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Recession

Soft Landing?A lot of market participants are falling for the Fed's illusion that a soft landing has been achieved. However, the charts are still warning that a recession is coming. The chart below shows the extreme degree of inversion between the 10-year Treasury bond and the 3-month Treasury bill. The current inversion is the worst in over 40 years. A yield curve inversion reduces bank lending for various reasons, one of which is the removal of the incentive for banks to borrow at lower short-term rates and lend at higher long-term rates. Since bank credit is how most money comes into creation, a yield curve inversion is, therefore, a sign that monetary conditions are deteriorating. Indeed, manipulating the interest rate is how the central bank controls the money supply and induces a recession. The impact of rate hikes always occurs on a lagging basis. The lag can last anywhere from several quarters to several years. As the infographic below shows, an economic recession will likely begin in the U.S. between Q4 2023 and Q4 2024. The warning signs of the coming liquidity crisis are everywhere. In a prior post (shown below), @SquishTrade and I pointed out that a major disparity between the volatility of bond prices and the volatility of equity prices is occurring. This extreme disparity could be a warning that much greater volatility for equity markets has yet to come. Even for stocks that have experienced a strong rally in 2023, the basis of their surge is largely unsupported by dollar liquidity levels. In the chart below, the price of NASDAQ:NVDA is compared against the dollar liquidity index. This is further confirmed by the below chart, which shows how extreme the price of NASDAQ:NVDA as a ratio to the price of a risk-free 10-year Treasury bond has become. Never before have investors been willing to pay so high of a risk premium to hold Nvidia's stock. While anything is possible, the charts suggest that there isn't enough money in the economy to support the payment of debt at current yields. The below chart shows the price of long-term government Treasurys (adjusted for interest payments) as a ratio to the M2 money supply. There is simply not enough money in the M2 money stock for market participants to be able to pay all newly issued debt at the current high rates. When the liquidity issues begin to mount, the Fed will quickly pivot back to new money creation, as it did in March 2023 when it abruptly created the Bank Term Funding Program (BTFP), which is the latest of the many tools that the Fed uses to create new money. However, when the economy begins to slow, this time around central banks will get trapped because of commodity price inflation. Although commodity prices are generally disinflating at the present time, this slow disinflation is merely forming a bull flag on the higher timeframes. With unemployment also bull flagging on the higher timeframes, when commodity prices and unemployment concurrently break out, the result will definitionally be stagflation. Important Disclaimer Nothing in this post should be considered financial advice. Trading and investing always involve risks and one should carefully review all such risks before making a trade or investment decision. Do not buy or sell any security based on anything in this post. Please consult with a financial advisor before making any financial decisions. This post is for educational purposes only.
FRED:T10Y3M
by SpyMasterTrades
89
The Great StagflationIn this post, I will present a compendium of higher timeframe charts to show why it's likely that the U.S. economy, and likely much of the global economy as well, is heading into a period of stagflation. I have termed this coming period "The Great Stagflation" because I believe this is how the mid-2020s will be characterized in retrospect. The term stagflation refers to a period when economic growth slows or declines, unemployment increases and inflation remains elevated. To listen to my full thoughts on stagflation, and my thoughts on why I believe we're already in a recession, you can watch my video below. Chart 1 - S&P 500 Yearly Chart (SPX) This chart shows a downward oscillation of the Stochastic RSI on the yearly chart of the S&P 500 index (SPX). This degree of strong downward momentum on the yearly chart of SPX is rare and has only occurred just three times in the past 100 years: the Great Depression, the 1970s Stagflation, and the Dotcom Bust. In each case, the stock market stagnated for a period of at least a decade. Chart 1a This chart shows the several important Fibonacci levels on the highest timeframe on the S&P 500 (SPX). What this chart shows is that the market bottom in 2022 was right at the 3rd Fibonacci extension, when using the peak before the Great Depression and the lowest ever price for SPX as our reference point. It's possible that if the stock market falls below the market bottom from 2022 decisively, the next major Fibonacci support on the highest timeframe will be all the way down at the Dotcom peak (or pre-Great Recession peak), which is the 2.618 Fibonacci extension. This price level is highlighted in red. Chart 2 - Producer Price Index (PPIACO) This chart shows the Producer Price Index by Commodity: All Commodities (PPIACO). The Producer Price Index is a measure of the average change in the selling prices received by domestic producers for their output. It is calculated by the Bureau of Labor Statistics (BLS) and is reported on a monthly basis. It covers a wide range of commodities, including those used as inputs for goods, services, and construction, and is grouped into various stages of production, such as raw materials, intermediate goods, and finished goods. The Producer Price Index can be used as a leading indicator of Consumer Price Index (CPI). As we see in this yearly chart, the Stochastic RSI is showing strong upward momentum that is rising up from oversold conditions. This type of upward oscillation can add inflationary pressure for years to come, and can set the stage for stagflation. Chart 3 - Stock Market Deflation vs. Commodity Price Inflation This chart shows the S&P 500 index (SPX) compared against the Producer Price Index by Commodity: All Commodities (PPIACO). During periods of stagflation, the SPX/PPIACO ratio oscillates downward as commodity price inflation causes the Federal Reserve to tighten the money supply to curtail inflation. As a result, the stock market declines as commodity prices inflate. Thus, the yearly chart of the SPX/PPIACO ratio could be sending a warning that what we are dealing with is a period of prolonged stock market stagnation. Chart 4 - Stock Market to the Moon These quarterly (3-month) charts show the entire price history of the U.S. stock market (SPX) dating back to 1871. I applied a log-linear regression channel to give a rough approximation of the extent to which the stock market has deviated from its mean, or average price, over the years. In the fourth quarter of 2021 (Q4 2021), the stock market closed exactly at the +2 standard deviation from its mean price, the highest ever recorded on a quarterly closing basis. The chart on the right side shows a zoomed-in view, which shows how perfectly SPX reached the +2 standard deviation before declining. The mean or average price, which is visualized in the chart as the red line, is so far down, that it does not even appear on the zoomed-in chart. To put the meteoric