The Week On Wall Street – The Inflation Fight Is On

Extinguishing Inflation

DNY59

Here’s how I think of my money: soldiers. I send them out to war every day. I want them to take prisoners and come home so there’s more of them.Kevin O’Leary

The investment scene has been a challenging place to be during this BEAR market. That isn’t unusual. Watching your portfolio erode brings about plenty of emotional responses and often questions an investor’s strategy. Economic and market events are unpredictable, but it is up to policymakers, and investors to take past experiences into account in future actions. Since 1962, there have been eight recessions, nine bear markets, fifteen presidential elections, three pandemics, and countless wars and geopolitical events (e.g., the Cuban Missile Crisis, the Gulf War, and the 9/11 Terrorist Attacks). While periods of uncertainty are uncomfortable, they teach lessons, serve as a roadmap for future decisions, and give investors belief in the resiliency of the markets.

The Long-Term View

This is the perfect time to remind investors of some of the steadfast and timeless principles of investing to build wealth:

• Timing the market and allowing emotions to dictate decisions can be detrimental to a portfolio. Case in point: the annualized price return for the S&P 500 over the last 60 years is ~7.4%. But for investors who missed the top 25 best trading days (out of 15,130 total), it would have cut their average annualized return to 4.6%. Having a long-term investment horizon and a plan with your goals is paramount in navigating short-term volatility successfully.

• I encourage investors to focus on their unique goals, rather than following the sentiment of the crowd. Time and time again, history shows that extreme levels of ‘crowd’ optimism and pessimism can lead investors to stray from their well-established asset allocation strategy. Oftentimes, being a contrarian and not getting caught up in the crowd mentality has proven to be more successful.

• Even investors with decades-long time horizons can get distracted by near-term performance. As a reminder of the resiliency of the markets and the power of compounding, assume an investment of $100 per month in the S&P 500 beginning in August 1962. Over these sixty years, the investor would have deposited a total of $72,000.

Through all the aforementioned major market events, the initial investment still would have increased ~20x for a market value today above $1.4 million. This illustrates that consistent inflows and a long-term horizon can weather market storms. That is a perfect example of why concentrating on the long term will reap huge rewards but some don’t have the luxury of decades and that brings us back to the present MACRO situation.

The Short-Term View

If the U.S. isn’t already in one, a recession looks likely despite ongoing debates and what some claim are mixed signals. Fixed income markets suggest that the odds of a recession have risen sharply. Using different Treasury curves, and different credit market inputs, suggests an >80% chance of recession starting in 12 months. Interest rate hikes have “long and variable lags”, and they are occurring in a slowing economic backdrop. The “shocks” of these hikes are still yet unknown. Short-term interest rates in the United States are tracking the Fed Funds rate higher. Over the last 7 months, short-term yields have risen faster since the early 1980s. Unintended consequences of this extremely fast pace of tightening have not started to emerge but an extreme commitment to tightening until inflation drops dramatically guarantees some sort of unintended consequence.

One might be the dollar, which in real terms has soared to the strongest since the 1980s in the latest blow to US manufacturing.

Between supply shocks, fiscal tightening, monetary tightening, reduced discretionary income thanks to high commodity prices, and the shift back from goods to services consumption in a post-COVID world, a global industrial recession looks likely.

Global manufacturing (www.bespokepremium.com)

Eurozone manufacturing PMIs have already dropped into contraction territory. Global manufacturing activity is only barely clinging to an expansion thanks in part to a rebound in Chinese activity. Here in the US, the ISM New Orders index has already dropped below 50. That sort of reading does not guarantee a recession, but these drops tend to meaningfully increase the odds of a recession.

In the interim, markets have been too optimistic about the pain the FOMC is willing to enforce to reduce inflation that will not slow as fast mechanically as the FOMC needs. The market has already priced in a “mild” recession, and that is why we see stocks remain in a primary BEAR market downtrend. We witnessed just how offside many investors were as they assumed a “slower pace of rate hikes at some point” mindset crept into their strategy. Then they started to forecast when the Fed was going to start cutting rates!

Unfortunately, I never believed the FOMC would oblige without much further progress on core inflation; while headline and some components of the “core” are likely to lessen, rents are very unlikely to decelerate fast enough for core CPI to fall meaningfully towards 2% before mid-2023. It’s one thing to get underlying cyclical inflation to 4-5%. Getting it lower is a structural challenge.

