The dirty little secret no politician will admit: There is no way to ‘go for growth’

Investment professionals and politicians who spurned Liz Truss’s “go for growth” strategy for the British economy are slowly waking up to an uncomfortable truth.

The former U.K. Prime Minister’s plan, which relied on unfunded tax cuts that were perceived to be inflationary, may have been the only growth plan for Europe’s economies to escape over-indebtedness and low productivity without having to turn to austerity or greater state control of the economy. Not that any of them are prepared to admit it.

Britain’s Institute of Fiscal Studies on Monday described parties’ reluctance to admit as much on Monday as “a conspiracy of silence” arguing Labour’s pledge to rule out tax hikes was a “mistake.” “We wish Labour had not made those tax locks and it will be difficult [politically] to break,” IFS director Paul Johnson said about the party currently leading the polls.

But it’s not just British politicians who are refusing to face up to reality. In France, where an impending snap parliamentary election threatens to empower extremists on both sides of the political spectrum — to the cost of President Emmanuel Macron’s centrist Renaissance party — there is a similar reluctance to admit there are only bad options on the table.

French Finance Minister Bruno Le Maire highlighted last week, after French bonds began to wobble, that anything short of centrism risks placing France under the supervision of Brussels and the International Monetary Fund.

What he failed to point out is that even supposedly sensible centrists face having to do the unthinkable in the longer run.

“They have to go to financial repression because high growth as a strategy out of over-indebtedness is not going to be funded by the bond market,” Russell Napier, an influential investment advisor who authors the Solid Ground newsletter, told POLITICO. “I think it doesn’t matter who you vote for, you end up with roughly the same thing. So the market’s not maybe saying ‘we’re very sanguine about Labour [in the U.K.].’ They’re just saying: ‘It doesn’t really matter who you vote for. We are heading toward this route.’”

Incoming financial repression

That route, in Napier’s opinion, means it’s time for financial repression: putting a lid on the free movement of capital and having the government and other technocratic institutions increasingly determine which sectors benefit from public sector funding, and even more critically, from private sector funding too.

The pathway takes Europe much closer to the dirigiste policies that dominated the continent in the post-war period and away from the market-based liberalism that investors have become used to over the past four decades.

Truss’s risky tax cuts had hoped to avoid a push towards state-guided credit rationing by unleashing the power of the private sector and the financial industry to stimulate such a high rate of growth that the accompanying inflation just wouldn’t matter — especially if the Bank of England’s interest rate policy acted in support.

But the dilemma facing France, one of the EU’s largest economies, encapsulates three further political complexities: Paris does not control its own monetary policy, its public sector spending capacity is restricted by fiscal rules created in Brussels — which it is now officially in breach of — and any move to direct private sector financing domestically could clash with the bloc’s greater efforts to create a single capital markets and banking union.

That doesn’t leave much wiggle room for any incoming French government to experiment with a “dash for growth”, either of the free-market Truss variety, or — which is more relevant for France — the free-spending government interventionist one.

Politicization of the ECB

For Macron, the stakes are abundantly clear. In a speech to the Sorbonne University in April, he said: “We must be clear on the fact that our Europe, today, is mortal. It can die. It can die, and that depends entirely on our choices. But these choices must be made now.”

But in the same speech he, too, advocated a wholesale reordering of Europe’s economic framework largely because he — like the populists on either side of him — can’t afford everything he wants.

The current economic model, he said, is no longer sustainable “because we legitimately want to have everything, but it doesn’t hold together.”

Like all of the French presidents of the last 25 years, Macron has faced this constraint on domestic policymaking by trying to co-opt the one institution that has no formal constraints on creating money out of thin air — the European Central Bank. In his Sorbonne speech, he stressed that “you cannot have a monetary policy whose sole objective is to address inflation.”

The ECB’s mandate can only be updated by changing the whole EU treaty, something for which Europe’s leaders have no appetite. But even within its current legal straitjacket, the ECB has found plenty of ways to support national governments when it can, with a sequence of tools and programs that have allowed it to buy their bonds and keep their borrowing costs below where they would naturally have been.

It’s the newest of these tools that is likely to play a key role in the next few weeks. The ECB has stopped net purchases of bonds as part of its broader policy to bring inflation down, but it has one tool — so far untested — that it can use to alleviate any market stress after the elections: the so-called Transmission Protection Instrument.

The TPI allows the ECB to buy the bonds of individual governments whose borrowing costs it considers out of step with macroeconomic fundamentals. The idea is to ensure that its single monetary policy applies reasonably equally across the whole euro area. But it creates substantial scope for the ECB to exercise financial repression on behalf of those it considers aligned with its own mission.

It implies that the ECB knows better than markets what the value of a government promise to pay is. And in not setting any ex ante limits to the scale of its interventions, it has bestowed upon itself enormous power to take on the markets if it disagrees with them strongly enough.

It’s this power that Macron may want to harness if he is still able to present a budget he can call his own after July. But by the same token, he will want to ensure that the ECB denies that support to his opponents if they emerge victorious, just as it did to Italy’s Silvio Berlusconi and Greece’s Alexis Tsipras a decade ago.

According to Napier, whether the ECB ultimately decides to use the TPI or not, the decision will have political implications, not least because it will change the parameters of what the central bank is really prepared to do save the euro, and on whose behalf.

“If you think Macron is an ally of the [European] project, then you don’t use it until after there’s some type of chaos,” Napier said.

Many things could still change between now and July 7. The far right National Rally’s Jordan Bardella, for example, has already walked back some of the party’s spendiest plans, aiming to reassure markets that conflict with the EU over its fiscal rules can be avoided.

But in an interview with the FT published on Thursday, Bardella upset the bond markets again by saying he’d campaign for a big rebate from the EU budget, only hours after his ally and mentor Marine Le Pen signaled that a National Rally government would try to wrest away Macron’s powers as commander-in-chief.

In other words, the threat of major market instability in July remains alive and well. And, as Napier put it: “If bond yields blow up in France they can blow up anywhere.”

(Additional reporting by Geoffrey Smith)

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The bonds that bind: Our adversarial sovereign bond habit

The opinions expressed in this article are those of the author and do not represent in any way the editorial position of Euronews.

No one is obligated to help China fund its war machine. The decision to buy Chinese sovereign bonds should reside with informed investors, Elaine Dezenski and Joshua Birenbaum write.

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In Chinese President Xi Jinping’s recent visit to Serbia, he extolled bonds “forged with blood” between the two countries from NATO’s bombing of Belgrade. 

Yet, it is concerns over future aggression, not past wars, that have the world focused on China. 

The Biden administration, the US Congress, and other governments have raised alarms about China’s military build-up, arguing that Western investors should not be sending money to Chinese companies that are helping to support the People’s Liberation Army (PLA). 

As the UK non-profit Hong Kong Watch explained in a statement before the House of Lords: “China’s strategy of military-civil fusion ensures that unchecked institutional investment could directly counter Britain’s national security interests if British pensions funds and other major players are funding firms in partnership with the Chinese military.”

Direct investment in private Chinese companies supporting the PLA is a serious risk. Yet a far larger pool of Western investments is flowing directly to the state budget of the People’s Republic of China (PRC) through the purchase of Chinese sovereign bonds, funding whatever the PRC budget may prioritise — from Chinese battleships and EV subsidies to concentration camps.

How do sovereign bonds contribute to China’s defence spending?

Chinese defence spending, which has doubled since 2015, is paid for from the state budget, which is, in turn, funded by numerous sources, including the issuance of sovereign bonds. 

Those bonds are often passively purchased by global investors based upon their default inclusion in funds that follow key benchmarks, sending vast quantities of money to China with little oversight or awareness of China’s military benefits.

Chinese sovereign bonds are bought by major institutional investors and individual mutual fund owners alike. These investors are rarely making an intentional choice to invest in China. Rather, huge swaths of the market passively base their portfolio composition on aggregated benchmarks. 

The default options on many retirement plans, for instance, are target date plans based upon predetermined mixes from established indexes — one of the risks of what The Wall Street Journal has described as “retirement funds on autopilot”. Indeed, one of the purported benefits of so-called “passive investing” — which now makes up the majority of the market — is its strict adherence to the benchmarks.

Until relatively recently, China’s sovereign bonds were excluded from the global indexes. Then, starting in 2017, a handful of index providers began adding Chinese government bonds to their bond benchmarks. In 2018, MSCI changed its equities index to include Chinese stocks. 

