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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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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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!

#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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#Market #Breadth #Continues #Recovery #Watching #NVDA #Effect #QQQ #Oil #Heats

‘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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#Mother #Bubbles #crowd #doesnt #market #strategist #expects #stagflation #investing

Is This Market Resilient or What?

Have you ever stood at the edge of the Grand Canyon and wondered about all the history of each cave or ridge? What about the multiple valleys that ultimately drain to the Colorado River? It is a daunting site to behold, but, as the winds blow past you and the hawks soar overhead, you can quickly see that just one viewpoint doesn’t do it justice.

Photo: Greg Schnell

This week’s price action in the stock market reminds me that there are multiple perspectives of where we are in the stock market journey. Everyone’s viewpoint is different, and that’s what makes a market. Technology investors see one perspective. Commodity investors see another. Bank dividend investors are seeing a new view as well.

I went to look and see what were the top-performing industries over the last week while the banks were imploding, and it was travel and leisure, hotels, and gaming. I had no idea that the resilience of those groups could hold up a market.

Financials:

Financials are breaking down, both big and small. Financials used to be important, but apparently they do not matter, as the $SPX touched a fresh 2023 high last week.The charts of C, WFC, and BAC don’t look nearly as healthy as JPM. The regionals are bombing out, and a few might get merged this weekend. I think we have all seen the KBE and KRE ETF charts. The main point of the picture below is that JPM is holding up; the others are not.

Here is the banking index. That 2010-2023 trend looks broken. Even by just ignoring the COVID situation, this looks broke, and a test of $60 wouldn’t be hard to imagine. The bottom panel shows 15-year relative strength lows.

The broker dealers, usually considered as one of the leading industries, looks better than the banks. Does the trend line hold? The PPO is going below zero again. This is a chart that suggests, to me, that this problem will get bigger.

Industrial Metals

The industrial metals commodity index by Goldman Sachs is making lower lows and lower highs since January. Is this just China managing commodity demand to load up on cheap commodities before the next run starts? That would be no different that the US government managing oil pricing by releasing the strategic petroleum reserve. So this isn’t taboo, but other nations do it on a lot more commodities than just oil.

Crude Oil

Crude oil continues to struggle. That rally last Friday was just that. It was so-o-o last week, as crude slid below $65 this week. Before market open on May 5, this chart shows crude down 10% on the week, and that isn’t even the bottom of the candle.

$SPX Price Earning Ratio

The price/earnings ratio for the stock market, sitting up near some of the most stretched extremes in history, was barely discussed at the CMT Association meeting. Purple is current, and the other three lines are where it would be based on lower P/E ratios. We have lived in a stretched world since 2014, so why would that view matter now? I show this chart to demonstrate that, if we reverted to 20, we would be below 3500, and if we reverted to a P/E of 15, 2600 is in play. It is not uncommon for recessions to cause a valuation reset of the market broadly.

Bonds and the Yield Curve

At the CMT Association meeting, the yield curve or the history of the yield curve was never mentioned in any of the conversations and presentations I sat in on. It didn’t fit with the bullish narrative of the $SPX and $NDX at 2023 highs. By the way, most portfolio managers think we are going much higher (but don’t mention the yield curve).

Actually, I was amazed that no one even mentioned it, even though the whole bank valuation issue right now is hold to maturity (HTM) bonds. Bonds are the problem, not the equity market.

The real deal is bonds add another perspective, much like the Grand Canyon viewpoints. Change any one viewpoint and it looks totally different. We find an entirely different view over in the yield curve. Bonds are one of the four major asset classes, but only Louise Yamada ventured there, showing a 40-year break of the interest rate trend line for long bonds.

The current yield curve did not seem to matter, nor did the history of the yield curve. So let me add a few yield curve charts here. The vertical line on the right side at year 2000 is the top yield curve line on the left. The vertical line at 2007 is the bottom yield curve line on the left.