Then there are “Energy costs”, and from where I sit it doesn’t appear there will be a change in energy policy to bring down commodity prices in the near term. Rising costs of debt will start to challenge a range of highly leveraged economic agents over the coming months; labor markets have already slowed and will decelerate significantly further with follow-on shocks to spending at a lag given high debt growth and low savings rates.

The message on inflation here has been loud and VERY clear. Policy errors introduced inflation to the investment scene. Once introduced, the FED had to come back into the investment scene much earlier than anyone anticipated. That was a warning not many heeded. Investors will now come to find just how difficult it will be to tame inflation. This FED will have a tougher time because the federal government has been the catalyst and is the main source of continued HIGH inflation.

For those that need a translation of Chair Powell’s message, it can be stated in three words. “Higher for Longer”. My message is the same and it’s a simple one. Anyone that wants to survive and thrive in this BEAR market needs to heed; Don’t fight the FED.

The fundamental picture remains cloudy at best. Whether the clouds turn into a full-blown economic tornado remains to be seen.

Global Stock Markets

The U.S. is not the only country that is struggling, and the country ETFs of each major global economy posted the same pattern in August. On average these stock markets had reached a 3.1% gain at their month-to-date highs, but they finished down an average of 3.5% for the month. Overall, developed markets have fared much worse than emerging market countries with average declines of 4.8% versus 1.2%, respectively.

Bespoke Investment Group;

There are only two ETFs—Brazil (EWZ) and India (INDA)—that were positive for the month. Meanwhile, China (MCHI) is unchanged. On the other end of the spectrum, Sweden (EWD) has been the worst performer nearing an 11% decline with several other European nations following up with the next worst performance. With stock markets around the world giving up the ghost in August, most have moved back below their 50-Day moving averages heading towards “oversold” territory. There are no country ETFs more than one standard deviation above their moving averages although EWZ and INDA have only moved out of overbought territory in the past week.”

This year’s declines have resulted in the average country ETF falling 24% below its 52-week high. Those declines bring the vast majority of these countries back below pre-COVID highs as well. At the moment, there are only four countries that remain above pre-COVID 52-week highs: Taiwan (EWT), India (INDA), the United States (SPY), and Canada (EWC). This exclusive group would need to fall substantially further to revert to those prior highs.”

The Week On Wall Street

After a disappointing failure to keep the rally off the June lows going, the BULLS were absent for most of this week, and the BEARS roamed Wall Street. The result was a four-day 5.5% losing streak that finally ended with a rally 15 minutes before the bell rang on Thursday. When the dust settled the S&P showed a 7.8% loss since being rejected at a key resistance level on August 16th.

Friday saw a quick rally snuffed out leaving the S&P down .78% on the day and off 3% for the week. The NASDAQ is now in a 6-day losing streak, (longest of the year) leaving the index with a 4% loss for the week.

All of the major indices are now on 3-week losing streaks.

The Economy

Employment

Nonfarm payrolls increased 315k in August. However, that followed a net -107k two-month revision for June and July. The unemployment rate increased to 3.7% versus June’s 3.5%. It is the highest since February’s 3.8% report. Average hourly earnings were up 0.3% from 0.5% previously. That left the 12-month clip steady at the 5.2% y/y for a third straight month. The labor force participation rate rose to 62.4% from 62.1%, matching March for the highest since the 62.7% in March 2020.

The JOLTS report showed job openings bounced by 199k to 11,239k in July following three consecutive months of declines. Openings have been above 11 Million since December. The openings rate edged back up to 6.9% after slipping to 6.8% and compares to the record peak of 7.3% in March. Hirings declined by 74k to 6,382k. This is the lowest level since last August.

Manufacturing

The August Chicago PMI uptick to 52.1 from a 2-year low of 52.1 in July left the index still above the 50-mark, where it’s been since July of 2020. The Chicago PMI uptick joins rebounds for the Dallas Fed and Philly Fed, but drops for the Empire State and Richmond Fed, to leave a 9-month producer sentiment pull-back from robust peaks in November of 2021.