As The Wall Street Journal noted at the time, “In 2018, more than $13.9 trillion (€12.85tr) in investment funds had stock portfolios that mimic the composition of MSCI indexes or used them as performance yardsticks, and nearly all investments by US pension funds in global stocks are benchmarked against MSCI indexes.”

Benchmarks, which are designed to give a representative and diversified slice of the market, have become the unelected arbiters of whether given stocks or bonds are held by all funds that are pegged to the index. 

This decision to add Chinese investments to global benchmarks caused a cascade effect as passive investment funds and others who tied their portfolio to the benchmark followed suit, sending billions of dollars directly to the Chinese state. 

FTSE Russell, a global provider of benchmarks, explained the issue this way: “Fund managers seeking to match, or outperform, benchmark indexes are therefore obliged to increase the weightings in Chinese bonds.”

What is the role of index providers in all of this?

Index providers are for-profit companies, with those profits inextricably linked to the decision of what to include in the benchmarks. 

When MSCI, one of the world’s largest index providers, initially resisted adding Chinese stocks to its benchmark, Beijing threatened to cut off MSCI’s access to critical pricing data in a move described as “business blackmail.” MSCI relented and included the Chinese stocks.

Index providers aren’t motivated only by threats. Bloomberg, Citigroup, and others garnered benefits for adding Chinese bonds to their benchmarks, including receiving a bond settlement license from China. 

That pivot, made on behalf of millions of investors, fundamentally realigned capital toward authoritarian regimes. As The New York Times said at the time about Citigroup’s decision to lead the pack into the Chinese sovereign bond market, “That is a propaganda victory for Beijing, which has struggled to entice foreign investors. For Citigroup, it is a relatively low-risk diplomatic win.”

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When Bloomberg and other companies added Chinese bonds to their indexes, it was estimated that Chinese securities would account for just over 5% of Bloomberg’s $53tr (€49tr) Global Aggregates bond index, but those numbers have substantially increased since then. 

Today, the Bloomberg index allocates nearly 10% of its $65 trillion Global Aggregates benchmark to Chinese bonds.

No one is obligated to fund Beijing’s war machine

The adversarial bond issue is a market problem with market solutions. Numerous indexes already exclude Chinese bonds (called “ex-China” indexes), but those are limited products that are marketed to clients who must proactively direct their fund managers to include them. Rather, ex-China benchmarks should be the default.

Clients could be permitted, consistent with sanctions and other restrictions, to add those bonds in, but passive investment flows should not be blindly directed to adversarial regimes. Similarly, default options for retirement plans and passive investments should not be funnelled to the Chinese war machine.

Improving the hygiene of financial markets is a necessity, starting with a much deeper discussion about how key decisions — like the inclusion of adversarial bonds in benchmark indexes — impact investors, the global financial system, and the economic security of democratic governments.

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No one is obligated to help China fund its war machine. The decision to buy Chinese sovereign bonds should reside with informed investors.

Elaine Dezenski is Senior Director and Head of the Center on Economic and Financial Power at the Foundation for Defense of Democracies (FDD). She was formerly an acting and deputy assistant secretary for policy at the US Department of Homeland Security. Joshua Birenbaum is Deputy Director of the Center on Economic and Financial Power at the FDD.

At Euronews, we believe all views matter. Contact us at [email protected] to send pitches or submissions and be part of the conversation.

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The Bond Market is Signaling a Potential Short-Term Trading Opportunity

KEY

TAKEAWAYS

  • If treasury yields break out higher, consider selling the breakouts of bear flags and view short-term declines as selling opportunities
  • If yields break down lower, consider buying bull flags and setups.
  • There’s a chance that yields could push higher before correcting.

In our last piece, we presented a long term/secular outlook for intermediate-term Treasuries, where we concluded that the structural break above the secular downtrend from the September 1981 high, coupled with the push above the November 2018 pivot @ 3.25%, has changed the long-term secular trend from lower (a bull market) to neutral. More work is needed to move the secular trend from neutral to bearish. In this piece, we’ll assess how the weekly chart might interact with the monthly chart, and then begin to think about how investors can react to various scenarios as they are set up over the course of the next several weeks and months.

As a warning, my analysis of the shorter perspective time frame didn’t leave me with an actionable trade or even a clear expectation for a probable outcome over the next few weeks. I think the market is ready to move away from the current congestion zone, and I suspect that the direction out of the zone will provide shorter-term traders with ample opportunity for entries. This analysis has allowed me to identify the important chart points/zones around which I will pay particular attention to behaviors and market structure, and to define appropriate trading plans.

10-Year Treasury Yield: Annual Perspective

The chart below is the yearly perspective of the 10-Year Treasury note (INDX).

Chart 1: Annual Chart of the 10-Year Treasury Yield

Note the break of the secular downtrend and the push above the 3.35% pivot. It’s worth noting that the Moving Average Convergence/Divergence (MACD) oscillator has turned higher for the first time since 1985.

 Keep in mind the following points:

  • The basic definition of an uptrend is a market consistently defining higher highs and higher lows. For instance, a great example of a downtrend can be seen in the annual 10-year Treasury chart, where, over several decades, yields consistently made lower lows and lower highs, defining a very clear and obvious bull market (yields down/prices up).
  • For bonds to begin defining a secular bear (bond prices down/yields up), it will require yield to set back from a high pivot, define a higher low pivot, and subsequently make a substantive new high. From that point, you can draw tentative annual and monthly trendlines, and channel projections. You can also make Fibonacci and point-and-figure price projections. Importantly, this structure would define a secular bear and place weekly and monthly momentum harmoniously with annual momentum.  I expect this transition to occur over the next 12–18 months.
  • The biggest question in my mind is whether last October’s 4.98% high print marked the terminal point for the bearish structure that has built since the 0.40% low. I suspect that is indeed the case and that, by mid-year, yields will be falling. However, there is also a reasonable case for one final push higher into the stronger resistance zone at around 5.25%, before subsequently setting back and defining the higher low. Given this view, the evolution of the weekly chart over the next few months becomes particularly important.

10-Year Treasury Yield: Weekly Perspective

 Below is a weekly chart of the 10-Year US Treasury Yield ($TNX).

Chart 2: Weekly Chart of the 10-Year Treasury Yields Note the following points of the chart:

  • Bonds typically build reliable channels and trendlines, but the move from 0.40% is atypical in that a solid trendline or channel is difficult to find.
  • Since the move from the low doesn’t provide a solid trendline or channel, I am focused on the 2.52–3.25% (A-B) trend line. The decline from 4.98% since last October has repeatedly weakened it, and the bounce from the trendline has been very modest.
  • The inability of the trendline to generate selling (higher yields/lower prices) suggests that the pressure isn’t strong.
  • It is likely that a decline below the 3.79% pivot would likely stretch back to the 3.25% pivot, with a higher likelihood of the area around 2.65% (retracing roughly 1/2 of the 0.40% to 4.98% move).
  • The move from 3.79% has generally presented as a bull (lower yield/higher price) flag. Flags are usually corrective against the trend. Note that volume during the period has declined significantly (as would be expected), albeit from the extremely high volumes that developed during the move to last October’s high.
  • One of my favorite patterns is the “three drives to a high or low.” While this chart may technically qualify (3.48% –> 4.33% –> 4.98%) the push to 3.48% only barely qualifies, as it’s not proportional to the first two thrusts. This chart is potentially set up for a final drive higher to complete the sequence, perhaps into the strong resistance at the 5.25–5.35% area.
  • I will also be monitoring the price for a secondary test of 4.98%. A completed secondary test would set up for a significant bull (yield down/price up) market.

The balance of the structural evidence on the weekly chart favors lower yields, but it’s a close call and not particularly actionable from these levels.

Looking At Momentum

The multiple-screen momentum perspective below is a quick filtering method I use. Importantly, momentum is fractal (robust across time frames and markets). I prefer to derive the trend through the tape, so I only use the oscillators as a quick filter.

The chart below displays the annual, monthly, weekly, and daily charts of the 10-Year Treasury Yield. Note that on the chart, we move back to yield again.

Chart 3: Annual, Monthly, Weekly, and Daily Charts of the 10-Year Treasury Yield

An important point to remember: Rising yields = lower price.

  • Yearly momentum has turned toward higher yield/lower price.
  • Monthly momentum has turned toward lower yield/higher price. A slight negative divergence has formed, and the monthly is at odds with the yearly.
  • Weekly momentum is mixed/neutral, but attempting to turn to higher yield/lower price. This struggle around the zero line suggests that behaviors over the next few weeks will likely define the direction of the next 25–50 basis point movement.