rise of the stock market during the period of limitless monetary easing into perspective: It has been so extreme that it has actually rendered the extreme bubble of the Roaring '20s, before the Great Depression, as merely being an average stock market valuation. Chart 5 - Supercycle Bearish Divergence This chart ominously shows a major bearish divergence on the yearly chart of the S&P 500 index (SPX). Bearish divergence is when price creates a higher high while the RSI creates a lower high. Bearish divergence can warn of a coming reversal, as it reflects the notion that the bull run is becoming exhausted. Looking back 150 years, such an extreme bearish divergence has actually never occurred before on the yearly chart. This multi-decade bearish divergence could be indicating the start of a new Supercycle, or potentially even the start of a new Grand Supercycle -- one in which the stock market underperforms for years to come, as interest rates, or the cost of money, trends higher. Only time will tell how this will unfold, but this chart provides further evidence that we're likely entering a period that will be characterized by prolonged stock market stagnation. Chart 5a Volume has been declining during the formation of this bearish divergence. Chart 6 - Stock Market Growth vs. GDP Growth This quarterly chart shows Gross Domestic Product (GDP) on the left and the stock market (SPX) on the right. Applied to both charts is a log-linear regression channel. Notice how GDP is barely hanging on to the -2 standard deviation at a time when the stock market has blasted up to the +2 standard deviation. This extreme divergence has been made possible solely by the Federal Reserve's monetary easing experiment. The Federal Reserve has compensated for declining GDP growth by lowering interest rates even faster than GDP growth declines. By doing this, the Federal Reserve has made the cost of money so low that risk assets were able to rally, even as actual increases in productivity did not occur. The extreme divergence of extreme stock market outperformance coupled with extreme GDP growth underperformance is unsustainable, particularly in the face of commodity inflation. The Great Stagflation will likely see stock market returns stagnate, which in turn will more accurately reflect stagnating economic growth. The cycle of boom and bust is largely an inevitable eventuality. Chart 7 - Price of Stocks vs. Price of Bonds In a prior post, I discussed the meaning of this chart. Simply put, this ratio chart compares the price of the S&P 500 Index to the price of a risk-free Treasury bond (defined here as the 10-year U.S. Treasury bond). I applied a log-linear regression channel to illustrate the fact that despite all the tightening that the Federal Reserve has already undertaken, we are only just now at the historical mean for this ratio chart. What I am about to say next is quite dense, but see if you can understand my logic: Since the numerator of this ratio chart (SPX) currently has strong downward Stochastic RSI momentum on its yearly chart (which is depicted in Chart 1 above), and since this ratio chart has strong upward momentum on its yearly chart, then this suggests that the denominator (the price of a 10-year U.S. Treasury bond, written here as the inverse of its yield {1/US10Y}) is likely to head down faster than numerator (SPX) does, thereby allowing the ratio to move up and reach the +2 standard deviation of the regression channel. Since the price of bonds moves inversely to the yield, this ratio chart is ominously warning that the yields on 10-year Treasury bonds may move much higher in the years to come. If Treasury yields are moving higher this is likely because inflation continues to be persistent. Such a tight monetary environment, coupled with persistent inflation, is likely to result in stagflation. To read more on the meaning of this chart, you can view my post below. Chart 7a This chart is similar to the previous, except that real rates are used. With real rates rising so drastically (and therefore bringing down bond prices) as a ratio to the S&P 500, it creates the appearance that the stock market is becoming more and more overvalued, even as it nonetheless sells off! This reflects a massive dislocation in capital. Over time, capital will flow out of the stock market and into less-risky and higher-yielding Treasury bonds, particularly since commodity inflation is unlikely to abate and thus Treasury yields will remain elevated. Chart 8 - The Real Cost of Apple (AAPL) This chart shows the price of Apple's stock (AAPL) compared against the price of a 10-year U.S. Treasury bond. Over the past year, Apple's great balance sheet and high cash flow, has made it seem like a safe haven relative to more speculative risk assets and companies with negative cash flow. Yet, when compared against the actual safe-haven asset (the 10-year U.S. Treasury bond), the premium in Apple's price could not be higher. The price of AAPL for the current yield on a 10-year U.S. Treasury reflects a capital dislocation (the biggest ever). In other words, too much capital is in Apple's stock for the yield on a 10-year U.S. Treasury to be as high as it currently is. An efficient market would cause capital to flow out of Apple's stock and into less-risky and higher-yielding U.S. Treasury bonds over time, especially since persistent inflation is likely to keep Treasury yields higher for longer. Since Apple is a component of many exchange-traded funds (ETFs) and mutual funds, the decline in its value may cause the entire stock market to decline. As unemployment rises, the stream of passive contributions to mutual funds and ETFs will slow and reverse as drawdowns and hardship withdrawals increase. Higher unemployment will also lead to less consumer spending on Apple's products and services causing an earnings recession. Finally, rising geopolitical tensions between the U.S. and China may severely disrupt supply chains. Apple stands to gain little, but lose a lot in the years to come. Chart 9 - High-Yield Corporate Bonds vs. Money Supply The symbol in chart is a bit dense to understand, but upon deciphering it, one can understand that it warns of a coming liquidity crisis for companies with lower credit ratings. First, BAMLH0A0HYM2EY is the symbol for the all-in effective rate of high-yield corporate bonds. This represents the cost of borrowing for companies with lower credit ratings. Second, the denominator is the M2 money supply in the U.S. Finally, the chart is adjusted by an arbitrary multiplier to remove visual distortion. The effective yield that companies (which the market considers to be risky) must pay on their bonds has increased rapidly relative to the supply of money, the latter of which has actually been decreasing at a record pace. This is a liquidity crisis in the making for companies that have low credit ratings and which need constant infusions of new debt to maintain financial viability. If the amount of money needed to finance new debt is increasing at a record pace as the supply of money decreases at a record pace, then the amount of money in the economy available for these companies to earn, so as to be able to finance their debt, will quickly become insufficient as a matter of mathematical certainty. Thus, a liquidity crisis is largely inevitable, particularly since the central bank may not be able to intervene to the extent that would be needed to avert such a crisis without worsening