held the June lows, while the SPY did not. Remember 162.50, as that is the key support using a 6-/7-year bullish business cycle low. Small caps in general will tell us when the bottom is nigh.
Biotechnology (IBB) is in a bearish weekly phase, as seen with the death cross (50 crosses below the 200-WMA). However, it’s another one to watch when the market stabilizes, as it is well above the June lows and the 6-/7-year bullish business cycle low.
Regional banks (KRE) profit from consumer lending and deposits. One emerging trend is that large banks are making more money from deposits than from loans. As the only sector still above its 200-WMA, this range, between 56-66, is a chop fest but worth watching as the outperformer.
When transportation costs go up, it affects the prices of goods that must be transported. When small company costs rise, it may be disastrous for profitability. Transportation (IYT) is also in a distribution phase. 195 is the key support using a 6-/7-year bullish business cycle low.
Semiconductors (SMH) has spent 3 weeks under the 200-WMA. Its 6-/7-year bullish business cycle low is pretty far from Friday’s close or $28 away. Maybe that level will bring us some capitulation?
Is the economy headed for a recession, more stagflation, hyperinflation? Only time will tell what the future holds for the US economy.
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Mish in the Media
Has the market bottomed? Where should passive investors go to be safe? Mish digs into these questions and more on Coast to Coast with Neil Cavuto.
Mish and Scott discuss a possible soft landing but with loads of headwinds to watch for on RFD-TV’s Cow Guy Close.
With BNN Bloomberg, Mish discusses the markets as U.S. banks reported earnings and why it’s important to watch long-term bonds and the stability investing in the sugar trade.
The 6-7 year business cycle in the “inside” sectors of the U.S. economy is facing a huge test, as Mish discusses on NASDAQ Talks.
Watch some select clips from Mish at ChartCon 2022!
Mish and Nicole talk risk, inflation, long bonds, dollar and where you can park some money on TD Ameritrade.
Read Mish’s latest article for CMC Markets, titled “Earnings, Inflation and Retail, Oh My!“.
S&P 500 (SPY): Reached the 50% Fibonacci level from the March 2020 lows on Thursday, at 351, then rebounded sharply. Under 350, support 330 and, on the upside, resistance 360, 370, 382 and 396.Russell 2000 (IWM): 162.50 support, 177 resistance.Dow (DIA): 285 support, 300 resistance.Nasdaq (QQQ): 255 support (could go to 220), 270 resistance.KRE (Regional Banks): 56 support, 60 pivotal, 65 resistance.SMH (Semiconductors): 167 support, 190 resistance.IYT (Transportation): 195 support, 207 resistance.IBB (Biotechnology): 116.00 support, 122 resistance.XRT (Retail): 54-55 support, 62 resistance.
Director of Trading Research and Education