So what does the yield curve line look like right now? It is the bottom line on this chart below, comparing with the 2000 top. They look similar to me.

Why does that matter? Let me use another chart to explain what is happening. The 30-year yield is now higher than the middle or the belly of the curve. This is changing rapidly as the yield curve starts to realign. If you look on the right side in the zoom panel, the 30-year yields are starting to hold above the middle of the curve yields. The 30-year yield may cross above the 2-year soon. But look at the congestion zones when the yields get tight. The equity market response is shown as this starts to broaden out. $SPX is on the lower panel.

Fed Rate

Now that a large portion of money managers assume the Fed is done raising rates, where does this leave us? The chart that makes a big impression on me is the rate of change of the Fed funds rate, shown in green in the lower panel. This isn’t the rate of change of something like lumber. This is the rate of change for one of the most tracked interest rates in the world.

The assumption that the entire business world can adapt rapidly to absorb one of the fastest rate changes ever does not seem plausible to me. As this rolls through boardrooms across the world, when will it crack the equity market investors? So far, the equity markets are not blinking.

I am on another viewpoint — wide-eyed, staring over my view, suggesting something is amiss and about to fall sharply. Will it happen in May or June? Or will it take until October? I don’t know, but I don’t see this working out ‘perfectly’ as we try to go to take out the 2021 highs.

To me, it looks like a setup we should be cautious of. When the market continues to struggle to make higher highs here after six weeks, is this just a consolidation? Or is it a final realization that it’s about to get messy?

If you would like more perspectives on this, I’ll be holding a monthly conference call for clients on Sunday. At Osprey Strategic, you can try out our services for just $7 for the first month. I’m a big fan of protecting capital until the time is right to step back in. Day traders need not test the waters. They won’t find anything they like there. This is for investors with large amounts of capital with the wisdom and patience to wait for a better backdrop.

Greg Schnell

About the author:
Greg Schnell, CMT, MFTA is Chief Technical Analyst at Osprey Strategic specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA).

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Introducing the Four Horsemen of MELA; Homebuilders Thrive as Commercial Real Estate Implodes

The next liquidity crisis will likely be spurred by the woes in commercial real estate (CRE); ironically, a four-headed megatrend which has been accelerated by the Fed’s rate hike cycle. 

Introducing the Four Horsemen of MELA: 

  • The Great Migration – population shifts to suburbs, rural areas, and the sunbelt; 
  • The CRE implosion from an oversupply of office space;
  • Bullish Supply Dynamics for Homebuilders; and
  • The Evolving End of Globalization.

This once-in-a-generation confluence of events has created both opportunities for mega-profits.

The MELA Connection

Bull markets (M) increase the value of 401 (k) plans, IRAs, and trading accounts, creating a positive wealth effect which leads to increased consumer spending, and rallies the economy (E) as bullish consumers make important life decisions–buying homes and cars (L). Wealthy consumers induce bankers to make loans, expanding the virtuous cycle.

Banking decisions are influenced by artificial intelligence fueled formulas which factor in a potential borrower’s credit worthiness partially based on the value of stock-based accounts. News travels fast via social media and the news cycle, which are also controlled by algorithms (A). Thus, system-wide moves happen quickly.

Nowhere is this dynamic more evident that in the interplay between CRE and the homebuilder sector. Here is the background:

  • The 2008 subprime mortgage crisis made homebuilders wary of overbuilding creating secular supply crunch in residential housing;
  • The COVID pandemic spawned the work-from-home megatrend, resulting in glut of commercial office space;
  • The lockdowns prompted a population migration to suburbs, rural areas, and other states;
  • This ongoing migration has made both the office glut in major cities, as well as the home supply crunch in suburbs, rural areas, and states like Texas, Florida, the Carolinas, and others in the sunbelt, practically permanent;
  • Geopolitical changes, spurred by the pandemic and the war in Ukraine have ended the globalization trend, creating an unpredictable future for businesses; and
  • The Federal Reserve has been raising interest rates to combat inflation, which is due to structural problems in the U.S. economy caused by globalization and its death pangs.

