The Path Forward
As outlined in yesterday's note, there were a handful of subtle clues going into today's Powell speech pointing to a run of this magnitude. You can find the text of Powell's speech in various places today, I'm not here to summarize what was said. The bottom line is that we are nearing the end of the rate hike cycle, with the possibility that a 50bp hike in December will be it for rate hikes, barring a final 25bp hike in February. Markets have been in the process of front running a pause since the October lows. Here is where the markets stand as of today, beginning with the S&P: Perfect move up over the 200 day moving average accompanied by a volume spike after a picturesque low volume consolidation. The recent consolidation only bolsters the argument that 4100 will fall in rapid fashion. I am expecting the SPX to consolidate around 4200 going into the FOMC in a couple weeks. From there, as Powell further rings the dovish bell, a price target of 4500 for the S&P by year end is not at all out of the question. Big volume breakout on the NDX today. Targeting 12500-13000 in the short-term. Lastly the USD Index: USD Index (DXY) is on the verge of another major downleg. The economic data over the next couple of days, combined with CPI data due prior to the FOMC decision should aide in getting this down much further, which will bolster risk assets significantly. Expecting December to set the table for a Q1 that will be shock and awe campaign for equities we have rarely witnessed. Prepare accordingly. Zenolytics Turning Points is 300+ editions in and only getting better. Find out why institutions and individual investors have come to depend on our service through each and every type of market environment. Click here for details Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that...
Three Charts Demonstrating The Major Market Differences Between The August Powell Speech & The One Tomorrow
Put/call ratio first: The white arrow shows where the put/call ratio started the week of the Powell speech for August vs. present. Notice that going into the August speech, after a hunky dory post-FOMC conference in July, investors were actually looking forward to Powell giving them more ammunition on the upside. They were buying calls into the Jackson Hole speech without much hedging. Today it's the polar opposite. We have an uptrending put/call into Powell's speech tomorrow, as investors are hedging the speech. This type of pre-event hedging action typically leads to unwinds of those hedges once the event is finished, as the monster in the closet is a lot less scary once you open the door. The next two charts demonstrate why irrespective of how Powell comes across tomorrow, he will have to acknowledge that the future path of tightening will be of less consequence than what they have done the past few meetings. In other words, no more 75 bp hikes. The upward velocity of rate hikes is finished. Here is the USD: Uptrending in August. Downtrending at present. The foundation of the inflation argument has shifted. This means that there are very large amounts of capital restructuring their portfolios around a post-inflationary world. The restructuring of portfolios against such a massive macro trade as inflation has been over the past 12 months always begins with the largest market of all, which is the global currency market. Third are interest rates: Above trend with positive upside momentum in August. Below trend with positive downside momentum at present. Rates have now shifted from betting on greater inflation to betting on a timeline for rate hikes to end. All Powell has to say tomorrow is that the velocity of rate hikes is set to drop, confirming what both USD and rates are telling us. That alone will set off an unwind of all the hedges that have been taken going into tomorrow's speech. Remember, this isn't the market of August, June or March. Back then none of us had any idea how far Powell would go, or how high the velocity of rate hikes would get. Now that we are on the back end of the rate hiking curve, he can be as hawkish as he wants tomorrow, but he will have to acknowledge that the velocity of hikes is set to drop....and that is all it will take. Zenolytics Turning Points is 300+ editions in and only getting better. Find out why institutions and individual investors have come to depend on our service through each and every type of market environment. Click here for...