commodity inflation. As we can see in the monthly chart, the EMA ribbon which acted as resistance, has been broken. Even as the Stochastic RSI oscillates down, price is remaining above the EMA ribbon for the first time since the Great Recession. Chart 10 - Persistent Inflation This chart shows just how persistent inflation has been. This ratio chart compares iShares TIPS Bond ETF which tracks an index composed of inflation-protected U.S. Treasury bonds (TIP) to iShares 7-10 Year Treasury Bond ETF (IEF). For the first time ever, the Stochastic RSI (which is shown on the bottom) has oscillated fully down to oversold levels on the monthly chart while price remains above the EMA ribbon. This suggests a major trend change may have occurred in that the EMA ribbon, which has generally held as resistance, may have flipped to support. This leads us to conclude that inflation may be persistently elevated for longer than anticipated. So long as inflation remains high, central banks must keep interest rates, or the cost of money, high as well. Compare the current situation to the Great Recession when inflation quickly turned into deflation, which allowed the central banks to pivot to monetary easing. One might question whether this monthly chart is showing a... bullflag? Chart 11 - Commodity Inflation Supercycle Similar to the previous chart, this chart shows Invesco DB Commodity Index Tracking Fund (DBC). DBC is composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world. Each candlestick in this chart represents a 2-month period. What this chart shows is just how persistent commodity inflation has been. Despite nearly an entire year of monetary tightening at a record pace, commodity futures are only very slowly disinflating. Compare this to the Great Recession, when commodity prices rapidly deflated. This time around it is likely that commodity prices will remain elevated even as economic growth slows. This is occurring because commodity prices have entered into a new supercycle, and this new supercycle of higher commodity prices will likely result in The Great Stagflation. Chart 11a It appears that if anything, DBC is presenting a bull flag pattern on this higher timeframe chart. This could stymie the Federal Reserve's ability to pivot to easier monetary conditions should unemployment begin to rise rapidly or should corporate liquidity issues mount. Chart 12 - Cost of Energy This chart shows the price of American multinational oil and gas corporation, ExxonMobil (XOM). Price has been ripping higher after bouncing on the -2 standard deviation regression channel line during the pandemic shutdown. Now, the yearly Stochastic RSI is showing strong upward momentum. This suggests that the costs of energy, including fossil fuel energy, will trend upward for years to come, even as economic growth slows. Similar patterns as this are appearing across virtually all charts in the energy sector, including in sustainable energy (hydrogen, uranium, etc.). Since energy is considered a commodity, these charts patterns buttress the assertion that commodity prices may continue to inflate in the years to come. In my post below, I note how the hydrogen energy company Plug Power (PLUG) looks to be in a log-scale bull flag pattern. (Not a buy or sell recommendation) Chart 13 - Coffee This chart shows that coffee futures bounced after undergoing a Fibonacci retracement to the 0.618 level. Now, long lower wicks are forming on bullish reversal candles, indicating that prices are likely to attempt a rally on the monthly timeframe. This is yet another warning that commodity inflation may remain persistent. Chart 14 - Eggs This chart, with a seemingly cryptic symbol, shows the price of eggs (specifically, the price of one dozen of large, Grade A eggs) compared against the U.S. money supply (M2). The chart is actually quite ominous, and I'll explain why. The price of eggs is soaring at a record pace even as the supply of money is shrinking at a record pace. For the first time on record, the price of eggs relative to the supply of money has reached a level above the 6-month EMA ribbon, which has historically always acted as resistance. From a conceptual perspective, what this chart actually means is that more of consumers' wealth must go into meeting their basic food needs. Thus, consumers will have less wealth to spend on other goods and services. Since eggs are inferior goods, meaning that one's demand for eggs increases as one's income goes down, the soaring price of eggs may actually be confounded by increasing demand (alongside supply constraints). If demand of these inferior goods increases as unemployment goes up, and eggs remain scarce, the price can soar even higher as the below chart suggests. This chart shows the yearly Stochastic RSI is only now just beginning to oscillate up. This means that the upward pressure on the price of eggs may last for years to come. Of course, eggs are commodities. When commodity prices inflate even as the central bank tightens the money supply, this may result in stagflation. Commodity inflation is a central bank's worst nightmare because it makes it difficult to pivot to easier monetary conditions to stimulate a slowing economy. If a central bank pivots to easier monetary conditions before commodity inflation is mitigated, then commodity prices will not just continue to rise, but they may hyperinflate. Thus, this inflationary spiral in the price of eggs is sending an ominous warning about the coming Great Stagflation. Chart 15 - Money Supply This chart shows that for the first time, when looking back to 1960, the U.S. money supply (M2) actually declined year-over-year. The amount of dollars removed from the money supply in 2022, could carpet the country of Luxembourg and spill into Belgium, Germany and France, or if each dollar were lined up lengthwise, would span the distance from earth to the moon more than 100 times over. Fortunately though, enough dollars still exist within the M2 money supply, that if each dollar was lined up lengthwise, it would reach from earth to past Uranus, the second most distant planet in our solar system. Chart 16 - The Fed's Balance Sheet The chart on the left of the two charts shown above, shows what appears to be the Federal Reserve rapidly rolling off assets off its balance sheet in 2022, and into 2023. However, when put into perspective, as illustrated by the chart on the right, the past year of balance sheet rolloffs barely scratches the surface of the total amount of assets that the Federal Reserve added to its balance sheet over the decades of monetary easing. In the years to come, the global financial system will have to grapple with the consequences of the monetary easing experiment ending. Chart 17 - Dollar Index (DXY) This chart shows what appears to be the U.S. dollar index (DXY) breaking out of a bull flag on this yearly chart. In doing so, it is also breaking out above the resistance of its EMA ribbon, as shown in the chart on the right. On a conceptual level, by tightening the money supply more than the central banks of other countries, the Federal Reserve is effectively exporting inflation to those countries, and averting domestic commodity shortages. Yet, as with everything, there are disadvantages to doing this. Tightening the U.S. money supply too much can cause global liquidity issues since the U.S. dollar is the world's reserve currency and most global debt is denominated in it. Already the Bank for International