As the system adjusts, the Great Migration is compounding CRE’s problems and resulting in rising joblessness, and a continued limited supply of residential housing. As globalization sputters, this four-headed megatrend and its accompanying structural inflation shows no sign of ending anytime soon.

That means the Fed is odds on to raise rates after its May 2-3 FOMC meeting.

Empty Buildings Don’t Produce Rental Income

The bellwether for CRE’s woes is the ongoing implosion of co-working company WeWork (WE). Built on the principle that wide open work spaces catering to free-lancers and part-time workers would flourish as the gig economy expanded, the company flourished in its early days.

As the dynamic boomed, WE leased large spaces in prominent buildings in large cities, financing its ambitious plans with adjustable debt. When the pandemic struck, everything fell apart, as work-from-home made co-working spaces obsolete. The company is now reeling and may be on the verge of bankruptcy.

As I described here, the amount of cash on WEs, would only cover 14.5% of its debt load. In addition, the New York Stock Exchange has notified the company that its stock will be delisted within six months due to its low price. WE is walking away from leases and facing law suits from land lords.

Refinancing of adjustable debt at higher interest rates, combined with fewer tenants, reduced revenues forcing the company to default on its rent obligations. The price chart needs no explanation.

WE is not alone. For example, even CRE giant Blackstone Group (BX) is having problems, as a Korean investor, Inmark Asset Management, looks to unload $50 million worth of Blackstone’s mortgage debt in fears of a potential default by Blackstone on the debt. See details on this developing story here.

Blackstone, because of its much deeper pockets, is faring better than WeWork. But even though it met its most recent earnings expectations, the shares seem to have run into a brick wall as they reached the $95 area. You can see that’s where a large Volume by Price bar (VBP) is offering what looks to be stout price resistance. If BX shares break below their 200-day moving average, they could move back toward their recent lows.

There is an easy way to protect your portfolio against what may be very nasty breakdown in CRE. You can access this simple tool with a FREE trial to my service. Click here for more information.

Horton Blows Out Earnings Expectations

Shares of homebuilder D.R. Horton (DHI) broke out on 4/20/23 after an earnings beat, even as results were lower than the previous year’s results.

Nevertheless, due to supply being in its favor, DHI is selling houses at higher prices while smartly not overbuilding and focusing on areas of the country with growing populations. Here are some details:

Connecting the dots: The Great Migration to the sunbelt and tight home supplies are keeping DHI in the money. Sales and revenues have slowed thanks due to higher interest rates. Moreover, the lack of apartment sales suggests that the CRE situation is getting worse, as real estate investment trusts have no money to spend and are not investing in new properties. This will most likely result in a continuation of the current state of supply and demand in affordable housing.

To view my homebuilder picks and how I’m trading the commercial real estate market, click here. I own shares in DHI.

Bonds and Mortgages Rise Slightly. Expect Panic Buyers to Materialize

D.R. Horton’s Q2 earnings illustrate two simple principles: 1) Low housing supply is bullish for homebuilders, and 2) When mortgage rates fall, potential buyers come into the market. Moreover, when rates dip for a short period and then start to rise, on-the-fence buyers jump in as they fear missing out. We’re about to see more of that.

The Fed’s warnings about another rate hike in May have pushed the U.S. Ten Year Note (TNX) above the 3.5% yield area. This resulted in a rise of the 30-year mortgage to 6.4%.

The long-term connection between TNX, mortgage rates and the homebuilder sector (SPHB) is well established. For an in-depth comprehensive outlook on the homebuilder sector, click here.

Breadth Rolls Over. Nasdaq 100 Barely Holds 13,000

The trading range in the major indexes continues, but the market’s breadth had a bad week as the New York Stock Exchange Advance Decline line (NYAD) rolled over. NYAD still closed above its 20- and 50-day moving averages, but it did show some weakness.

