While we labeled the short-term technical setup for stocks “ambiguous,” we noted that the technical setup for bonds, and for the dollar, leaned bearish for stocks, and, per yesterday’s note, overall positioning suggested that traders were on-balance betting on further declines after last week’s drubbing.
Well, the thing about positioning, particularly when it’s notably off-sides, is that its unwinding can bring on quite the violent market reaction… This morning is no exception (monster rally!), for, as we suggested in yesterday’s note:
“…I can sympathize with the bears right here — and they’ll make a killing this week should CPI come in hot and should Powell play the hawk… However, and make no mistake, it’ll be they who suffer — as those shorts rush to cover — should CPI come in cool, and should Powell coo like a dove…”
So, is this morning’s monster rally a sign that cooling inflation (yes, it came in cooler than expected) is all good for stocks, making them good to go for the next extended bull run?
Well, perhaps, but, then again, cooling inflation absolutely jibes with a weakening economy, which is what’s on our macro radar heading into next year, which of course isn’t great news for corporate earnings going forward.
Not to pour cold water on this rally, believe me, I’m not complaining, but let’s not get ahead of ourselves just yet… Like I said, the economy has issues (our PWA Index’s latest score has odds favoring recession next year), and recall — if you fear the Fed — that the PCE inflation measure (supposedly the Fed’s favored measure) for November actually came in hotter than expected last week, sending the SP500 down by 3.37%.
Speaking of the Fed, tomorrow’s rate announcement will bring a .50% increase in the benchmark rate, and Powell’s commentary will either bring more sunshine for the bulls, or bring the bears roaring back…
Stay tuned…
Asian equities leaned slightly green overnight, with 9 of the 16 markets we track closing higher.
Europe’s rallying hard so far this morning, with 16 of the 19 bourses we follow trading up as I type.
As are US stocks to start the session: Dow up 557 points (1.64%), SP500 up 2.54%, SP500 Equal Weight up 2.24%, Nasdaq 100 up 3.73%, Nasdaq Comp up 3.63%, Russell 2000 up 3.07%.
The VIX sits at 21.86, down 12.56%.
Oil futures are up 1.98%, gold’s up 2.24%, silver’s up 3.05%, copper futures are up 2.97% and the ag complex (DBA) is up 0.96%.
The 10-year treasury is up (yield down) and the dollar is down a huge 1.40%.
Among our 36 core positions (excluding options hedges, cash and short-term bond ETF), 34 — led by AMD, Amazon, MP Materials, communications stocks and tech stocks — are in the green so far this morning. The 2 losers are Brazil and Mexico equities.
I often find that the greatest investing wisdom comes from outside the investment industry:
“Watch it and you will be aware of the fact. Be aware of the fact; you cannot not change the fact; you may cover it up, run away from it, but you cannot change it.
It is there. If you will let it alone, not interfering with it with your opinions and hopes, fears and despairs, with your calculated and cunning judgements, it will flower and show all its intricacies, its subtle ways and there are many, its seeming importance and ethics, its hidden motives and fancies.
If you will leave the fact alone, it will show you all these and more.”
–Jiddu Krishnamurti
Then you may act accordingly.
Have a great day!
Marty