I am most interested in the weekly trend (in rates, the weekly perspective is the most important), so I generally defer to the trend of one higher degree. In this case, the monthly is on a lower yield/higher price signal and is just now moving into the MACD quadrant, where significant declines (in yields) are likely to take place; Odds are better that the weekly will also turn to lower yield/higher price to be in harmony.  But, again, the evidence is mixed. Sometimes, you just need to let the price action evolve before drawing a solid conclusion.

A Weekly Perspective of TLT (Bond ETF)

Chart 4: Weekly Chart of TLT

Some important points re. volume:

  • Since we’re viewing the iShares 20+ Year Treasury Bond Fund (TLT), we’re looking at price (a downtrend is a bear market) rather than working with yield. This is because the yield indices we are using have no reported volume. The caveat here is that, in my professional capacity, I prefer to use futures volume, as they better represent institutional-rate investors, while TLT has a distinctly retail focus.
  • The evidence between futures and ETF volume is conflicting. TLT showed clear signs of short-term capitulation last October, but did not display a classic selling climax.
  • Futures are more ambiguous, with no clear surge in volume, but price behaviors are more consistent with a selling climax.
  • Since the October low, the volume in general has remained quite high, and the upward progress is relatively modest. The poor result for the effort expended suggests that the market continues to run into quality supply. The same price/volume relationship is also present in futures.
  • Note the rapid fall in volume over the last three to four weeks as the market tilted higher. This is consistent with a bear flag or pennant.
  • Finally, note the volume spike (arrow) as sellers leaned into the market a few weeks ago.  There are still strong-handed sellers willing to hit bids into strength.

I think the balance of evidence suggests that the market made a selling climax in October. That climax will likely hold for most of this year, but may be retested.

10-Year Treasury Yield Daily

Chart 5: Daily Chart of 10-Year Treasury Yield

 Note the following points:

  • Seasonal Tendency. Yields tend to set significant intermediate highs early in the year before declining into mid-year. We are near the end of the bearish (yields up/prices down) annual period. This would suggest a push lower (yield down/price up).
  • Yields have struggled to move away from the uptrend (A/B) but generally have built a bull (prices up/yields down) flag. Now, they are being squeezed between the internal resistance (gray lateral trendline) and the A-B channel bottom. From this perspective, bears (yields higher/prices lower) have an advantage.
  • If the market breaks higher from this zone, where would resistance materialize? If yields breakout higher from this zone, there isn’t much resistance between 3.50% and last year’s @ 4.89% high. Above 4.89%, 5.25–5.35% is a reasonable target.
  • If the market breaks lower from this zone, a solid support confluence exists in the 3.23–3.30% zone. But it is more likely the 0.50–0.618 retracement zone in the 2.15–2.70% zone would be in play. This would likely come as the result of an economic recession.

The Bottom Line

The next few weeks should represent a significant juncture in the daily and potentially the weekly chart. The market has generally been consolidating over the last several months, and the pattern breakout could be meaningful. For shorter-term traders, the direction out of the consolidation will likely define the direction of travel into the fall. In other words, it is a go-with.

  • If yields break out higher, I will likely begin selling the breakouts of bear (prices down/yields higher) flags and will view short-term declines in yields as selling opportunities. If lower, I will likely be a buyer of bull flags and setups (yields down/prices higher) as they develop.
  • If the market falls away from the trendline with velocity, the first solid support there is found in the 3.79% zone.
  • I continue to see a not-trivial chance of one last push higher into the 5.25–5.50% zone, before beginning a major weekly and monthly perspective correction (yield down/price up) that eventually makes the higher low. And while I see an advantage to being generally bullish over the next few months (falling yields, rising prices), the analysis is tentative, with only a small near-term advantage to the trade. In my trading, I would consider it non-actionable without additional price/volume development or reasonable structure to trade against. 

In deference to my macro work and business cycle work, I will be a better buyer of bullish inflections in the weekly chart over the next few months, as I fully expect a significant economic slowdown to develop into the end of the year.


Disclaimer: Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.

Good Trading.

Stewart Taylor, CMT
Chartered Market Technician

Stewart Taylor

About the author:
Stewart Taylor retired from Eaton Vance Management in January 2020 after a 40-year career in US fixed income with an emphasis on technical analysis and relative value investing. He joined Eaton Vance as the Senior Trader for the Investment Grade Fixed Income team in 2005. During his tenure, he was a portfolio manager for institutional separate accounts and mutual funds, managed the team’s inflation assets, and was the team’s strategist for duration, relative value, and economic positioning. From 1992 to 2005, he provided private investing and trading consultation to institutional buy side, broker-dealers, and hedge funds.
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Pimco’s Sonali Pier lets her ‘cautious contrarianism’ speak for itself: The bets she’s making now

Sonali Pier is a portfolio manager with Pimco

Pimco’s Sonali Pier strives for outperformance.

The youngest of three and the daughter of Indian immigrants, Pier set her sights on Wall Street after graduating from Princeton University in 2003. She began her career at JPMorgan as a credit trader, a field that doesn’t have a lot of women.

“In the ladies room, I don’t bump into a lot of people,” said Pier, who moved from New York to California in 2013 to join Pimco.

Fortunately, she’s seen a lot of changes over the years. There has not only been some progress for women entering the financial business, but the culture has also changed since the financial crisis to become more inclusive, she said. Plus, it’s an industry where there is clear evidence of performance, she added.

“There’s accountability,” she said, in a recent interview. “Therefore, the gender role starts to break down a little bit. With responsibility and accountability and a number to your name, it’s very clear what your contributions are.”

Pier has risen through the ranks since joining Pimco and is now a portfolio manager within the firm’s multi-sector credit business. The 42-year-old mother of two credits mentors for helping her along the way, as well as her husband for supporting her and moving to California sight unseen. Her father also raised her to value education and hard work, Pier said.

“He was the quintessential example of the American dream,” she said. “Being able to see his hard work and a lot of progress meant that I never thought otherwise, that hard work wouldn’t lead to progress.”

Pier’s work has not gone unnoticed. Morningstar crowned her the winner of the 2021 U.S. Morningstar Award for Investing Excellence in the Rising Talent category.

“Pier’s cautious contrarianism and rising influence at one of the industry’s premier and most internally competitive fixed-income asset-management firms stands out,” Morningstar said at the time.

Putting her investment strategy to work

Pier is the lead manager on Pimco’s Diversified Income Fund, which was among the top performers in its class — ranking in the 13th percentile on a total return basis in 2023, according to Morningstar. It has a 30-day SEC yield of 5.91%, as of Jan. 31.

“We’re really broadly canvassing the global landscape, and then looking for where there’s the best opportunities,” Pier said. “It’s getting the interest rate sensitivity from investment grade, high-quality parts of EM [emerging markets], and the equity-like sensitivity from high yield and the low-quality parts of EM.”

The fund also invests in securitized assets, with about 23% of the portfolio is allocated to the sector, as of Jan. 31.

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Pimco Income Diversified Fund

While the fund has a benchmark, the Bloomberg Global Credit Hedged USD Index, it is “benchmark aware” and doesn’t “hug it,” Pier said.

Morningstar has called the fund a “standout.”

“Pimco Diversified Income’s still ample staffing, deep analytical resources, and proven approach make it a top choice for higher-yielding credit exposure,” Morningstar senior analyst Mike Mulach wrote in January.

It hasn’t always been smooth sailing. The fund has more international holdings and a more credit-risk-heavy profile than its peers, which has sometimes “knocked the portfolio off course,” like it did in 2022 during the Russia-Ukraine conflict, Mulach said. Still, he likes it over the long term.

So far this year, the fund is relatively flat on a total return basis.

In addition to also leading PDIIX, Pier is also a manager on a number of other funds, including the PIMCO Multisector Bond Active ETF (PYLD), which was launched in June 2023. It currently has a 30-day SEC yield of 5.12%, as of Tuesday, and an adjusted expense ratio of 0.55%.

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Multisector Bond Active Exchange-Traded Fund performance since its June 21, 2023 inception.

“It’s maximizing for yield, while looking for capital appreciation, and obviously, with the same Pimco principles of wanting to keep up on the upside, but manage that downside risk,” she said.

Where Pier is bullish

Right now, Pier prefers developed markets over emerging markets and the U.S. over Europe.

Within investment-grade corporate, she likes financials over non-financials. Credit spreads have widened in financials over the concerns about regional banks, she said.