The S&P 500 (SPX) remained above 4100. 4200 is still an a key resistance level. On Balance Volume (OBV) and Accumulation Distribution (ADI) remained constructive.

The Nasdaq 100 Index (NDX) barely held above 13,000, which has becomes fairly reliable support. This remains bullish, as it suggests money is now pouring into technology stocks. When tech stocks rally, the give the whole market a boost. Accumulation Distribution (ADI) and On Balance Volume (OBV) are very bullish for NDX.

The CBOE Volatility Index (VIX) broke to a new low and is now well below 20, a sign that the bears are throwing in the towel. This is also bullish.

When VIX rises, stocks tend to fall, as rising put volume is a sign that market makers are selling stock index futures in order 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.

The market’s liquidity retreated as the Eurodollar Index (XED) closed slightly below 94.75 on Fed hike expectations. A move above 95 will be a bullish development for sure. Usually, a stable or rising XED is very bullish for stocks. On the other hand, in the current environment, it’s more of a sign that fear is rising and investors are raising cash.


To get the latest up-to-date 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.

Joe Duarte

About the author:
Joe Duarte is a former money manager, an active trader and a widely recognized independent stock market analyst going back to 1987. His books include the best selling Trading Options for Dummies, a TOP Options Book for 2018, 2019, and 2020 by Benzinga.com, Trading Review.Net 2020 and Market Timing for Dummies. His latest best-selling book, The Everything Investing Guide in your 20’s & 30’s, is 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 the Joe Duarte In The Money Options website.
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A recession could come sooner on cooling bank lending

Plummeting bond yields, steep drops in oil and stock prices, and a sharp jump in volatility are all signaling that investors fear a recession is now on the near horizon.

Stocks were down Wednesday, as worries about Credit Suisse spooked markets already concerned about U.S. regional banks following the shutdown of Silicon Valley Bank and Signature Bank

“What you’re really seeing is a significant tightening of financial conditions. What the markets are saying is this increases risks of a recession and rightfully so,” said Jim Caron, head of macro strategy for global fixed income at Morgan Stanley Investment Management. “Equities are down. Bond yields are down. I think another question is: it looks like we’re pricing in three rate cuts, does that happen? You can’t rule it out.”

Bond yields came off their lows and stocks recovered some ground in afternoon trading, following reports that Swiss authorities were discussing options to stabilize Credit Suisse.

Wall Street has been debating whether the economy is heading into a recession for months, and many economists expected it to occur in the second half of this year.

But the rapid moves in markets after the regional bank failures in the U.S. has some strategists now expecting a contraction in the economy to come sooner. Economists are also ratcheting down their growth forecasts on the assumption there will be a pullback in bank lending.

“A very rough estimate is that slower loan growth by mid-size banks could subtract a half to a full percentage-point off the level of GDP over the next year or two,” wrote JPMorgan economists Wednesday. “We believe this is broadly consistent with our view that tighter monetary policy will push the US into recession later this year.”

Bank stocks again helped lead the stock market’s decline after a one-day snap back Tuesday. First Republic, for instance was down 21% and PacWest was down nearly 13%. But energy was the worst performing sector, down 5.4% as oil prices plunged more than 5%. West Texas Intermediate futures settled at $67.61 per barrel, the lowest level since December 2021. 

At the same time, the Cboe Volatility Index, known as the VIX, rocketed to a high of 29.91 Wednesday before closing at 26.10, up 10%.

The S&P 500 closed down 0.7% at 3,891 after falling to a low of 3,838.

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“Bear market bottoms are usually retested to ensure that the low is truly in. The rising risk of recession is now being exacerbated by the increased likelihood that banks will limit their lending,” noted Sam Stovall, chief market strategist at CFRA. “As a result, the outstanding question is whether the October 12 low will hold. If it doesn’t, we see 3,200 on the S&P 500 being another likely target, based on historical precedent and technical considerations.”