Settlements (BIS) has warned of dollar liquidity issues in the FX swaps and forwards market. If commodity inflation resurges, and forces the U.S. Federal Reserve to hike more than anticipated, this could cause a global liquidity crisis. Destabilizing the fragile and highly leveraged dollar-denominated global debt and derivatives market could ultimately accelerate the move away from the dollar standard. This Catch-22 is likely to result in a Great Stagflation. Chart 18 - Soaring Risk-Free Rate This chart shows a clear trend break in the yields of 10-year U.S. Treasury bonds. The era of lower and lower interest rates over time is over. In theory, when the interest rate on a bond rises, this occurs because the market perceives greater risks associated with holding that bond. Therefore, the rapid rise in the risk-free rate (10-year U.S. Treasury yield), means that suddenly this risk-free asset is more... risky. Since holding any other asset, except physical cash and physical gold, is considered some degree more risky than holding U.S. Treasury bonds, then all other assets become more risky as well. One would expect this to happen as the monetary easing experiment comes to an end, and the everything bubble deflates. Chart 19 - Extreme Yield Curve Inversion This chart shows the yield curve inversion between the 10-year U.S. Treasury bond and the 3-month U.S. Treasury bill. Just days ago, the inversion slipped to the steepest inversion since the early 1980s. This is often considered a reliable recession indicator because these yields have never inverted without a recession ensuing. Effectively, these yields only invert because the central bank is tightening the money supply. When yields are inverted, bank lending declines because banks can no longer profitably borrow at short term rates to lend at long term rates. Since bank credit creates the most amount of money in a capitalist economy, a yield curve inversion is a warning of impending decline in the money supply, and therefore an impending decline in corporate earnings and consumer spending. Corporations can only earn, and consumers can only spend, some subset of the total money supply. Right now, that warning is blaring the loudest it has in over 40 years. In fact, we've never had such a steep inversion while the global economy is as leveraged as it is. Only time will tell how this will play out, but it's unlikely to end well. Chart 20 - Volatility (VIX) This chart shows the Volatility S&P 500 Index (VIX) in a years-long symmetrical triangle pattern. This triangle pattern will likely end at some point this year, or early next year. Since the yield curve is inverted, this pattern will quite likely end with a breakout. Indeed, the yearly Stochastic RSI momentum for the VIX is upward, as shown in the chart below. Chart 20a As noted above, this chart shows that the yearly Stochastic RSI for the VIX is on a bull run. Chart 21 - Job Openings This chart shows that job openings reached the +2 standard deviation from their mean in early 2022. This was likely not just a business cycle high, but more likely, this was a supercycle high. The U.S. economy is unlikely to achieve such a high amount of job openings again for the foreseeable future. Since GDP growth barely substantiated such a high amount of job openings, one may conclude that this occurred due to excessive economic stimulation that denotes the monetary easing experiment. Chart 22 - Dow Jones Industrial Average Index (DJI) This chart shows that even with the declines in 2022, the Dow Jones Industrial Average Index (DJI) remains at an extremely overbought level. The only other times the DJI has been as overbought as it is now was before the Great Depression and before the Dotcom Bust. Chart 23 - International Stock Markets This yearly chart compares the performance of S&P 500 (SPX) to that of the Deutsche Boerse AG German Stock Index DAX (DEU40). As you can see, it looks like the SPX is set to underperform the DEU40, possibly for years to come. Technically, the DEU40 can outperform the SPX by falling by less than it. Thus, this chart does not speak to absolute performance. Chart 23a This yearly chart compares the performance of S&P 500 (SPX) to that of the NIFTY 50 (NIFTY). The NIFTY is a benchmark Indian stock market index that represents the weighted average of 50 of the largest Indian companies listed on India's National Stock Exchange (NSE). It looks like the NIFTY has formed a years-long bull pennant relative to the S&P 500, and that the former could be ready to outperform its U.S. counterpart for years to come. It seems that in a defragmenting world with rising tensions between global super powers, a largely neutral India could be poised to outperform. So far, India has become a beneficiary of sanctions on Russia in that it has been able to purchase energy at discounted prices from the latter. Discounted energy prices, in a world that is otherwise struggling with commodity inflation, is a unique advantage that may explain why the NIFTY is set to outperform. Cheap energy enables strong economic growth. Chart 24 - Emergence of Bitcoin Let's go on a journey through time to measure just how disruptive the emergence of Bitcoin has become to traditional financial markets. This chart shows that, in just over a decade's time, Bitcoin has generated more wealth for an investor than the S&P 500 has generated in the past 150 years. Of course, such performance is not sustainable, and the returns of Bitcoin will become less and less impulsive with each successive halving cycle, which is mathematically consistent with a log growth curve function. Chart 24a This chart shows that the central bank can use interest rates to deflate the price of risk assets. As Treasury yields rise, risk assets typically decline. This shows that individuals' wealth is controlled by central governments. Chart 25 - Stock Market Decay This chart shows the performance of the U.S. stock market (SPX) compared against the performance of Bitcoin over the past ~15 years. There has never, in the history of the stock market, been an asset class that actually turns the exponential growth of the S&P 500 into a decay function like this. Bitcoin has become too disruptive to traditional financial markets, and is undermining central banks' ability to control individuals' wealth. Thus, central banks are preparing to deal with this problem. The solution will likely be in the form of CBDC which will restrict one's ability to convert fiat currency into decentralized cryptocurrency such as Bitcoin. Yet, CBDC can also result in unprecedented control by central governments of the way in which humans transact. In the coming months, I plan to write a research-based post on Bitcoin, cryptocurrency, and the ways in which blockchain technology and non-fungible tokens (NFTs) will revolutionize the way humans transact, authenticate ownership, and verify originality in a digital space. But for this technology, in a digital world denominated by AI, it will become impossible for humans to distinguish between what is real and what is not. Important Disclaimer Nothing in this post should be considered financial advice. Trading and investing always involve risks and one should carefully review all such risks before making a trade or investment decision. Do not buy or sell any security based on anything in this post. Please consult with a financial advisor before making any financial decisions. This post is for educational purposes only.