“Maybe some of it’s warranted for the fact that they need to issue significant supply year after year, but we think that the metrics of, say, the big six … look quite resilient on a relative basis,” Pier said.

Within corporate credit, the team looks at the “full flexibility of the toolkit,” she noted. That could include derivatives and cash bonds, she added.

“Are we looking at the euro bond or the dollar bond in the same structure? The front end or the long end? Cash versus derivatives? However we can most efficiently express our view and trade that will lead to the best total return,” Pier said.

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In Bullish Trends, Seek Value and Momentum; Three Sectors to Watch as Year-End Rally Progresses

The combination of a pause in the Fed’s rate hikes and strong year-end seasonal tendencies have created an opportunity for investors to end the year on a positive note. The fly in the ointment, in the short term, could be a bad set of readings on the upcoming Consumer (CPI) and Producer (PPI) price gauges. Aside from that, the negative sentiment on Wall Street is still thick enough to push prices higher.

As I noted last week, “The stock market seems to have bottomed, as short sellers panicked and recently frightened buyers rushed back into the markets. It’s about time, as the signs of a pending reversal have been in place for the past two months, namely a slowing economy and fears about the Fed’s rate hike cycle, which have been mounting as investor’s pessimism rose to a fever pitch.”

On the other hand, Fed Chairman Powell proved once again that a few words can kill any rally, when he noted the central bank was “not confident” that inflation was fully vanquished on 11/9/23 and stocks sank. Whether that was just tough talk or a sign that he knows what the CPI and PPI numbers will show is anyone’s guess. Thankfully, the market recovered, although, as I discuss below, breadth remains weaker than one would hope for.

That said, there is no substitute for being prepared for any eventuality. For now, the trend is bullish, so here are three groups that should move higher, barring any unpleasant surprises.

It’s What’s Inside That Matters; Three Sectors Worth Watching as the Year End Rally Develops

Most investors focus on areas of the market which are exhibiting strength. That’s because, in bull markets, strength usually leads to further strength. This, of course, is the essence of momentum investing.

At the same time, it’s also useful to review the action in weak sectors, as underperformers are often future areas of value. Moreover, it’s important to know what you’re buying. Here is what I mean.

The software sector encompasses a wide swath of companies ranging from security companies to app developers, along with those in the increasingly popular AI sector. With so many companies, it’s often more practical to buy into a diversified portfolio, such as an ETF.

One such ETF is the Invesco Dynamic Software ETF (IGPT), recently renamed Invesco AI and Next Gen Software ETF, which is closing in on what could be a major breakout. But don’t let the title fool you; this ETF holds the usual large-cap tech stocks that typically rally when the tech sector moves into a rising trend, such as what is currently developing and is evident in the price chart for the Invesco QQQ Trust ETF (QQQ). QQQ holds many of the same companies, but currently trades at ten times the price of IGPT.

So, you can pay ten times more for QQQ, or get the same general market exposure via IGPT for a fraction of the price. Consider that IGPT is currently trading below $40 per share, which means you can own shares in Meta (META), Alphabet (GOOGL), Adobe (ADBE), and even NVDIA (NVDA) for a fraction of the price of each of these blue chips.

And here’s what the price chart is telling us regarding IGPT:

  • The ETF is back in bullish territory, as it just crossed above its 200-day moving average;
  • Accumulation/Distribution (ADI) is moving higher after a recent consolidation as short sellers leave the scene;
  • On Balance Volume (OBV) is in an established uptrend, as buyers come in; and
  • A move above $36 will likely take this ETF higher, as long as the bullish trend in the technology sector remains in place.

Another bullish sector which remains undervalued is the uranium mining sector, as in the Global X Uranium ETF (URA), in which I own shares and which is a core holding at Joe Duarte in the Money Options.com. Nuclear power is slowly becoming an option for areas of the world which are trying to find a compromise between clean fuels and reliable power generation.

URA’s appeal has been boosted by the demise of the renewable power sector over the last few months, due to the expense burden and supply chain challenges required to build wind turbines. Note the difference in the performance of URA versus the First Trust ISE Global Wind Energy ETF (FAN).

For one, URA is in a bullish consolidation pattern after its recent breakout. Note the excellent support at $26, where the 50-day moving average and a large Volume-by-Price (VBP) bar continue to attract buyers. Moreover, note the bullish uptrend in OBV as buyers sneak into the shares.

Certainly, FAN is in a consolidation pattern of its own after its recent collapse. Note, however, that neither ADI or OBV have turned up yet, which means that there is currently little interest in these shares from bullish investors. On the other hand, from a contrarian standpoint, it’s not a bad idea to keep an eye on this ETF as the cycle works itself out. All it would take for this sector to bottom out would be something like a large infusion of government cash, such as what may be materializing in Europe, according to reports.

I recently recommended an ETF which is now breaking out in a big way. Join the smart money at Joe Duarte in the Money Options.com, where you can have access to this ETF and a wide variety of bullish stock picks FREE with a two-week trial subscription.

Bonds Retain Bullish Tone Ahead of Inflation Numbers

As I noted last week, bond yields have made at least a short-term top. In fact, just three weeks ago, the U.S. Ten Year note yield (TNX) hit the 5% point, an event that unhinged both stock and bond traders.

Since then, things have quieted down and TNX has settled into a trading range, with 4.5% and the 50-day moving average as the floor.

If the inflation numbers are bullish, and TNX breaks below 4.5%, expect a big move up in stocks.

Keep an eye on the SPDR S&P Homebuilders ETF (XHB), specially the $78-$80 area. If CPI and PPI are bullish and bond yields fall, XHB should rise as short sellers get squeezed. Note the improvement in ADI, as the shorts cover their bets, while OBV is still holding steady, as buyers remain patient.

I’ve recently posted several detailed articles on mortgage rates, bonds, and homebuilders at my Buy Me a Coffee page. You can access them here. For the perfect price chart set up, check out my latest Your Daily Five video here.

Market Breadth Lags Rally as Indexes Outperform

The NYSE Advance Decline line (NYAD) has bottomed out, but has yet to cross above its 50- or 200-day moving averages. So, for now, NYAD is neutral to slightly positive. If it doesn’t show a bit more pop in the next few weeks, it may signal that the rally will have short legs.

In contrast, the Nasdaq 100 Index (NDX) is nearing a breakout after rallying above its 50-day moving average. Both ADI and OBV turned higher as short sellers cover (ADI) and buyers move in (OBV). A move above 15,800-16,000 would likely extend the rally further.

The S&P 500 (SPX) is also lagging NDX, but has delivered a minor breakout above 4400. SPX is well above its 200-day moving average, returning to bullish territory after its recent dip below 4150. Moreover, it has now survived a test of the 4350 support area.

VIX is Back Below 20

The CBOE Volatility Index (VIX) is well below 20. This is bullish.

A rising VIX means traders are buying large volumes of put options. Rising put option volume from leads market makers to sell stock index futures, hedging their risk. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying. This causes market makers to hedge by buying stock index futures, raising the odds of higher stock prices.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

#1 New Release on Options Trading!

Good news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 videos) and a few other favorites public. You can find them here.

Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

To receive Joe’s exclusive stock, option and ETF recommendations, in your mailbox every week visit https://joeduarteinthemoneyoptions.com/secure/order_email.asp.

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#Bullish #Trends #Seek #Momentum #Sectors #Watch #YearEnd #Rally #Progresses

It’s All About Risk and the Long Bonds

Monday, after a lot of spooky headlines, the SPDR S&P 500 ETF (SPY) touched its 23-month moving average (MA) or the two-year biz cycle breakout point right around 417.

Plus, the iShares 20+ Year Treasury Bond ETF (TLT) flashed green as did IWM, the small caps.

The big question is, can IWM close out October above 170?

If not, any rally will be short-lived.

Today was an interesting day.

SPY also cleared back over the 200-day MA, which if held, could mean more relief rally.

But, TLT is reversing as well, so what we don’t want is for the long bonds to outperform SPY.

Why?

  1. That would be risk-off and recessionary.
  2. It would embolden the already bold commodities to run, especially with the dollar falling.

Which we see as #stagflation.

From a technical standpoint, yes, this is a mean reversion.

However, if you look back to July, it is the 5th oversold rally in TLT.

Sustainable?

The biggest fundamental dynamic is that inflation can go hyperbolic (it already is in certain soft commodities because of the geopolitical soup).

And, if the Fed relaxes now, one must wonder if they will be caught from behind again.