The Dallas Fed manufacturing production index, a key measure of state manufacturing conditions, ticked down to 1.2, a reading suggestive of very little change in output.

Dallas Fed (www.dallasfed.org/)

Other measures of manufacturing activity signaled slower growth or declines this month. The new orders index was negative for the third month in a row—suggesting a continued decrease in demand—though it moved up from -9.2 to -4.4. The growth rate of the orders index also remained negative but moved down from -12.0 to -14.7. The capacity utilization index fell slightly to -0.6, and the shipments index was largely unchanged at 3.4.

This was the last of the five FED manufacturing surveys released and in general, there was more relatively good news on the inflation front. This month was the second month in a row that all five Prices Paid components of the regional Fed surveys declined on a month-over-month basis. All but one (Richmond) is at their lowest level since at least January 2021.

ISM Manufacturing remained at its 2-year low of 52.8 in August, as seen in July, leaving the measure above estimates but still well below the 37-year high of 63.7 in March of 2021 which was the highest reading since 1983. This week’s ISM joins declines for the Empire State and Richmond Fed, but gains for Chicago PMI, Dallas Fed, and Philly Fed, to leave a 9-month producer sentiment pull-back from robust peaks in November of 2021. Manufacturing PMI drops to the lowest level since July 2020 at 51.5 in August, down from 52.2 in July. The headline index reading is indicating subdued overall health conditions across the US manufacturing sector.

The construction spending report beat estimates but that wasn’t the story. Analysts saw a 0.4% July drop. Construction spending looks poised for a 2% contraction rate in Q3, after growth rates of 8.7% in Q2, 22.3% in Q1, and 6.6% in Q4 of 2021.

Consumer

The August consumer confidence bounce to 103.2 from a 17-month low of 95.3 defied expectations of a drop, with gains for both confidence components. Expectations rose to a 4-month high of 75.1 from a 9-year low of 65.6 in July, while the present situation index rose to a 2-month high of 145.4 from a 15-month low of 139.7 in July. Today’s consumer confidence bounce joins a Michigan sentiment rise to 58.2 from 51.5 in July and an all-time low of 50.0 in June, leaving that measure still well below the early pandemic bottom of 71.8 in April of 2020.

The IBD/TIPP index fell to the 11-year low of 38.1 previously seen in June, from a slightly higher 38.5 in July. The August updraft for some of the confidence indexes likely reflected the Q3 drop-back in gasoline prices as gauged by the big drop in the 1-year ahead inflation index to 7.0% from 7.4% in July and an all-time high of 7.9% in June. Despite the updraft, however, all of the confidence measures have deteriorated sharply from peaks around mid-2021.

The Global Scene

The downturn in global manufacturing continues as output, new orders, and international trade all contract. J.P.Morgan’s Global Manufacturing PMI fell to a 26-month low of 50.3 in August, down from 51.1 in July and only slightly above the 50.0 no-change mark.

Global Manufacturing (www.pmi.spglobal.com/Public/Release/PressReleases?language=en)

Manufacturing PMI

Canada – registered at 48.7 in August, down from 52.5 in July, thus indicating a deterioration in manufacturing performance.

The UK – at a 27-month low of 47.3

Eurozone – at 49.6 a 26-month low.

China – fell from 50.4 in July to 49.5 in August, to signal the first deterioration in operating conditions since May.

Japan – a dip from 52.1 In July to 51.5 in August indicating a softer improvement in the health of the sector.

Global manufacturing PMI tracked the US decline, with the lowest reading since the COVID shock; while still above the 2019 cycle lows, global manufacturing is still under sharp pressure and is retreating steadily.

S&P Global PMI (www.bespokepremium.com)

The big difference this time around is that unlike in 2019, when central banks were shifting into a dovish cycle, global monetary tightening is running at a truly dramatic pace.

Geopolitical Scene

As if the fundamental backdrop needed another issue to fret over, tensions were ramped up between China And Taiwan recently with the Taiwan army firing at Chinese drones. In the meantime, the administration is asking Congress to approve a 1.1 Billion Arms sale to Taiwan.

Russian and Chinese aggression is at the root of geopolitical tensions in the world today, and they have drawn the US into this scene. It would appear further escalation in anxiety over Chinese/Taiwan affairs will only add to the billions in expenditures that the US now finds itself entangled in.