SP:SPX
by SpyMasterTrades
73
Seeking Shelter from Recession in the Utilities SectorBoring is better in a recession. Fed Chair reaffirmed his steely resolve to fight inflation. In short, he wants to break the back of inflation "at any cost" to subdue it down to Fed’s target of 2%. Soft-landing is desired. But overcorrection to fend off sticky inflation could tip soft-landing into a hard one. In a recession, economic activities shrink resulting in declining outputs and softening demand across consumers and businesses. Recession leads to rising unemployment and reduced consumer confidence. History has ample evidence demonstrating that defensive sectors typically outperform the broad market index by more than 10% on average. This paper posits a long position in Utilities Select Sector SPDR ETF ("XLU") to harvest potential outperformance gains plus a dividend yield of 3.3% and combined with a short position in CME Micro S&P 500 Index Futures. INFLATION REMAINS HOT; FED RESOLVED TO FIGHT IT CAN LEAD TO RECESSION Last week, Federal Reserve Chair Jerome Powell reaffirmed his determination to tame inflation down to its target 2%. He reasserted his singular focus on restoring price stability in the US. If that requires higher interest rates for longer to get back to 2% target, then so be it. That was the key takeaway from Jackson Hole Central Bankers Symposium in Wyoming. US inflation is much cooler than a year before. History has taught policymakers an expensive lesson to avoid declaring victory too soon. Softening inflation combined with record low unemployment, strong business climate and resilient consumer balance sheets point to a potential soft-landing. However, over correction could tip into a hard landing. WHAT HAPPENS IN A RECESION? During a recession, non-cyclical sectors, like Consumer Staples, Utilities, and Health Care, have historically performed well. The fortunes of these sectors hinge on non-discretionary spending and hence less sensitive to economic fluctuations. These defensive sectors have outperformed the broad market by more than 10% on average during six of seven past recessions. Tech & Real Estate rank among the worst-performers. Dependant on discretionary expenditure, these sectors are the first to face the heat when businesses and consumers cut spending as incomes shrink. UNPACKING THE S&P SELECT SECTOR UTILITIES INDEX The Utilities Select Sector Index ("Utilities Index") is market-cap-weighted and tracks the performance of the largest thirty utility firms in the S&P 500. It aims to deliver exposure to firms from the electric & water utility, independent & renewable power producers, and gas utility industries. The Utilities Sector includes firms that provide essential services such as electricity, natural gas, and water. These firms marshal stable cash flows and low debt levels. Consequently, the sector is described as a defensive play which performs well during economic downturns. The Utilities Index was launched on 16th December 1998. Over the last decade, the index has delivered an average annual return of 5.5%. It exhibits lower risk with a volatility of 12.5%. It is popular among long term investors looking for a defensive investment vehicle. As of August 2023, the Utilities Index reveals an aggregate price-to-cash flow ratio of 10.1x, price-to-earnings of 19x, and one-year forward price-to-earnings ratio of 17x. Largest firm in the index weighs in with a market cap of USD 136.6 billion. The smallest firm has a market cap of USD 8.5 billion. Weighted average market cap of the index stands at USD 51.15 billion. Top ten constituents forming 59% of the Utilities Index as of 22nd August 2023 are: • NextEra Energy (14.85%) • Southern Company (8.03%) • Duke Energy (7.5%) • Sempra (4.88%) • American Electric Power (4.40%) • Dominion Energy (4.34%) • Exelon Corporation (4.32%) • Constellation Energy Corporation (3.75%) • Xcel Energy Inc. (3.47%) • Consolidated Edison Inc. (3.37%) Twelve-month price targets for the top-10 in the Utilities Index looks compellingly strong except for Constellation Energy and Consolidated Edison. Mean 12-month price targets are on average 14% above the closing price as of August 25th. Investors securing a long position in the index can expect to generate positive returns from capital gains in addition to a healthy dividend yield. RESILIENCE OF UTILITIES SECTOR IN A RECESSION Experts who have been calling recession have been stumped and humbled with the resilience demonstrated by corporations and consumers. A recession may be round the corner. Or we are living through a rolling recession and rolling recovery which impact one sector at a time. The chart below produced by State Street Research powerfully captures various sector performance across business cycles. If a recession is round the corner, then holding a long position in Utilities is an astute investor choice. COMPREHENDING UTILITIES SELECT SECTOR SPDR ETF ("XLU") XLU is a convenient low-cost option for investors to secure exposure to the U.S. utilities sector. It was launched in Dec 1998 and has a low expense ratio of 0.1% of AUM. XLU's AUM stands at USD 14.39 billion. Over the last six months, XLU has had a net inflow of USD 150.2 million. XLU has a 20-day volatility of 12% and a beta of 0.52x. It pays out an annual dividend of USD 2.10 amounting to an annual dividend yield of 3.31%. TRADE SET UP A sector's outperformance does not necessarily mean that it will appreciate during a recession. Since, equity prices generally decline during recessions, outperformance can also mean that the decline in defensive and non-cyclical sectors will be less severe than the decline in growth sectors. Investors can use a spread position to benefit from sectoral outperformance even when equity prices decline. This is because the losses from the long leg will be offset by profits from the short leg which is likely to perform worse. The proposed trade set up comprises of a long position in XLU and a short position in CME Micro E-Mini S&P 500 Index Futures expiring in December 2023 (MESZ2023). The XLU ETF settled at USD 63.63 per share on August 25th. Each lot of MESZ2023 provides a notional exposure of index value times USD 5. MESZ2023 settled at 4463 on August 25th delivering a notional value of USD 22,315. • Entry: 0.0142 • Target: 0.0160 • Stop Loss: 0.0135 • Profit at Target: USD 5,347 • Loss at Stop: USD 2,200 • Reward/Risk: 2.43x MARKET DATA CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com DISCLAIMER This case study is for educational purposes only and does not constitute investment recommendations or advice. Nor are they used to promote any specific products, or services. Trading or investment ideas cited here are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management or trading under the market scenarios being discussed. Please read the FULL DISCLAIMER the link to which is provided in our profile description.