Treasury bonds, usually a more staid market, also traded dramatically. The 2-year Treasury yield was at 3.93% in afternoon trading, after it took a wild swing lower to 3.72%, well off its 4.22% close Tuesday. The 2-year most closely reflects investors’ views of where Fed policy is going.

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“I think people are rightfully on edge. I guess when I look at the whole thing together, there’s a component of the rally in the [Treasury] market that is flight-to-quality. There’s also a component of this that says we’re going to tighten credit,” said Caron. “We’re going to see tighter lending standards, whether it’s in the U.S. for small- and mid-sized banks. Even the larger banks are going to tighten lending standards more.”

The Federal Reserve has been trying to slow down the economy and the strong labor market in order to fight inflation. The consumer price index rose 6% in February, a still hot number.

But the spiral of news on banks has made investors more worried that a credit contraction will pull the economy down, and further Fed interest rate hikes would only hasten that.

For that reason, fed funds futures were also trading wildly Wednesday, though the market was still pricing about a 50% chance for a quarter point hike from the Fed next Wednesday. The market was also pricing in multiple rate cuts for this year.

“Long term, I think markets are doing the right kind of thing pricing out the Fed, but I don’t know if they’re going to cut 100 basis points either,” said John Briggs, global head of economics and markets strategy at NatWest Markets. Briggs said he does not anticipate a rate hike next week. A basis point equals 0.01 of a percentage point.

“Credit is the oil of the machine, even if the near-term shock was alleviated, and we weren’t worried about financial institutions more broadly, risk aversion is going to set in and remove credit from the economy,” he said.

Briggs said the response from a bank lending slowdown could be deflationary or at least a disinflationary shock. “Most small businesses are banked by community regional banks, and after this, even if your bank is fine, are you going to be more or less likely to offer credit to that new dry cleaner?” he said. “You’re going to be less likely.”

CFRA strategists said the Fed’s next move is not clear. “The recent downticks in the CPI and PPI readings, as well as the retrenchment of last month’s retail sales, added confidence that the Fed will soften its rigid tightening stance. But nothing is clear or certain,” wrote Stovall. “The March 22 FOMC statement and press conference is just a week away, but it will probably feel like an eternity. Waiting for tomorrow’s ECB statement and response to the emerging bank crisis in Europe also adds to uncertainty and volatility.”

The European Central Bank meets Thursday, and it had been expected to raise its benchmark rate by a half percent, but strategists say that seems less likely.

JPMorgan economists still expect a quarter-point rate hike from the Fed next Wednesday and another in May.

“We look for a quarter-point hike. A pause now would send the wrong signal about the seriousness of the Fed’s inflation resolve,” the JPMorgan economists wrote. “Relatedly, it would also send the wrong signal about ‘financial dominance,’ which is the idea that the central bank is hesitant to tighten, or quick to ease, because of concerns about financial stability.”

Moody’s Analytics chief economist Mark Zandi, however, said he expects the Fed to hold off on a rate hike next week, and the central bank could signal the hiking cycle is done for now.

He has not been expecting a recession, and he thinks there could still be a soft landing.

“I don’t think people should underestimate the impact of those lower rates. Mortgages will go lower and that should be a lift to the housing market,” he said. Zandi said he does not expect the Fed to turn around and cut rates, however, since its fight with inflation is not over.

“I’m a little confused by the markets saying there’s a 50/50 chance of a rate hike next week, and then they’re going to take out the rate hikes. We have to see how this plays out over the next few days,” he said.

Zandi expects first-quarter growth of 1% to 2%. “But the next couple of quarters could be zero to 1%, and we may even get a negative quarter, depending on timing,” he said.

Goldman Sachs economists Wednesday also lowered their 2023 economic growth forecast, reducing it by 0.3 percentage points to 1.2%. They also pointed to the pullback in lending from small- and medium-sized banks and turmoil in the broader financial system.

Correction: This story was corrected to accurately reflect Jim Caron’s remarks that markets are pricing in three rate cuts.

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