Nonetheless, for us, the most important aspect of this is how TLT performs against the SPY and how HYG (junk bonds) perform against the TLT.

Bulls want TLT to underperform both.

Note the ellipses and text on the chart of TLT or the 20+ Year long bonds.

Back in March, when we had the bank crisis flash crash, bonds signaled a flight to safety by outperforming the SPY starting March 7.

At the same time, the price was around 101.

Real Motion showed a bullish momentum divergence as TLT crossed over the 50-DMA long before the price did.

SPY crashed, and TLTs rallied to 109.10 in a matter of days.

Fast forward to today, TLT remains slightly underperforming the SPY.

The momentum indicator shows a mean reversion but not a bullish divergence.

Should TLT do what it did in March, that is, outperform the SPY, take that as a warning.

That is a sign of risk-off, and perhaps a harbinger of an oncoming recession; or worse, stagflation.

Let’s not freak out yet though.

It is always good to plan ahead yet act on price accordingly.


This is for educational purposes only. Trading comes with risk.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at [email protected], our Head of Institutional Sales. Cell: 612-518-2482.

For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

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“I grew my money tree and so can you!” – Mish Schneider

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.


Hear Mish’s thoughts on earnings, the macro environment, and her three stock picks on Bloomberg BNN.

Ever thought of owning commodities? Hear what Mish says about the key commodities you should consider in this video.

Mish participates in Crypto Town Hall X Space. You can sign in to your X account and watch it here.

In this video, Mish talks about trading Garmin Ltd. (GRMN) on Business First AM.

Mish and Dale Pinkert discuss the disconnect between news and markets-and how to best invest right now in this video from ForexAnalytix’s pre-market show.

In this video from CMC Markets, Mish shares her short-term forecast for USD/JPY and popular commodity instruments ahead of the US PPI announcement and September’s Fed meeting minutes, with recent dovish comments from Fed officials suggesting a potential shift in the committee’s policies.

Mish joins Business First AM to discuss the market reaction to the war in Gaza in this video.

Mish discusses what’s needed for a market bottom on the Financial Sense Newshour podcast with Jim Puplava.

Mish takes over as guest host for David Keller, CMT on the Monday, October 9 edition of StockCharts TV’s The Final Bar, where she shares her thoughts in the daily Market Recap during a day of uncertain news.

To quote Al Mendez, “The smartest woman in Business Analysis @marketminute [Mish] impresses Charles with her “deep dive” to interpret the present Market direction.” See Mish’s appearance on Fox Business’ Making Money with Charles Payne here!

Mish covers bonds, small caps, transports and commodities-dues for the next moves in this video from Yahoo! Finance.

In this video from Real Vision, Mish joins Maggie Lake to share what her framework suggests about junk bonds and investment-grade bonds, what she’s watching in commodity markets, and how to structure a portfolio to navigate both bull and bear markets.

Mish was interviewed by Kitco News for the article “This Could Be the Last Gasp of the Bond Market Selloff, Which Will be Bullish for Gold Prices”, available to read here.

Mish presents a warning in this appearance on BNN Bloomberg’s Opening Bell — before loading up seasonality trades or growth stocks, watch the “inside” sectors of the US economy.

Watch Mish and Nicole Petallides discuss how pros and cons working in tandem, plus why commodities are still a thing, in this video from Schwab.


Coming Up:

October 24: Benzinga Pre Show

October 26: Cheddar TV on the NYSE

October 27: Live in-studio with Charles Payne, Fox Business

October 27: Live in-studio with Yahoo Finance!

October 27: Recorded in-studio with Investor’s Business Daily

October 29-31: The Money Show

Weekly: Business First AM, CMC Markets

November 1–13 VACATION


  • S&P 500 (SPY): 417–420 support
  • Russell 2000 (IWM): 170 now in the rearview mirror
  • Dow (DIA): 332 support pivotal
  • Nasdaq (QQQ): 351 recent low and support
  • Regional Banks (KRE): 35 next support
  • Semiconductors (SMH): 140 support.
  • Transportation (IYT): 225 pivotal
  • Biotechnology (IBB): Under 120 so 110 area next support
  • Retail (XRT): 57 key support still

Mish Schneider

MarketGauge.com

Director of Trading Research and Education



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#Risk #Long #Bonds

Tax Liens And Sports Teams: Billionaire Marc Lasry’s Investment Playbook

Morocco-born vulture investor Marc Lasry and his sister Sonia Gardner have made billions buying debt and other troubled interest-bearing obligations, such as tax liens. Now they’ve set their sights on sports, looking for value in unexpected places like Major League Pickleball and the NBA’s Africa league.

By Maneet Ahuja, Forbes Staff and Hank Tucker, Forbes Staff


Twenty Formula 1 engines rev in synchrony as they ready for a practice run through the streets of downtown Singapore for September’s annual Grand Prix at Marina Bay Street Circuit. Marc Lasry, billionaire cofounder and CEO of $12.5 billion private equity firm Avenue Capital Group, is taking a break from a party upstairs at the Paddock Club to visit the garage of the Mercedes-AMG Petronas team.

“We’ve been looking at some F1 teams to invest in, [so] I wanted to come out here to meet and talk to a number of people,” Lasry says, straining to be heard above the squeal of pneumatic wheel guns, as F1 star Lewis Hamilton climbs into his car. Lasry won’t say which team he’s eyeing, but given his deep-discount approach to investing, it’s not likely to be a podium favorite like Mercedes.

In April, Lasry sold his 25% interest in the NBA’s Milwaukee Bucks at a $3.5 billion valuation—a sixfold profit after nine seasons, including the Bucks’ first NBA championship in 50 years in 2021. The transaction boosted Lasry’s net worth to $2.1 billion, an impressive 17% jump from a year ago, but still $800 million short of this year’s cutoff for inclusion on The Forbes 400. When he bought the franchise in 2014 with another private equity billionaire, Wes Edens (net worth $3.9 billion), the Bucks were wrapping up a season as the NBA’s worst team.


Lasry, 63, and his 61-year-old sister Sonia Gardner are distressed-asset investors, and for most of the last 35 years, bonds and other forms of debt have been their specialty. After the 2008 crisis, for example, Avenue made a $400 million windfall investing in the bank debt of Ford Motor Company, which had fallen below 40 cents on the dollar over concerns that it would collapse. Ford ultimately paid in full: 100 cents on the dollar.

Says Lasry from his waterfront Connecticut mansion, “If you stay calm and buy when every­body is panicking, over time, you will end up doing well.”

Since inception, debt-focused Avenue has afforded investors in its various funds returns ranging from 10% to 19%, net of fees. Moreover, Avenue’s pledge is that its managers won’t start pocketing carried interest until its limited partners have achieved an 8% return.

Right now, Lasry is finding opportunities because the Federal Reserve’s rapid rate hikes have put a strain on many small banks, prompting them to pull back from lending. “By not [guaranteeing deposits] you’re hastening the demise of smaller banks. They can’t grow,” Lasry says. “Best case, all they’re doing is telling everybody, ‘Don’t worry, we’re fine’—and the minute you’re explaining why everything’s okay, it’s not.”


HOW TO PLAY IT

By Martin Fridson

Investors can get a piece of the distressed-debt action by buying Pioneer High Income Trust, a closed-end fund that focuses on lower-rated corporate bonds, loans and convertibles. PHT is aggressive within the high-yield space, holding a lot of single-B and triple-C issues including Viking Cruises and Tenet Healthcare. PHT’s investment strategy and use of leverage has positioned it especially well to profit from the rebound in distressed debt coming out of recessions. In 2009, after the Great Recession, the fund posted a 104% total return; after the March 2020 recession PHT delivered a 62% 12-month total return. The fund currently yields 9.47% and is trading 10% below its net asset value.

Martin Fridson is editor of Forbes/Fridson Income Securities Investor and CIO of Lehmann, Livian, Fridson Advisors LLC.


Avenue is happily filling the void, lending privately at rates as high as 15% currently. Property tax liens have been another fertile area for Lasry; he has been buying them in bulk. When homeowners are late to pay their property taxes, municipalities often sell tax lien portfolios to investors like Avenue. The town passes off the headache of debt collection, and Avenue gets to collect the interest payments, which can be anywhere between 9% and 18%. Tax liens are senior to home mortgage debt. Thus, if the house ends up in foreclosure, Avenue gets paid before the mortgage holder.