AMEX:XLULong
by mintdotfinance
Where There is Smoke, There is Fire | CSX Short 🚂Classic short setup for CSX railroad here. It just so happens other railroads are also showing bearish formations with imminent resolution - most likely to the downside - ahead. Remember: we are at 3.6% unemployment - a rate that has remained historically unsustainable, and elusive if not unattainable - for the last 75 years. Combining the "large-time-frame" bearish formation of CSX and the current status of the long-run labor market, I think we have a strong case for a weak aggregate demand. Not to mention, oil has been selling off for a year, despite higher unemployment. So... what gives?
NASDAQ:CSXShort
by ChiefMacro
Is the Market Deluding Itself with a Soft Landing Fantasy?As markets surge against expectations, many are starting to believe that the impossible might unfold. The unusually low fund allocation to equities reflects a market sentiment plagued by fear, yet mega caps are continuing to rise against expectations, making some investors feel left behind. With GDP figures beating expectations and headline inflation plummeting, markets are now starting to believe the soft landing narrative. Can the Federal Reserve, after decades of economic engineering, finally dodge a recession? The bond market remains skeptical. When the yield curve inverted, everyone thought a recession was imminent. However, many overlook the lag between the onset of the inversion and an actual recession. Depending on historical context, a recession can either hit while the yield curve remains inverted or much later, once it has normalised. Thus, relying solely on the yield curve as a recession indicator can be misleading. Nevertheless, history has consistently shown that a recession follows the inversion at some point. However, the human psyche is notoriously impatient. If a predicted event doesn't manifest promptly, the market tends to discount its possibility. Remember, most people buy at tops and sell at bottoms. So, the real question isn't whether a recession will happen, but rather when. Why and When Could a Recession Happen? The Federal Reserve holds significant influence over this timeline. As long as interest rates hover around 5.5%, the recession clock ticks faster. With headline inflation plummeting (orange line) and inflation expectations paralleling this descent (blue line), we must understand what caused inflation initially to gauge where it's headed. The inflationary surge was mostly driven by the excessive expansion of the money supply. Examining the first derivative of the US money supply (M2) shows a rapid expansion followed by a subsequent decline. Comparing the growth rate of the money supply (yellow line) with the CPI year-over-year (orange line) reveals a 16-month lag. If this lag remains consistent, there's significant potential downside to inflation. Yet, the Fed continues to hike rates, despite projections of disinflation and deflation. This is because the Fed's job isn't to predict the future, but to respond to current data. Indicators showing a robust labor market and elevated Core PCE caution against prematurely reducing rates. It would be wise for the Fed to await signs of weakening in these indicators before contemplating rate cuts. This could potentially take a while to materialise, especially since unemployment doesn't seem poised to weaken in the immediate future. Unlike previous business cycles, the current situation stands out due to the Job Openings and Labor Turnover Survey (JOLTS) data. There remains a significant number of job openings for every unemployed individual. This bolsters the resilience of the labor market, making rate cuts less probable. Furthermore, the Core Personal Consumption Expenditure (PCE) - a lagging indicator - remains historically high and resilient. Powell has emphasised the Fed's intent to avoid repeating the same mistakes made in the '70s, suggesting we should expect higher rates for longer in order to permanently get Core PCE to 2%. He's also highlighted the relative ease of stimulating the economy out of a recession compared to raising rates, implying it might be more straightforward for the Fed to rein in Core PCE by inducing a recession. Similarly, the government can't afford the risk of the Fed raising rates later on. Considering the government's dependency on low-cost borrowing to manage interest payments on existing debts, higher future rates could pose a big challenge. Fortunately, the Fed uses the Reverse Repo (blue line) as a strategic tool to bypass any potential liquidity crisis until they are able to finance the government's balance sheet (orange line) with cheap debt once again. Given that interest expenses are nearing 1 trillion USD, the Fed will inevitably have to cut rates to zero and initiate Quantitative Easing (QE) in the future. Remember, the sole limitation to Keynesian economics is inflation. Hence, it's logical for the Fed to avoid risking a resurgence of inflation. In essence, a recession might be essential for the Fed's future assistance to the government. Deciphering the Stock Market's Puzzle Despite Powell's frequent emphasis on a 'higher for longer' stance, the market remains skeptical. This is alarming, especially as the full implications of a 5.5% rate haven't been fully experienced by the economy. Once they manifest, job openings will plummet, unemployment figures will surge, and the 'soft landing' illusion might crumble. Historically, such scenarios are common when real rates reach unsustainable levels. Fortunately for investors, there seems to be room for the AI bubble to continue. Markets typically peak about a month before a sustained increase in unemployment. Hence, forward-looking unemployment indicators like job openings, initial claims (blue line), and continued claims (orange line) are crucial for those wishing to divest before a potential market downturn. In the current scenario, it might be wise for investors to stay away from higher-risk assets like small caps and cryptocurrencies. Historically, these haven't performed as well as mega caps during liquidity crunches. Investors might want to reconsider taking on additional risks unless there's a sustained surge in global liquidity (yellow line). Conclusion: A Time for Caution and Opportunity In conclusion, even though a recession seems inevitable, mega caps may continue their upward trend until the labor market reveals signs of distress. Therefore, it's crucial for investors to closely watch leading unemployment indicators and central bank balance sheets to ensure they're well-positioned for both the upcoming market downturn and the subsequent recovery. Disclaimer: This article is intended for informational purposes only. It is not intended to be investment advice. Every investment and trading move involves risk, and you should conduct your own research when making a decision. Past performance is not indicative of future results.
