Market When Closed, Sunday 25 August
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Chairman Powell Jacks The Market
by Alex King
Mr. Powell's comments on Friday at Jackson Hole were unequivocal. Inflation 0, Fed 1, clear to cut rates come September. This was well received by equities; and actually in a rather calm manner which suggests the move up may continue. Crazy-up moves have a habit of getting retraced just as quickly; Friday was an up day but not a crazy-up day.
To my mind the default view now should be bullish until proven otherwise. Longer term charts are pointing that way, the Fed is pointing that way, and the reaction of stocks Friday pointed that way.
So what can be the obstacles to higher prices? I think the moguls line up something like this:
- Simple seasonal weakness, which is nothing more than bigs taking some profits off the table in September. Technically speaking this could drag the S&P down below the 5 August low, and we would still be in a bull market. I think the right approach here is to be ready for such a move but not to try to get ahead of it, since shorting a bull market is a wonderful way to lose money forever. If you have short positions pointing the wrong way (as is inevitably the case from time to time, at least if you use short positions at all) and the bull train is coming for you, you have to protect yourself. Hedge, overhedge, eat the loss, something.
- A "credit event" which is much talked about on Twitter. There are many soothsayers making this case, the majority of whom can be dismissed as bots and/or Dementors, but there are one or two sensible folks too. It may be the that deleveraging that took place in late July and early August, which culminated in that overnight low on the 5th, was a precursor of The Big One. Again - it hasn't happened yet so it pays to be aware but not to position for it ahead of time, in my view.
- A recession in the US - specifically one which would (a) hit corporate earnings and/or (b) hit consumer spending and/or (c) hit consumer confidence. Plenty of people will tell you that a deflationary bust is just around the corner - and they may be right, no-one knows. So again, it pays to be ready, but I don't see any logic for loading up on canned food just yet.
Now our purpose here is not to pontificate on monetary policy, fiscal policy, the direction of GDP or inflation - we don’t care. We just care about tracking price and trying to follow it faithfully in order to make the good money, in markets up, down or sideways.
The charts below are as of the close Friday, save for some of the short-term charts which include post-market trading on Friday night.
Read on!
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