“There’s zero risk of loss,” Lasry says. “A house that’s worth a million dollars would have to be worth less than $15,000, because the tax lien is 1.5%, which is impossible.”

Born in Morocco, Lasry immigrated to the United States with his parents in 1966, when he was 7. His mother, who taught French at the school he and his two younger sisters attended, made Lasry learn English by reading the Funk & Wagnalls encyclopedia. His father was a computer programmer for the state of Connecticut.

Marc and Sonia both attended Clark Univer­sity in Worcester, Massachusetts, from which Marc graduated in 1981 with a B.A. in history. Before attending New York Law School, he worked as a UPS truck driver and briefly consi­dered ditching his academic plans due to the high wages and good benefits.

After clerking for New York bankruptcy judge Edward Ryan, Lasry landed at bond brokerage Cowen & Company in 1987, managing $50 million in partners’ capital. Not wanting to hire a future competitor, Lasry recruited his sister to join the firm. Says Gardner, now president of Avenue, “As a brother and sister, we have 100% trust in each other.”

In 1989, Lasry and Gardner, then 30 and 27, respectively, left Cowen to manage money for one of its biggest clients: Robert M. Bass, the legendary Texas billionaire (current net worth $5.3 billion). Under the tutelage of David Bonderman, the siblings invested mostly in bank debt, senior bonds and trade claims through a fund called Amroc, a play on Maroc, the French word for Morocco.

“Marc is willing to be aggressive when he thinks something is right, and he doesn’t let a small fact get away,” says Bonderman, who went on to cofound private equity giant Texas Pacific Group and is now worth $5.8 billion. “If somebody needs to say no, it’s Sonia. Marc doesn’t like to say no to people.”

In 1995, attracted by bigger deals in the burgeoning private equity business, Gardner and Lasry started Avenue with $7 million in capital.

“Marc has always been focused on investments and the investors. I focus on managing the business day to day,” Gardner says. The formula has worked well. By 2008 Avenue’s assets swelled to $20 billion.

During the financial crisis, Avenue was down 30%, but thanks to smart investments in Ford and the fire-sale bonds of AIG, its assets reboun­ded 80% in 2009 and 30% in 2010. Then Lasry decided to return $9 billion to his investors, cutting Avenue’s assets to roughly $12 billion.

“You had no more distress, so we thought—totally wrongly—we’ll return capital and the next [down] cycle will be in two or three years and it’ll be great,” Lasry says. “The next cycle was like 12 years later.”

Since the start of the pandemic, Lasry and Gardner have been finding a smorgasbord of discounted assets. Avenue spent $110 million buying 100% of the debt of an Indian toll road operator that is building a highway through the western coastal state of Gujarat. During Covid, there were fewer drivers on the road and the operator struggled, so Avenue restructured and took control of it. It’s now generating a 10% to 15% return, and if people drive more, Lasry says that figure will rise to 20%.

More than half of Avenue’s assets today are in its non-U.S. funds—its sixth Asia fund has genera­ted a 11.5% annual return since April 2020, net of fees, and it’s currently raising a seventh. It also has $4 billion in its Europe funds.

Sports could be another big winner for Avenue investors. True to form, Lasry’s new $2 billion Avenue Sports Fund is taking a value investor’s approach rather than only buying expensive chunks of teams in the NBA or MLB. It has already recruited an “Athletes Council” that includes NFL Hall of Famer and Good Morning America cohost Michael Strahan; skier Lindsey Vonn and soccer star Lauren Holiday (both Olympic gold medalists); and former WNBA star Candace Parker. In return for a small slice of the fund, the athletes will help make connections and offer advice. Lasry hopes to capitalize on women’s sports and budding global leagues, including the Basketball Africa League, which completed its first season in 2021 and which he thinks is ripe for exponential growth. He notes that teams can still be acquired for less than $25 million on a continent with 1.5 billion people.

“Marc has a unique connection to the continent,” says NBA commissioner Adam Silver. “He’s analogized what’s happening in Africa to where the NBA was several decades ago, and I think that’s right. He’s clear-eyed about what it will take to build a successful league there, but he wants to be on the ground floor.”

With its new fund, Avenue will compete in a crowded field of private equity sports investors. Arctos Partners, which has nearly $7 billion in its funds, has several MLB, NBA and NHL teams in its portfolio, and Michael Rees’ Dyal HomeCourt Partners has pieces of at least three NBA teams. Private credit specialist Ares Management raised a $3.7 billion sports fund last September.

Lasry isn’t worried about competition, believing his track record will give him an edge with potential partners. He notes that two years after launching Major League Pickleball’s Milwaukee Mashers with former tennis star James Blake for a $100,000 investment, the team is worth millions today.

“On the investment side, it’s about what’s the price,” he says. “In sports, it’s much more ‘Do I want to be partners?’ If we bid within 10% or 20% of wherever anybody else is bidding, we’ll win.”

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#Tax #Liens #Sports #Teams #Billionaire #Marc #Lasrys #Investment #Playbook

3 Key Relationships to Help Assess Market Direction

If you are finding yourself fluctuating between bullishness and bearishness, then congratulations! Hopefully, that also means you are waiting for certain signals to help you commit to one way or another.

Here are the signals we are waiting for before overly committing to a bias:

  1. As we wrote over the weekend, how the junk bonds (high yield high debt bonds) do independently, and how they perform against the long bonds (TLT).
  2. How the retail and transportation sectors do (along with small caps) as they represent the “inside” of the US economy.
  3. How DBA (ags) and DBC (commodity index) do relative to the strong dollar and higher yields.

The first chart shows you a sell signal mean reversion as far as the ratio between long bonds and junk bonds signaled. However, junk still outperforms long bonds — at this point, that says risk on, but a cautious risk on, with junk gapping lower and taking out summer lows (but holding March lows at 72.61).

Retail (XRT) had a solid reversal bottom last week. Now, it must clear last Friday’s highs and hold June lows… plus, XRT outperforms SPY right now.

Transportation (IYT) is now underperforming SPY. Although consolidating after breaking under the 200-DMA (green), it looks vulnerable. Could that change? A move over 235 would be a good start.

Looking at DBA, that whole commodities sector is outperforming the SPY. Makes you wonder what would happen if the dollar and/or yields soften.

Trading slightly below the July 6-month calendar range high, we anticipate DBA can continue higher, especially if price retakes the 50-DMA (blue line). DBC fell right onto support at its 50-DMA. Momentum also fell into support. Furthermore, DBA also outperforms SPY. This certainly makes the case for higher commodities and inflation as a trend again, especially if long bonds and the dollar soften.


This is for educational purposes only. Trading comes with risk.

For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.

If you find it difficult to execute the MarketGauge strategies or would like to explore how we can do it for you, please email Ben Scheibe at [email protected].

“I grew my money tree and so can you!” – Mish Schneider

Get your copy of Plant Your Money Tree: A Guide to Growing Your Wealth and a special bonus here.

Follow Mish on Twitter @marketminute for stock picks and more. Follow Mish on Instagram (mishschneider) for daily morning videos. To see updated media clips, click here.


Watch Mish and Nicole Petallides discuss how pros and cons working in tandem, plus why commodities are still a thing, in this video from Schwab.

Mish talks TSLA in this video from Business First AM.

See Mish argue investors could jump into mega-tech over value and explain why she is keeping an eye on WTI prices on BNN Bloomberg’s Opening Bell.

Even as markets crumble, there are yet market opportunities to be found, as Mish discusses on Business First AM here.

Mish explains how she’s preparing for the next move in Equities and Commodities in this video with Benzinga’s team.

Mish talks about the head-and-shoulders top pattern for the S&P 500 in The Final Bar.

Mish covers sectors from the Economic Family, oil, and risk in this Yahoo! Finance video.

Mish shares why the most important ETFs to watch are Retailers (XRT) and Small Caps (IWM) in this appearance on the Thursday, September 20 edition of StockCharts TV’s The Final Bar with David Keller, and also explains MarketGauge’s latest plugin on the StockCharts ACP platform. Mish’s interview begins at 19:53.

Mish covers 7 stocks that are ripe for the picking on the Wednesday, September 20 edition of StockCharts TV’s Your Daily Five, and she gives you actionable levels to watch.

Take a look at this analysis of StockCharts.com’s Charting Forward from Jayanthi Gopalkrishnan, which breaks down Mish’s conversation with three other charting experts about the state of the market in Q3 and beyond.

Mish was interviewed by Kitco News for the article “Oil Prices Hit Nearly One-Year High as it Marches Towards $100”, available to read here.