NASDAQ:NDX
by ingeforberg
VIX - THE RECESSION INEVITABLE?The "VIX = Volatility Index S&P500" has predicted us in the last 3 decades, quite reliable possible "extreme movements". = Why in the next 2-years such an event could occur, we will take a closer look in the following article. WHAT IS THE VOLATILITY INDEX S&P500 = Expresses the expected range of fluctuation of the U.S. stock index S&P 500. = To determine volatility, it measures the distribution of options that run on these stocks. TABLE OF CONTENTS - 1st part = VIX - 2nd part = VIX PROPERTIES + USE - 3rd part = CURRENT SITUATION - 4th part = CONCLUSION PART ONE "PAST." If you compare the past of the "VIX" with the S&P500, you will notice that the - 36.47 - mark played / continues to play a very important role. Every time the "VIX" exceeded the - 36.47 -, there was extreme volatility in the S&P500 and other asset classes. PAST EXTREME MOVEMENTS . > 01.10.1998 > 01.10.2008 > 03/02/2020 (near crash) Why the VIX has such a big impact on the S&P500 and how we can actively factor this into our trading follows in part two. PART TWO "VIX CHARACTERISTICS" The "VIX" provides information on how serious fluctuations could be based on the option volume. = "VIX" goes up -> Statistically more likely that the S&P500 will fall. = "VIX" goes down -> Probably that the S&P500 gains slightly. Additionally, it can be noted that as soon as the "VIX" gets close to - 36.47 - many market participants take profits. WHY IS THIS SO? The market has already reached a "VERY VOLATILE point". > Price - FALLS - fast = SHORT positions will take profits > BUY > Price - RISES - fast = LONG positions will take profits > SELL CONSIDERATION OF "VIX" IN TRADING? "VIX" = Negative correlation to the S&P500 = "VIX" goes up = S&P500 goes down. = This negative correlation occurs because institutional investors use options to hedge against high volatility (hedge against stocks). RISING "VIX" = less liquidity in the stock markets + position reduction = stocks fall FALLING "VIX" = More liquidity in the equity markets + position building = equities rise PART THREE "CURRENT SITUATION" > The "CORONA crash" could not make a new HH in the "VIX", which is why this could still be pending at the current view. = 2020 the market "fell" "35.41%" in the SPX = 2008 the market "fell" "57.69%" in the SPX With the technical analysis, I come with the current constellation, to a higher "VIX" value than the 2008 reached. = which would mean a bigger sell-off. > Since 2018, we have been testing a "falling resistance line." = Similar resistance lines resulted in the past when broken, with significant volatility + movement in the S&P500 (= traditional markets). = The current resistance line has been respected several times, resulting in reactions. > The "rising resistance line" since 1990 + "the arc" + "the macroeconomic environment", suggest another "VIX" breakout . > The rising resistance line was tested at the two "extremes" - 01.10.1998 + 01.10.2008 - on. = this meant, both times, the temporary end of the extreme volatility = in 2020 we could not reach it, which additionally suggests another "breakout". > If the price trend continues to consider the direction of the arc, then this leads us to a much higher target than 2008 / ever before. PART FOUR CONCLUSION "If the VIX is high, then it's time to buy, if the VIX is slow, it's time to go" > Regardless of the outcome of the analysis, anyone who hasn't used the VIX before should now have gained a little insight. The future looks anything but bright for now, however we can use this time to learn and grow . The VIX could delay the final decision for another 2-years, which is certainly to the advantage of each of us. = Despite this still "long" period of time, a decision will be made in the future. > Let's discuss it in the comments and exchange our perspectives, your view on the whole thing would interest me "burning". If this idea and explanation has added value to you, I would greatly appreciate a review of it. Thank you and happy trading!
TVC:VIXLong
by ZielIstDieAutarkie
12
Stocks, Rates and Inflation: Assessing Risks and OpportunitiesOver the last year, there have been increasing concerns about threats to the US and global economies, mainly due to all the rate hikes from the Fed and other central banks. However, these fears have definitely not played out, as consumer spending and business hiring have shown surprising durability in the US, despite rate hikes and inflation. Several factors explain the stock rebound since mid-2022: - Bearish positioning left room for a short squeeze as negative expectations didn’t play out at all. Attention has returned to quality large-cap technology firms leading in AI development like Google and Microsoft, as their innovations promise productivity gains that support growth. - Ongoing passive investing inflows, corporate buybacks, past fiscal stimulus, and excess savings, the Fed and Treasury generating shadow liquidity, China and Japan keeping rates low and stimulating, the massive deficits of the US government (investors know the US is essentially ‘broke’). - Inflation coming down is also boosting stocks, as stocks are mainly valued based on inflation, not interest rates. - The Fed might have finished its hiking cycle or might have one last hike left. Current rate expectations are indicating that rate cuts will come by early 2024. While earnings seem to be plateauing from peak levels, profitability remains healthy overall. GDP growth remains positive and revised higher, the US economy keeps adding jobs and the unemployment rate remains at record lows. Global challenges persist, as supply chain disruptions and inflationary pressures from the Ukraine war might come back at any time, despite having significantly subsided. Demographic trends of aging populations in developed countries also drag on labor force expansion and economic growth. High debt loads worldwide likewise limit stimulus options without leading to inflation or instability. While inflation has moderated, it remains elevated and sensitive to many factors, from geopolitical instability to climate change. More concerning, inflation has eased without a clear link to the Fed’s policy tightening. It’s improbable that the Fed hikes were the ones that pushed inflation from 9.1% down to 3%, as rate hikes act with long and variable lags. This is raising doubts about the Fed, it's forecasting, and its monetary policy’s effectiveness in controlling inflation over the long term, especially as their current super-tight interest rate policy could lead to catastrophic deflation and recession. Given rising recession risks, the Fed will likely be forced to reverse course and start cutting rates by the end of 2024. This policy whiplash carries risks of its own, as we currently seem to be heading toward a deflationary shock, which might be followed by another inflationary wave. With massive deficits, the