Falling Friday – I Told You So!

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It could have been anything.  

We knew it was time for a pullback and we’ve spent the week trimming our positions and, yesterday, we adjusted our hedges more bearish in the Short-Term Portfolio because we were looking for a short-term correction – and here it begins.  Although it is starting for the worst reason – the Dollar is pushing higher

again, now 108 – up 1.5% from yesterday’s open.  

The Dollar was at 104.5 on Aug 10th and 11th so it’s 3.3% stronger overall and the S&P was at 4,220 on the 11th – which was the day the low Dollar finally gave it the strength to break back over our weak bounce line at 4,160.  Now the Dollar is strong and we’re back to 4,240 pre-market.  

SPX Aug 19 2022

Now you can see the thing I predicted would happen is happening and the black line on the MACD will cross under the red and we go from having positive tailwinds to negative at the same time as the 200-Day Moving Average is crossing under our Strong Bounce Line, which is likely to take that zone off the table until the 50-DMA crosses over the primary support line at 4,000.  

Once again – this is not TA – it’s just math!  As long as we hold the weak bounce line at 4,160, we are 200 points over the 50 DMA so we would be rising at 200/50 = 4 points per day.  We’re at 3,964 so it will take us until the last day of the month to get over the line – assuming we hold 4,160, of course.  

That’s about the best we can hope for and the good news is the Dollar SHOULD get tired up here – especially as we’re pushing the Euro back to parity, where it is likely they will take some action to support themselves.  

What has sparked today’s spike in the Dollar is China’s signal that they will cut rates on Monday, as saving their property sector is more important than fighting inflation at the moment.  China’s rates are already 3.7%, which is about where our Fed’s target is for next year.  China reported troubling data earlier this week that indicated the economic slowdown is deepening as Covid outbreaks spread and a property crisis worsens.  Recent credit data also shows corporates and households were reluctant to borrow in July given the uncertain outlook.  Bank lending to the real estate sector dropped for the first time in 10 years.   

China is one of our biggest Macro concerns as growth there is looking like it will be below 4% for the year – which is a relative recession from 8.1% last year and Europe is almost certainly going to end up negative and the US is right on the line so We Win! – sort of.  

All these are things we already know about – so we’re not expecting a massive pullback but, just in case, we did take our winners off the table in our portfolios and we’re giving our underperforming and new stocks (that we still believe in) a chance to catch up but, if 4,160 goes – we’ll take the loss and move to CASH!!!

Following my advice, Jamie Dimon of JP Morgan (JPM) has advised his clients to prepare for the worst as well.  

Next week, we get PMI on Tuesday along with New Home Sales.  Wednesday is Durable Goods, Pending Home Sales and Mortgage Applications.  Thursday is GDP and Friday is Personal Income and Spending, PCE Prices, Wholesale & Retail Inventories and Consumer Sentiment.  Doesn’t seem like a data set that’s likely to boost us back over 4,300 – nor do Earnings Reports coming from weaker, small-cap companies that are on deck.

The Dollar should pull back – keeping us from having a terrible week.

Have a great weekend, 

– Phil 

 

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Good Morning.

FL: Nice one to everyone that played along! Thank you Phil! Happy Friday everyone! Still cant log into the site to post on any other device but my lap top….

It worked-thank you!

Has anyone studied TRIN (Trinity Capital)? Seems undervalued compared to other BDCs (it is newer though), and has a pretty hefty payout (and easily covered) – currently $2.09 per year on a stock price of $15 and an additional 15c a quarter special dividend. No long term options, but that doesn’t mean buying the stock and selling Jan 2023 options is a bad idea. They are mostly in the venture debt (i.e. loans to start ups) and equipment financing side of things

You guys seeing the pictures of the French rivers? What fixes this? Is there any hope…

https://www.reuters.com/world/europe/frances-river-loire-sets-new-lows-drought-dries-up-its-tributaries-2022-08-17/

Thanks Phil.

TRIN Phil I really like your outlook on this one. Down to the point.

I don’t know about you guys, But a down day on a Witching Freiday, is great, much less short due options ITM and less to roll.

I at least have no complains, But prices are going through the roof. Not sure how they will support the lower and middle class, but lots of promises.

Phil,

MRNA has been on a downward slope for past few days. Is it time to start selling puts?

Thanks

Awesome analysis. Thanks Phil.

Amazon/Football- it will be interesting to see how this plays out. I for one will not pay for a streaming service just to watch a game. While I enjoy watching the NFL , I can live without it . I get the deal that it all about the revenue for the teams/league but this leaves the fans in the dust. Lamentable but that is just the nature of the business- they need to pay for the multi gazillion $ contracts somehow. I am sure they will get along just fine without me.
By the way, has anyone seen the baseball games done by AppleTV? The broadcast teams are just the most boring and irritating as anything in sports. Perhaps Amazon will take notice and do better.