Mish covers short term trading in DAX, OIL, NASDAQ, GOLD, and GAS in this second part of her appearance on CMC Markets.

Mish talks Coinbase in this video from Business First AM!

Mish looks at some sectors from the economic family, oil, and risk in this appearance on Yahoo Finance!

Mish covers oil, gold, gas and the dollar in this CMC Markets video.

In this appearance on Business First AM, Mish explains why she’s recommending TEVA, an Israeli pharmaceutical company outperforming the market-action plan.

As the stock market tries to shake off a slow summer, Mish joins Investing with IBD to explain how she avoids analysis paralysis using the six market phases and the economic modern family. This edition of the podcast takes a look at the warnings, the pockets of strength, and how to see the bigger picture.

Mish was the special guest in this edition of Traders Edge, hosted by Jim Iuorio and Bobby Iaccino!

In this Q3 edition of StockCharts TV’s Charting Forward 2023, Mish joins a panel run by David Keller and featuring Julius de Kempenaer (RRG Research & StockCharts.com) and Tom Bowley (EarningsBeats). In this unstructured conversation, the group shares notes and charts to highlight what they see as important considerations in today’s market environment.


Coming Up:

October 4: Jim Puplava, Financial Sense

October 5: Yahoo! Finance & Making Money with Charles Payne, Fox Business

October 12: Dale Pinkert, F.A.C.E.

October 26: Schwab and Yahoo! Finance at the NYSE

October 27: Live in-studio with Charles Payne, Fox Business

October 29-31: The Money Show

Weekly: Business First AM, CMC Markets


  • S&P 500 (SPY): There are multiple timeframe support levels around 420-415.
  • Russell 2000 (IWM): 170 huge.
  • Dow (DIA): 334 pivotal.
  • Nasdaq (QQQ): 330 possible if can’t get back above 365.
  • Regional Banks (KRE): 39.80 the July calendar range low.
  • Semiconductors (SMH): 133 the 200-DMA with 147 pivotal resistance.
  • Transportation (IYT): 237 resistance, 225 support.
  • Biotechnology (IBB): 120-125 range.
  • Retail (XRT): 57 key support; if can climb over 63, get bullish.

Mish Schneider

MarketGauge.com

Director of Trading Research and Education

Mish Schneider

About the author:
Mish Schneider serves as Director of Trading Education at MarketGauge.com. For nearly 20 years, MarketGauge.com has provided financial information and education to thousands of individuals, as well as to large financial institutions and publications such as Barron’s, Fidelity, ILX Systems, Thomson Reuters and Bank of America. In 2017, MarketWatch, owned by Dow Jones, named Mish one of the top 50 financial people to follow on Twitter. In 2018, Mish was the winner of the Top Stock Pick of the year for RealVision.

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#Key #Relationships #Assess #Market #Direction

Market Breadth Continues Recovery; Watching the NVDA Effect on QQQ as Oil Heats Up

The dog days of August are mercifully over. And as Wall Street gets back to work, new trends are emerging which could influence what the stock market does for the rest of the year.

Here are the macro crosscurrents to sort through:

  • The Fed is on the bubble as some Fed governors want to pause the rate hikes, while others want to push rates higher;
  • The jobs market seems to be cooling;
  • The bond market is focused on inflation, but is off its worse levels as it ponders what the Fed will do next, whether the job market is going to get weaker, and whether the price of oil will upset the apple cart;
  • Stocks are working on putting in a credible bottom; and
  • The oil market looks set to erupt.

Altogether, these variables suggest the fourth quarter has the potential to be a potentially profitable quarter for investors who can discern where the smart money is flowing and successfully follow it.

Bond Volatility Increases as Data Shifts Rapidly

The bond market’s inflation fears eased over the last few weeks ,but the most recent round of purchasing manager data (ISM and PMI), suggesting festering inflation in the manufacturing sector, erased the glee generated by the apparent cooling of the jobs market via lower-than-expected JOLTS and ADP data, which was boosted by the rise in the unemployment rate and a tame payrolls report.

The U.S. Ten Year Note Yield (TNX) reversed its downward move toward 4% in response to the purchasing manager’s data, which was interpreted as a picture of stagflation. The yield is nervously trading between its 20- and 50-day moving averages.

Smart Money Roundup: Watching NVDA Effect on QQQ

Calls for the death of the so-called AI bubble may have been premature, although the jury is still out for the sector in the short-term. Certainly, the action in AI bellwether Nvidia’s shares (NVDA) is an important metric to keep an eye on.

The stock’s recent volatility suggests that investors are thinking about what comes next, although the company continues with its bullish guidance. On the other hand, the slowly developing downslope in the Accumulation/Distribution (ADI) line is cautionary, as it suggests short sellers are starting to bet on lower prices for the stock.  

On Balance Volume (OBV) is in better shape, which suggests that a sideways pattern or a steady uptrend is the most likely path for the stock after the consolidation. You can see the NVDA effect reflected in the shares of the Invesco Nasdaq 100 Trust (QQQ) which is also consolidating. Support for QQQ is at $370.

Oil is Getting Hot

Tech is consolidating, but the smart money is moving into oil. You can see that in the bullish breakout of West Texas Intermediate Crude (WTIC), which is now above $85. Recall my May 2023 article, titled “Never Short a Dull Market,”, where I predicted that tight oil supplies were in the works and that the odds of higher prices were better than even.

And that’s exactly what’s happened. In the last three weeks, the U.S. Energy Information Agency (EIA) has reported a nearly 30 million barrel drawdown in U.S. oil inventories. Moreover, there are two coincident developments unfolding, which are likely to further decrease supplies:

  • OPEC + is likely to maintain its current production cuts in place for at least another month; and
  • The U.S. is quietly refilling its Strategic Petroleum Reserves.

These two factors, combined with stable-to-possibly-rising consumer demand for gasoline, and perhaps a rise in demand for heating oil as the weather turns cooler, are likely to keep prices on an upward trajectory for the next few weeks to months, and perhaps longer.

Expressed in more investor-accessible terms, you can see the shares of the U.S. Oil Fund ETF (USO) have broken out above the $75 resistance level, with excellent confirmation from a rise in the Accumulation/Distribution (ADI) and On Balance Volume (OBV) indicators as short sellers step aside (ADI) and buyers move in (OBV).

The bullish sentiment in oil also includes the oil stocks including the Van Eck Oil Services ETF (OIH), which is nearing its own breakout. This is due to the rise in global exploration, which has been steadily developing over the last twelve months, but which the market has mostly ignored, despite CEO comments of an oil service “super cycle” unfolding.

Things are happening fast. Oil, tech, housing, bonds, are all making their move. What’s your plan of action in this market? Join the smart money at Joe Duarte in the Money Options.com. You can have a look at my latest recommendations FREE with a two week trial subscription. You can also review the supply demand balance in the oil market and what the future may hold here. And if you’re a Tesla (TSLA) fan, I’m reviewing some interesting developments in the stock, which you can review free of charge here.

Breadth Recovery Shows Staying Power

Last week, I noted the worst may be over in the short term for stocks, as the market’s breadth is showing signs of resilience. This bullish trend is showing some staying power, as the New York Stock Exchange Advance Decline line moved above its 50-day moving average while maintaining its position above the 200-day moving averages. Another bullish sign is that RSI is nowhere near overbought, which means the rally still has legs.

On the other hand, the Nasdaq 100 Index (NDX) ran into resistance at the 15,600 area, where there is a moderate size cluster of Volume-by-Price bars (VBP) offering a bit of turbulence, as investors who bought the recent top are trying to get out “even”. Accumulation/Distribution (ADI) and On Balance Volume (OBV), may have bottomed out, but are showing some short-term weakness.

The S&P 500 (SPX) is acting in a similar way, although it remained above 4500, but above 4350, and it its 20-day and its 50-day moving averages. ADI is flat, but OBV is improving as investors put money to work in the oil and related sectors.

VIX Remains Below 20

VIX has been a bright point in the market for the last couple of weeks, as it has failed to rally above the 20 area. This is good news, as a move above 20 would be very negative, signaling that the big money is finally throwing in the towel on the uptrend.

When the VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures to hedge their put sales to the public. A fall in VIX is bullish, as it means less put option buying, and it eventually leads to call buying, which causes market makers to hedge by buying stock index futures. This raises the odds of higher stock prices.