So Here Is What Happened Today
Here is the NDX to best encapsulate today: An overall inconsequential day technically. Volume across the board on the Nasdaq was well below average. The volume for the NDX was in line with Thanksgiving week. In other words, sellers couldn't muster up anything more than holiday week volume on the sell side today. The Nasdaq and S&P both continue to consolidate in what has become a very attractive continuation pattern on the upside with this multi-week consolidation. NDX is setting up for a move to 13,000 or thereabouts in fairly short order. More importantly, what the market has done since the October lows is to demonstrate this it is more concerned with the forward outlook for inflation and rates, as opposed to the constant barrage of Fed talk. Further upside for equities and downside for rates is dependent on softer inflation data, which is a high probability in the days/weeks/months ahead. I expect investors will understand this after the PCE data on Thursday and the CPI due on the 13th. The combination of softer economic data, softer inflation data and a Fed that is slowing the pace of their hikes will be a potent recipe for significantly lower rates, translating to higher equity prices, especially in growth. As should be expected in the current state of bearish psychosis, it just took one bad day and investors are quickly jumping aboard the "this is a replay of the August top" bandwagon. Two stark differences that are not being mentioned, however. In August we did not have (1) Rates rolling over hard and/or (2) USD cratering. Today we have both. This is a structural change in the very foundation of the inflation argument. The last piece to fall in line will be equities. Bear in mind, with numerous Fed governors remaining hawkish today, yields were unchanged on the day. In other words, yields don't care about Fed talk any longer and neither should you, as an investor. That is all for now. Goodnight. Zenolytics Turning Points is 300+ editions in and only getting better. Find out why institutions and individual investors have come to depend on our service through each and every type of market environment. Click here for details Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management...
Why Aren’t More Investors Talking About This Chart?
This was, by far, the most important technical development of last week if not of Q4, thus far: Long-term rates have broken their uptrend that started exactly around this time last year. They are currently targeting 3.1% in the short-term. The response from the majority of the investment community is crickets. Instead, investors are focusing on supposed bearish patterns in the major indices and a VIX that has been decimated, along with the usual suspects: Recession, inflation, China etc. It's the same old song. Never mind that the markets haven't moved at all since May, basically carving out what has been a complicated bottom that has upside to new highs and beyond. Never mind that the markets not moving since May has come against a backdrop of every single thing that could go right for bears going absolutely perfect. We have seen it all, from geopolitical conflict, threat of nuclear catastrophe, tightening, Fed hostility and so on. The market's response? Nothing. Same spot as May. Bears fumbled badly...It's been over for awhile, they just don't understand yet. This "bear market" has been a decimation of the excesses in the marketplace, including growth and crypto, while the major market averages consolidate preparing for new highs that are more imminent than most believe is possible. The Dow is already getting close, the S&P next up and when interest rates begin accelerating to the downside in the weeks ahead, the Nasdaq will join in, as well. I'll say it again, this is best long side setup in a decade plus, including the March 2020 bottom, which I called with a strongly worded note on March 29th, 2020 titled "It's Time For Investors To Go All In On Equities" while everyone was preparing for the next Great Depression. Bullish at S&P at 4026. Looking for 5000+ relatively soon. Zenolytics Turning Points is 300+ editions in and only getting better. Find out why institutions and individual investors have come to depend on our service through each and every type of market environment. Click here for details Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or...
They Are All So Quick To Abandon Ship
As this consolidation after one of the largest two day advances in the Nasdaq of the past two decades wears on, you can see how quickly short-term bulls are turning into long-term bears, as the market takes its time to digest the recent gains, with the S&P eyeing 4200 in the near-term. A simple pause in the uptrend has turned into every reason to worry about the current state of the market. Crypto pain has turned into systemic risk. Inflation worry has turned into not knowing when or how the Fed will ever pause. Earnings concern has turned into immediate recessionary worry. Every fear factor that the market is dealing with is being amplified exponentially due to the bearish psychosis that has enveloped investors for much of 2022. There isn't an investor out there who doesn't view the current market environment as an indecisive game of bingo, with little confidence about where we are headed in the near, intermediate or long-term. This is where opportunities are created. The indecision creates a fog that further inhibits players from processing information appropriately. This is bolstered all the more by a constant barrage of noise in the form of seemingly relevant fundamental data that is predominately bearish in nature. In such an environment there are zero avenues towards digesting fundamental information in a manner that is productive. The reality of the situation is that with every Fed hiking cycle comes two markets: A down market and an up market. There hasn't been a prolonged rate hike cycle that saw the markets move along a linear path that was predicted by the vast majority of investors. Yet in the current market, there is a large contingent of amateurish investors who believe the Fed is the be all and end all of the markets. The vast majority of investors believe they can simply wait around, twiddling their sausage fingers, waiting for the Fed to pause and VOILA! you buy and make a small fortune. Investors are about to get a wake up call as the markets front run the Fed pausing by leaps and bounds above what anyone thinks is possible. The market is simply going to runaway from short-sellers, bears and those in cash, which constitutes a significant percentage of the current investor population. In running away from these investors, the markets force a decision. In other words, it's the pain trade. The current pain trade, however, is not simply a contrarian's wet dream. It is bolstered by everything from seasonality, the long history of Fed hike cycles and technical considerations that have created a rare opportunity to capitalize on what can only...