This, however, is a different situation. China is NOT Russia, and how “convenient” is that the Chinese actions piggyback with their Russian allies? The US is already helping to finance one war and doesn’t need to be dragged into another conflict while the reckless spending continues on the home front.

That might be precisely what the Chinese/Russian alliance wants.

Mid-Term Elections

President Joe Biden currently has the worst pre-midterm approval rating since President Truman in 1950. Americans are experiencing “issue fatigue” with multiple “crises” on a wide range of issues that are weighing on households. Voter dissatisfaction with the direction of the country has reached its highest level in 40 years. Although Americans are generally dissatisfied with the President, betting markets still project a nearly two-thirds chance that Democrats will retain control of the Senate.

The only two previous Presidents that saw approval ratings lower than Biden’s heading into mid-terms (since the start of WWII), Roosevelt in 1942 (third term) and Truman (first term) in 1946, ended up in the mid-terms losing twelve and five senate seats, respectively.

Only five Presidents have seen their party’s position in the Senate improve or remain flat since the start of WWII in a mid-term election cycle. In these five cycles, the sitting President averaged an approval rating of 57.2%, which is 19.2 percentage points higher than that of Biden.

In those mid-term years when the President had an approval rating below 50%, the average loss of Senate seats for the President’s party was five, and the only one to pick up Senate seats was Trump (+2) in 2018. Given the backdrop, the possibility of Democrats keeping their majority in the Senate would seem unlikely, but with less than three months until Election Day, the betting markets say otherwise.

Will Democrats be able to overcome this historical tide?

Outcome Probabilities

Analysts now suggest lower odds (currently 50%) for a Republican Senate. That is a function of the unsettled outcome in Senate primaries and the somewhat favorable map for Democrats.

  • GOP Sweep (50%: ↓5 %) — Republicans control the House and the Senate.
  • Split Decision (30%: unchanged) — Republicans take the House and Democrats to maintain control of the Senate.
  • Status Quo (20%: ↑5%) — Democrats maintain control of the House and Senate.

By political standards, there is an eternity left between today and election day where anything can happen. I doubt the stock market will be swayed by any of the pre-election banter. It will come down to what occurs after the votes are counted.

In my view, a government scene that is ruled by gridlock (split government control) will be looked at favorably by the markets.

Food For Thought

Based on the CBO score, the recently passed Tax and Spend legislation would reduce deficits by $305 billion through 2031. That of course can be debated but assuming it is accurate, it was just offset by recent actions taken by President Biden.

Forgiving student loan debt will cost between $300 billion and $980 billion over 10 years, according to a new analysis published in Bloomberg. A Penn Wharton study suggests the cost could be as high as 1 trillion. Whether we take the low estimates or the higher forecasts, this is an inflationary spending bill. Perhaps there will be a Supreme court challenge that overturns this legislation because the President’s action to forgive debt is unconstitutional. If it can’t be repealed then the administration added another roadblock to the road to reducing inflation.

However, the roadblocks don’t end there;

Insanity is often defined as doing the same thing over and over and expecting a different result. The FED’s mission to slow inflation starts with curbing demand. Certain state legislators have now deemed it absolutely/positively necessary to hand out “inflation relief” checks (Calif. will send out 20 million checks in October) that will only increase demand.

It’s been my premise that the policies of the Federal government are the largest contributor to the inflationary spiral that has forced the FED to act much sooner than expected. The Fed would not be part of the investment scene today if it were NOT for HIGH inflation. Yet despite the HIGH inflation backdrop, the consistent spending programs keep repeating the same mistake, and we won’t see a different result. Inflation will stay embedded for a lot longer.

Finally, there are 11 million job openings in the US so there is NO shortage of opportunities for everyone to improve their situation without inflation-laden government assistance.

The Green New Deal

Power grids are already strained without any impact from the “green” movement, yet the “push” to transition to Electric continues. EVs have a long way to go before they become mainstream. An issue you WON’T hear this from the green movement.

California is having a problem with charging EVs as their power grids are under severe pressure. The state’s new climate plan will produce surging demand for electric power. That will require hundreds of billions of investment to build the required infrastructure, not to mention the need to build a reliable “source” to provide the power needs. California isn’t alone, there will be other states that will line up to spend what will amount to trillions. All of that will be paid for by the consumer and will add another element of uncertainty for the economy and the markets.