Liquidity Remains Stable

Liquidity is stable. The Secured Overnight Financing Rate (SOFR), which recently replaced the Eurodollar Index (XED) but is an approximate sign of the market’s liquidity, just broke to a new high in response to the Fed’s move. A move below 5.0 would be more bullish. A move above 5.5% would signal that monetary conditions are tightening beyond the Fed’s intentions; that would be very bearish.


To get the latest information on options trading, check out Options Trading for Dummies, now in its 4th Edition—Get Your Copy Now! Now also available in Audible audiobook format!

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Joe Duarte

In The Money Options


Joe Duarte is a former money manager, an active trader, and a widely recognized independent stock market analyst since 1987. He is author of eight investment books, including the best-selling Trading Options for Dummies, rated a TOP Options Book for 2018 by Benzinga.com and now in its third edition, plus The Everything Investing in Your 20s and 30s Book and six other trading books.

The Everything Investing in Your 20s and 30s Book is available at Amazon and Barnes and Noble. It has also been recommended as a Washington Post Color of Money Book of the Month.

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‘Own what the Mother of All Bubbles crowd doesn’t.’ This market strategist expects stagflation and is investing for it now.

There’s always a bull market somewhere — if you can find it.

Keith McCullough encourages investors to join him in the hunt. You’ll need to be agnostic and open-minded, the CEO of investment service Hedgeye Risk Management says. If you’re wedded just to U.S. stocks, or the market’s latest darlings, you’re setting yourself up for disappointment — particularly in the hostile environment McCullough sees coming.

This coming challenge for U.S. stock investors, in a word, is stagflation, McCullough says. Stagflation — higher inflation plus slow- or no economic growth — is hardly a bullish outlook for stocks, but McCullough’s investment process looks for opportunties wherever they may be. Right now that’s led him to put money into health care, gold, Japan, India, Brazil and energy stocks, among others.

In this recent interview, which has been edited for length and clarity, McCullough takes the Federal Reserve and Chair Jerome Powell to the woodshed, offers a warning about the potential fallout from Powell’s upcoming speech at Jackson Hole, Wyo., and implores investors to discount happy talk and always watch what they do, not what they say.

MarketWatch: When we spoke in late May, you criticized the Federal Reserve for being obtuse and myopic in its response to inflation and, later, to the threat of recession. Has the Fed done anything since to give you more confidence?

McCullough: The Fed forecast of the probability of recession should be trusted as much as their “transitory” inflation forecast or a parlor game. People should not have confidence in the Fed’s forecast. The “no-landing” or “soft-landing” thesis is looking backwards. The Fed is grossly underestimating the future, doing what they always do, in looking at the recent past.

Their policy is wed to what they say. They claim they’re not going to cut interest rates until they get to their target. But any hint of the Fed arresting the tightening gives you more inflation. So there’s this perverse relationship where the Fed is the catalyst to bring back the inflation they’ve spent so much time fighting. 

Read: ‘The Fed is way late and they’ve already screwed it up.’ This stock strategist is banking on gold, silver and Treasurys to weather a recession.

MarketWatch: U.S. Inflation has come down quite signficantly over the past year. Doesn’t that show the Fed is well on the way to achieving its 2% target?

McCullough: A lot of people are peacocking and declaring victory over inflation when we’re about to have reflation that sticks. We have inflation heading back towards 3.5% and staying there.

Our inflation forecast is that it’s set to reaccelerate in the next two inflation reports, which will lead to another rate hike in September. The Fed’s view is that until they get to the 2% target they’re not done. A lot of people are really confident because inflation went from 9% to 3% that it’s getting closer to 2%, therefore the Fed is done. Given what Fed Chair Jerome Powell said, the next two inflation reports are critical in determining whether we hike rates in September. I think maybe even one in November. This is a major catalyst for the next leg down in the equity market.

The Fed is going to see inflation go higher, and they’ve already articulated to Wall Street that no matter what happens, that should constitute a rate hike. That’s a policy mistake. They’re going to continue to tighten into a slowdown. When the Fed tightens into a slowdown, things blow up.

MarketWatch: By “things blow up,” you mean the stock market.

McCullough: I don’t think the Fed cuts interest rates until the stock market crashes. The Fed is going to be tightening when the U.S. economy and corporate profits are at a low point, going into the fourth quarter. It’s not dissimilar from 1987 where all of a sudden a market that looked fine got annihilated in very short order. There are a lot of similarities to 1987 now; the market’s quick start in January, people in love with stocks. That’s a catalyst for the stock market to crash.

When the Fed has an inconvenient rule, particularly for the U.S. stock market, they just move the goal posts or change the rule. If they actually started to cut interest rates, inflation would go up faster. This is exactly what happened in the 1970s and what Powell explains is the risk of going dovish too soon – that he becomes [much-criticized former Fed chair] Arthur Burns. That’s why you had rolling recessions in the 1970s; the Fed would go dovish, devalue the U.S. dollar
DX00,
-0.21%
,
and the cost of living for Americans would reflate to levels that are prohibitive.

People can’t afford reflation at the gas pump, or in their health care. It’ll be fascinating to see how Powell pivots from fighting for the people to bailing out Wall Street from another stock market crash, which will therein create the next reflation.

‘The Federal Reserve has set the table for a major event in the U.S. stock market and the credit market.’

MarketWatch: Speaking of a Powell pivot, the Fed chair speaks at Jackson Hole this week. Last year he put markets on notice for rate hikes. What do you think he’ll say this time?

Powell’s going to see inflation accelerating. I think Jackson Hole is going to be a hawkish meeting. That might be the trigger for the stock market.

Take the bond market’s word for it.  The bond market is saying the Fed is going to remain tight and seriously consider another rate hike in September. The reasons why markets crash in October during recession is that the fourth quarter is when companies realize that there’s no soft landing and they need to guide down.

The Federal Reserve has set the table for a major event in the U.S. stock market and the credit market. We’re short high-yield and junk bonds through two ETFs: iShares iBoxx $ High Yield Corporate Bond
HYG
and SPDR Bloomberg High Yield Bond
JNK.
 On the equity side the best thing is to short the cyclicals; I would short the Russell 2000
RUT.

MarketWatch: What’s your advice to stock investors right now about how to reposition their portfolios?

McCullough: Own what the “Mother of All Bubbles” crowd doesn’t. The things we’re most bullish on include gold
GC00,
+0.21%
.
 The Fed is going to keep short term rates high and both the 10 year and 30 year go lower. Gold trades with real interest rates. I think gold can go a lot higher, towards 2,150. Our ETF for gold is SPDR Gold Shares
GLD.

Also, you can be long equities and not take on the heart-attack risk that is the U.S. stock market. I’m long Japanese equities — ETFs for this include iShares MSCI Japan
EWJ
and iShares MSCI Japan Small-Cap
SCJ.

We’re long India with iShares MSCI India
INDA
and iShares MSCI India Small-Cap
SMIN.
Both Japan and India are accelerating economically. Were also long Brazil iShares MSCI Brazil
EWZ,
which is weighted to energy. We are bullish on energy. 

MarketWatch: Clearly accelerating inflation and slowing economic growth is an unhealthy combination for both investors and consumers.

McCullough: What I’m looking for, with inflation reaccelerating, is stagflation.

Stagflation pays the rich and punishes the poor. You want to be the landlord. The prices of things people own are going to go up, and the prices of things you need to live are also going to go up. So for example, we are long energy, uranium and timber as stagflation plays. ETFs we’re using for that include Energy Select Sector SPDR
XLE,
Global X Uranium
URA,
and iShares Global Timber & Forestry
WOOD.

One positive thing that happens from stagflation is that because it’s so hard to find real consumption growth, there’s a premium on the growth you can find.

If there is something that actually accelerates, then those stocks will work, which puts a nice premium on stock picking. You can be long anything that is accelerating because so many things are decelerating. So avoid U.S. consumer, retailers, industrials and financials, which are all decelerating. Health care is our favorite sector, which we own through the ETFs Simplify Health Care
PINK
and SPDR S&P Health Care Equipment
XHE.

Instead, people are betting we’re going to go back to some crazy AI-led growth environment. Now everyone thinks everything is AI and rainbows and puppy dogs. I’m old enough to remember we were in a banking crisis in March. From an intermediate- to longer-term perspective, I don’t know why you wouldn’t want to protect yourself until this inflation cycle plays out.

Also read: Jackson Hole: Fed’s Powell could join rather than fight bond vigilantes as yields surge

More: Will August’s stock-market stumble turn into a rout? Here’s what to watch, says Fundstrat’s Tom Lee.

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