Weekly Note Preview: As Investors Continue To Get The Relationship Between The Fed and The Markets Completely Wrong, A Significant Opportunity For Investors Emerges In The Months Ahead
In this weekend's 313th edition of Turning Points we have 15 pages of data going over why a majority of investors are getting the relationship between the Fed and the markets completely wrong, along with how to capitalize in the months ahead. MARKET UPDATE There are a handful of emerging themes that I expect will be gaining momentum in the months ahead among investors. The most significant of which is the fact that Fed rhetoric and market direction can function independently of one another. The greatest liability among investors presently is that a vast majority believe that the Fed is the ultimate arbiter of market direction according to both their language and their policy decisions. This deeply ingrained belief among investors will cost them the ability to act rationally in the months to come as the markets once again take the path least expected by running up into a Fed pause, with a distinct possibility of a top being seen in and around the time the Fed actually begins to cut rates. In other words, the entire script of the 2009-2021 bull market will be flipped on its head moving forward. Investors have become much too comfortable with the “just follow the Fed” mantra, believing that by simply waiting until the Fed is finished hiking, they can conveniently buy the S&P around current levels, taking further confidence that the Fed may actually cut rates at some points, boosting the S&P to new highs while investors ride their coattails. If only the markets were so easy. The CPI data bottom in October also marked a turning point for Fed sensitivity of the market. Since then, we have had numerous Fed speakers, including Powell himself in the post-FOMC decision conference attempt to hit the markets over the head with the hawkish stick....it hasn't worked. What is going to be especially unnerving for the majority of investors who believe they can simply wait around for the Fed to stop raising rates before allocating their capital is how high the markets can go as the Fed continues hiking rates, albeit with Fed hikes seeing decreasing velocity over the next few meetings. The chart below encapsulates this point perfectly. This is how the market reacted in 1982 as Volker was near the end of his rate hike cycle: To view the entirety of this weekend's note, you can subscribe by clicking here. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for...
Weekly Note Preview: 3 Events That Create A Window For A Significant Rally Directly Ahead
In this weekend's 310th edition of Turning Points we have 13 pages focused primarily on the timing of 3 events that create a 5-6 month window for a significant rally in the markets directly ahead. What follows is an excerpt from page of 3 this weekend's note: At the very same time, when QE kicked into overdrive in March 2020, I explicitly stated numerous times that the volatility we would experience in the markets from that point on would be unlike anything we have ever experienced. There is no historical context for a market rife with liquidity in a debt based economy facing inflationary pressures while central bankers realize their very existence is at stake if they can't get the situation under control quickly. Unprecedented situations create unprecedented outcomes. Increasingly, my thinking on timing this move has moved to a timeline involving the following factors: 1. When the Fed will be done raising rates 2. When a recession will become official 3. When the introduction of CBDCs (central bank digital currency) will take place All three of these factors share the same common trait: They are all predicated on economic weakness. The Fed will be done raising rates when the economy weakens to the point where they can no longer justify the rate hikes. A recession becomes official once economic factors make it clear that we are in a period of declining growth. CBDCs can only be introduced and eventually embraced as a result of absolute necessity in the form of universal basic income during a period of economic distress, where the jobless rate is increasing dramatically and consumers have no other option to maintain their livelihood. Let's look at the estimated timing for each of these events, beginning with CBDCs.... To view the entirety of this weekend's note, you can subscribe by clicking here. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital...