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Friday, March 29, 2024

Weakening Wednesday – S&P 2,100 Too Much for the Market

SPX DAILYBusted again!  

As I warned yesterday, the S&P is simply too overpriced to take us back over the serious resistance we have at the 2,100 line (2,127.50 is the exact 15% line on our Big Chart that should be the upper limit) and we played it perfectly in our Live Member Chat Room, adding another S&P Ultra-Short (SDS) hedge to our Short-Term Portfolio ahead of the big drop.  

We continue to have bad data reports – even within the "good" reports, when you take a closer look.  Like yesterday, we had the obviously bad Chicago PMI at 49.3 (contracting) and Consumer Confidence fell from 94.4 to 92.6 while the Dallas Fed was a horrific -20.8 and even State Street's Investor Confidence dropped to 106.64 from 108.60.  The "good" report was Personal Income rising 0.4% but that puts a margin squeeze on corporations and Consumer Spending jumped 1% but it was mostly on rising gas prices and spending 0.6% more than you gained in income is NOT a healthy long-term sign.

Today we'll get Redbook Sales, PMI and ISM Manufacturing, Construction Spending and Job Creation numbers and, this afternoon (2pm), we'll get a look at the Fed's Beige Book.  As I noted in our Member Chat Room yesterday, I can't make the optimistic math work that the Atlanta Fed is using in the GDPNow forecast that projects 2.9% Q2 GDP growth.  ISM is one of the components, so we'll see if that's a positive but, on the whole, this economy certainly doesn't have the feel of 3% growth – does it?

Evolution of Atlanta Fed GDPNow real GDP forecast

In a move going the opposite way from the Atlanta Fed, the OECD has LOWERED their Global Growth forecast by 10% (from 3.3% to 3%) and they are specifically calling the US GDP at 1.8% for 2016, which leaves us to really scratch our heads on where the GDPNow forecast is pulling 2.9% from.  In the U.S., “growth hit a soft patch at the turn of the year,” the OECD said. The Federal Reserve’s gradual policy will leave interest rates “supportive throughout the projection, which is broadly appropriate” given weakening inflationary pressures and ongoing weakness in global demand.  

“The longer the global economy remains in the low-growth trap, the more difficult it will be to break the negative feedback loops, revive market forces and boost economies to the high-growth path,” OECD's Cheif Economist wrote. “As it is, a negative shock could tip the world back into another deep downturn.”

As we expected, yesterday's bogus "window-dressing" rally into the close has already evaporated in the Futures and we're back to yesterday's lows at Dow (/YM) 17,700, S&P (/ES) 2,085, Nasdaq (/NQ) 4,500, Russell (/TF) 1,150 and Nikkei (/NKD) 16,900 and we'd be a lot worse off (not the Nikkei) if the Dollar hadn't taken a dive back to 95.35, boosting the indexes up 0.5% as they reprice against the weak Dollar.

That's popping gold, of course, and we just picked up a long on ABX ($17) in yesterday's Member Chat, but well-hedged, as we're still expecting more downside for gold as the Dollar pops back up into the Brexit vote.  That Brexit vote is in 3 weeks and the OPEC meeting is tomorrow – I cannot possibly emphasize how important it is to have plenty of CASH!!! and very good hedges in your portfolio at the moment!  

Being in cash doesn't mean you can't make any money.  Last Wednesday, for example, right in the morning post – I told you we were playing the July Natural Gas contracts (/NGN6) long at $2.14 and it's only June 1st and already /NGN6 has popped to $2.34 and natural gas contracts play $100 per penny per contract so +$2,000 per contract for the week is always nice to pick up by using some of your sideline margin.  

We also put up a hedging idea on the Nasdaq, using the ultra-short (SQQQ) last Wednesday and that one went in our portfolios and is still playable with a net $200 cash outlay offering up to $12,000 worth of protection against a downturn.  These are the kinds of things you need to be doing to lock in your gains – especially if you are sitting here – back at the all-time highs – and you haven't taken at least 1/3 of your winners off the table.  

Amazingly, Thursday's short play on oil (/CL) is also working as it's fallen from $50 back to $48.50 and that's good for gains of $1,500 per contract and we're done with oil here and, in fact, in this morning's chat, we flipped long on Gasoline (/RB) at the $1.60 line – but with very tight stops below (and we'll try again at $1.575 if $1.60 fails).  We're just playing for a technical bounce so quick profits at $1.61+ will be good for $420 per contract on this quick-moving (and dangerous) contract.

Oil would be even lower this morning but Rent-A-Rebel blew up another 2 platforms in Nigeria this morning, both belonging to CVX, and that prevented oil from slipping below the $48.50 line – for now.  By the way, there's no actual confirmation that any platforms have actually been blown up – but they did send out a tweet, and a press release, claiming they did it!  

If you want to end the Niger Delta Avengers "reign of terror" – you don't need guns or patrols to do it.  Next time they attack an oil platform, all President Obama has to do is immediately announce the release of 10M barrels from our 700Mb Strategic Petroleum Reserve to aid global supply in this "crisis" and oil prices will fall instead of rising and the people backing the Rent-A-Rebels will lose Billions on their long bets and their creditors will quickly take care of the dirty work for us.  

If President Trump wants me to head up that program – I'm available!  

 

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