At some point, one might want to ask, what the return on that investment will be? How much will this endeavor reduce global temperatures?

Sentiment

The Bears are still committed to their case and their numbers are growing. The weekly sentiment survey from the American Association of Individual Investors (AAII) indicates bearish sentiment surged by 8 % rising from 42.4% to 50.4%. While readings above 50% have been more common this year, in the history of the survey since 1987, less than 4% of weekly readings have been higher than this week’s level of bearish sentiment.

The Daily chart of the S&P 500 (SPY)

A textbook rejection at resistance left the S&P and all major indices looking for support. The subsequent rebound rally also failed at a lower level leaving the S&P vulnerable to further weakness.

S&P 500 (www.FreeStocksCharts.com )

Whether this is the extent of the “retest” of the June lows or not is still a question mark. My daily updates cover this and all of the other indices in detail. Using Technical Analysis is a must when assembling an investment strategy.

Investment Backdrop

August is in the books and what appeared to be the second month in a row with gains, turned into the 5th month where the S&P fell this year. This is the 5th worst start to a year in US stock market history.

The S&P, NASDAQ, DJIA, and Dow Transports all lost in the neighborhood of 4-5% in August. The Russell 2000 small caps were the winner only dropping 1.7%. At the sector level, only Energy (2.9%) posted a gain. That was despite crude oil having its worst month of the year. Semiconductors were the big loser with a 9% loss in August.

Year-to-date results continue to show a sea of red.

Energy. Commodities and Utilities are NOT in BEAR markets and remain standouts in ’22. The Semiconductor sector has now lost 31% this year, and that helped drag the NASDAQ to a 24% YTD loss.

This week’s price action confirms that the last mini uptrend was indeed another failed BEAR market rally. Thirteen trading days ago the S&P was at 4305, and from that day when resistance proved to be insurmountable, the index has dropped 8.8%.

Sorry for the ‘broken record” commentary, but the only place to be is in the stocks and sectors that are in BULL market trends. Everything else is an attempt to play against the primary trend and that comes with elevated risk.

Thank you for reading this analysis. If you enjoyed this article so far, this next section provides a quick taste of what members of my marketplace service receive in DAILY updates. If you find these weekly articles useful, you may want to join a community of SAVVY Investors that have discovered “how the market works”.

The 2022 Playbook is now “Lean and Mean”

Opportunities are condensed in Energy, Commodities, Utilities, and Healthcare. Along with that I’ve defined Bearish to Bullish reversals. The message to clients and members of my service has not changed. Stay with what is working.

Each week I revisit the “canary message” which served as a warning for the economy. The focus was on the Financials, Transports, Semiconductors, and Small Caps. I used them as a “tell” for what direction the economy was headed to help forge a near-term strategy. Unfortunately, all of the canaries are very, very sick.

Small Caps

My indicators that track the Long Term chart of the Russell 2000 are now flashing DEFCON 3. The BEAR market trend is firmly in place and despite the modest loss in August, the ‘technical” situation looks a lot worse.

Sectors

Along with the sub-sector of Commodities (BCI), every sector except Energy (XLE), and Utilities (XLU) are in BEAR market trends, and little need to discuss involvement unless one has a LONG TERM time horizon.

Commodities

Rare “earths” are 17 elements on the periodic table, most of them found in what’s known as the f-block of the table. Not all of them are truly “rare” — cerium, for example, is more abundant in the earth’s crust than copper — but the sparse availability of economically viable ore deposits means that mining takes place in several locations. China’s historical dominance in this market is mainly sourced as a byproduct of large-scale iron ore mining operations in the provinces of Inner Mongolia and Sichuan.

Rare Earths (www.bbc.com)

In 2021, the global extracted supply of rare earth totaled 285,000 metric tons, with China accounting for 59% of that. Here is one area of the green revolution where the US is making inroads.

The U.S. stands out for being the fastest-growing supply source in recent years, leapfrogging Australia to become second-largest behind China. All of this comes from MP Materials’ (MP) Mountain Pass mine in California, the only large-scale rare earth mine that is currently operating in North America. On a smaller scale, India, Madagascar, and Thailand are also expanding. In case you are curious, Russia’s role is tiny (2,600 metric tons in 2021) and barely up from 2015.

Let’s go back and look back to the Mountain Pass mine. What’s counterintuitive about this site is that all of the output is shipped to China for processing. This means that the U.S. exports raw rare “earths” but imports processed rare “earths”. According to the U.S. Geological Survey, the U.S. imported $160 million of rare earth compounds and metals in 2021, of which 78% came from China.

The reason is fairly straightforward: the U.S. has only limited manufacturing capacity vis-a-vis the high-tech products that we described earlier. Electronics and various industrial goods are simply not produced in the U.S. on the scale that they are in China itself and/or its Asian neighbors.

I suspect at some point the light will go on and policymakers will come to understand that if the green agenda is to succeed, this is another area where the US has to play catch up or remain beholden to China. In the interim, a company like MP Materials which is the ONLY U.S.-listed pure-play is a solution. It possesses the only large-scale mining site in North America. The business model is currently mining-centric, but vertical integration is underway via a $700 million project in Texas. This facility — supported by a U.S. Department of Defense contract worth $35 million — will produce alloys and magnets, and it is expected to come online in late 2023. The company has a long-term agreement with General Motors to supply components for EV powertrains.

Commodities as measured by the Bloomberg Commodity Index ETF (BCI) are another area of the market that is in BULL mode. A brief pullback to support this week and if that level holds, the ETF has the potential to trace out a move back to the $31- $32 range and perhaps a new high.

Energy

I am very pleased with my year so far and having Energy as my favorite area of the market has helped with that. When I review the sectors, it is hard to find a better short-term chart now. Not many can show prices above all three short-term trend lines. The volatility remains as the group rallied quickly, got overextended, and pulled back this week. Given the energy policies in place today, Energy has a big tailwind, and that catalyst doesn’t appear to be going away anytime soon. With Inflation now back in the minds of investors and the thought that it will be around for a lot longer than most want to believe, that adds credence to the notion that oil prices will remain elevated. I also do not see any change in energy policy as the green new deal agenda forbids embracing the production of fossil fuels here in the US.

Scaling into the high-paying Dividend oil names has worked all year. I don’t believe it’s time to abandon that strategy.

Natural Gas

Nat Gas ETF (UNG) is not for the faint of heart but despite the volatility, this energy play is a winning situation that recently set another new high. This is a strong BULL trend that has fundamental tailwinds at its back. The ETF is an “add” on a drop to any of the support trend lines.

It is a “fantasy” to think that Europe’s energy crisis is going to be resolved quickly. It’s doubtful this will be the last winter where the EU is facing an energy crisis. Commentary from a recent energy conference in Norway;

“We should confront the reality” that Europe may suffer “a number of winters where we have to somehow find solutions through efficiency savings, through rationing, and through a very quick buildout of alternatives” such as gas imports and alternative energy sources.

That opens the door for US Liquified Natural Gas demand to remain at elevated levels. Enter Cheniere Energy (LNG) the leading producer of LNG in the US. The stock has been part of the Savvy portfolio since June. Here is a name that should be on everyone’s watch list. It is a strong buy on any move back to support.

Healthcare

The Healthcare ETF (XLV) has been struggling lately and is back at the lower end of its 2022 trading range. The ETF is barely hanging on to its Long Term BULL trend, and this sector may also succumb to the selling pressure and drop into a BEAR market of its own.

Sub-Sector Biotech

After a 46% rally off the June lows, the Bearish to Bullish reversal in the Biotech ETF (XBI) pulled back ~12%. New support areas were tested, and despite the poor price action in the overall market, the ETF remains in its mini-uptrend.

Technology

Analyzing the Long term charts of the NASDAQ Composite, the NASDAQ 100, and the Semiconductor ETF (SOXX), the “Technology” sector has been given a DEFCON 3/HIGH Alert status.

Sub-Sector Semiconductors

Last week I mentioned that I was short the Philadelphia Semiconductor Index using an “Inverse” ETF. The sector has been extremely weak and suffered 5 straight days of losses greater than 1% each day. A streak in which it has dropped more than 11%. The Inverse short position was stopped out on Friday morning yielding a 20+% gain since August 22nd. The current losing streak for the SOX ranks as the longest run of 1%+ daily declines since January 2016 and just the 12th such streak in the index’s history.

While Friday morning’s quick rally triggered the sale of my Inverse ETF position, I do not believe the pain in this sector is over. There could be another opportunity presented to short this sector on the next rally attempt.

ARK Innovation ETF (ARKK)

Last week I mentioned the Bearish to Bullish reversal trend in the ARK Innovation ETF could be in jeopardy. The week’s price action leaves the ETF in a precarious situation. The ARKK is now below all short-term trend lines but is still above the July lows.

Cryptocurrency

Cryptocurrencies have pivoted lower alongside equities in the wake of Fed Chair Powell’s short speech. That resulted in Bitcoin moving into oversold territory and out of the past several days’ range. However, BTC trading below its 50-Day MA is not a positive sign for future performance. Unlike other assets which historically see stronger returns when they become oversold, the opposite is true for cryptos.

Similar to equities, September has historically been one of the worst months for cryptos. In the case of Bitcoin, it has not risen even a single time in September in each of the past five years averaging an 8.5% decline during the month.

Bitcoin (www.bespokepremium.com)

For anyone that wants to play the weak trend in Bitcoin, I suggest using the ProShares Short Bitcoin ETF (BITI).

Final Thoughts

Investors who have decided to “Fight the Fed” or “Don’t believe” the Fed’s message, are going to be destroyed. Market participants that wish to follow the rhetoric that suggests “all is well” and the US economy is on the right track are also going to get destroyed. Of course, that assumes they haven’t already been decimated.

These weekly missives are constantly accused of being too “political”. So be it. I report the data and if the data points out the “issues” that are affecting the Us economy and equity market I will continue to report them. Those that believe I’m selling an agenda need to look in the mirror and follow THEIR view before objecting to my perspective of the situation. If you are content with the economy and believe we are not in a recession or won’t be in a recession in ’23, position yourself that way. If you believe in the energy policy that is in place is correct for the economy, that it’s perfectly fine to increase taxes in a slowing economy, and continue massive spending in an inflationary backdrop then by all means set your strategy to take advantage of that. If you trust that an anti-business backdrop will enhance economic growth then by all means add to your positions.

A Dose Of Reality

All I am doing is speaking to what is occurring today on the investment scene, and positioned in a way to take advantage of this current backdrop. I’m on the other side of those that wish to bury their heads in the sand and dismiss the issues because of THEIR political bias. Those that have heeded the New Era Investment strategy that was outlined here in February have flourished in this BEAR market. I will add that strategy not only looks at the fundamental issues that are troubling this investment scene, but also the VERY important technical scene. The fundamental signals due to the policies enacted in mid-2021 are now confirmed by the technical view.

The difference between the two camps is; One is dealing with reality, and one is dismissing the preponderance of evidence in front of them. For those that want to believe I promote a biased agenda, I’m not here to win a popularity contest, I’m here to make money, and that is exactly what I’ve accomplished in this BEAR market. This success was accomplished by recognizing the issues. Unnecessary spending increases inflation. A new energy policy created an energy crisis, that increased costs and will keep inflation cemented in place. Raising taxes in a slowing economy will hamper future growth. Anti-Business policies will also impede growth. (Negative GDP in the first half).

When the anti-growth policies change, I will change my strategy. Finally, it is NOT important WHO does that, BUT it must happen for the markets to return to a positive BULL mode.

Postscript

Please allow me to take a moment and remind all of the readers of an important issue. I provide investment advice to clients and members of my marketplace service. Each week I strive to provide an investment backdrop that helps investors make their own decisions. In these types of forums, readers bring a host of situations and variables to the table when visiting these articles. Therefore it is impossible to pinpoint what may be right for each situation.

In different circumstances, I can determine each client’s situation/requirements and discuss issues with them when needed. That is impossible with readers of these articles. Therefore I will attempt to help form an opinion without crossing the line into specific advice. Please keep that in mind when forming your investment strategy.

Thanks to all of the readers that contribute to this forum to make these articles a better experience for everyone.

Best of Luck to Everyone!

Enjoy the Labor Day weekend!

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