Fed also faces constraints from high-interest costs on debt even as its policies try to restrain growth and inflation. The economy isn't a simple dial the Fed can turn on and off. What’s even more concerning, is that the Fed is essentially trying to suppress wage gains and cause unemployment to curb inflation, which is something that could induce an inequality-worsening spiral. In our opinion, a more balanced approach recognizes that moderate wage growth won’t spur runaway inflation, especially as technology evolves work. The policy should prepare workers for automation and AI through training programs, not just reactively responding to lagging data as it is currently doing. The Fed’s constraints highlight the need for creative solutions to complement monetary policy. The economy is a multifaceted system requiring diverse policy responses. With vision and flexibility, emerging technologies like AI have immense potential to broadly uplift living standards. But this requires inclusive policies and acknowledging the economy's dynamism. The future likely holds turbulence, but with strategic foresight productivity gains can be harnessed for the benefit of all. Despite concerns over rising rates, the fundamental backdrop remains favorable for stocks. Many investors have grown excessively bearish and underestimate the market's upside potential. Sentiment and positioning remain bearish and cautious, with most investors underestimating all the positive headwinds for stocks, especially productivity gains from AI, falling inflation, falling rates, and currency debasement. Crucially, the rally since mid-2022 has not been fueled by leverage, unlike past bubbles. Margin debt levels decreased last year, reducing systemic risk. The market has a strong foundation to build on gains, especially as most unprofitable tech has been clobbered and hasn’t recovered, unlike US tech behemoths. Big tech and AI stocks are leading the way higher, forming a new monopoly built on network effects and immense scale. Their nearly unassailable competitive advantages will drive growth for years to come. Although in the short-term sentiment has turned bullish, hence a 10% correction is possible, we don’t think that a new bear market is in the cards until stocks make new all-time highs. In conclusion, while risks remain, the US economy has proven resilient amid rate hikes and inflation. Productivity gains from AI innovations, coupled with prudent and flexible policymaking, can support continued growth and market gains if properly harnessed. Investors should look through short-term volatility and maintain a constructive long-term outlook.
TVC:DXY
by BitcoinMacro
Deciphering Divergent Signals The Complex Economic LandscapeThe global economy continues to face profound uncertainties in the wake of COVID-19's massive disruptions. For policymakers and business leaders, making sense of divergent signals on jobs, inflation, and growth remains imperative yet challenging. In the United States, inflation pressures appear to be moderately easing after surging to 40-year highs in 2022. The annual Consumer Price Index (CPI) declined to 3% in June from the prior peak of 9.1%. Plunging gasoline and used car prices provided some consumer relief, while housing and food costs remained worryingly elevated. Core CPI, excluding food and energy, dipped to 4.8% but persists well above the Fed’s 2% target. Supply chain improvements, waning pandemic demand spikes, and the strong dollar making imports cheaper all helped cool inflation. However, risks abound that high prices become entrenched with tight labor markets still buoying wages. Major central banks responded with substantial interest rate hikes to reduce demand, but the full economic drag likely remains unseen. Further supply shocks from geopolitics or weather could also reignite commodity inflation. While the direction seems promising, the Fed vows ongoing vigilance and further tightening until inflation durably falls to acceptable levels. The path back to price stability will be bumpy. Yet even amidst surging inflation, the US labor market showed resilience through 2022. Employers added over 4 million jobs, driving unemployment down to 3.5%, matching pre-pandemic lows. This simultaneous inflation and job growth confounds historical norms where Fed tightening swiftly slows hiring. Pandemic-era stimulus and savings initially cushioned households from rate hikes, sustaining consumer demand. Early retirements, long COVID disabilities, caregiving needs, and possibly a cultural rethinking of work also constricted labor supply. With fewer jobseekers available, businesses retained and attracted talent by lifting pay, leading to nominal wage growth even outpacing inflation for some months. However, the labor market's anomalous buoyancy shows growing fragility. Job openings plunged over 20% since March, tech and housing layoffs multiplied, and wage growth decelerated – all signals of softening demand as higher rates bite. Most economists expect outright job losses in coming months as the Fed induces a deliberate recession to conquer inflation. Outside the US, other economies show similar labor market resilience assisted by generous pandemic supports. But with emergency stimulus now depleted, Europe especially looks vulnerable. Energy and food inflation strain household budgets as rising rates threaten economies already flirting with recession. Surveys show consumer confidence nosediving across European markets. With less policy space, job losses may mount faster overseas if slowdowns worsen. Meanwhile, Mexico’s economy and currency proved surprisingly robust. Peso strength reflects Mexico’s expanding manufacturing exports, especially autos, amid US attempts to nearshore production and diversify from China reliance. Remittances from Mexican immigrants also reached new highs, supporting domestic demand. However, complex immigration issues continue challenging US-Mexico ties. The pandemic undoubtedly accelerated pre-existing workforce transformations. Millions older employees permanently retired. Younger cohorts increasingly spurn traditional career ladders, cobbling together gig work and passion projects. Remote technology facilitated this cultural shift toward customized careers and lifestyle priorities. Many posit these preferences will now permanently reshape labor markets. Employers clinging to old norms of in-office inflexibility may struggle to hire and retain talent, especially younger workers. Tighter immigration restrictions also constrain domestic labor supply. At the same time, automation and artificial intelligence will transform productivity and skills demands. In this context, labor shortages could linger regardless of economic cycles. If realized, productivity enhancements from technology could support growth with fewer workers. But displacement risks require better policies around skills retraining, portable benefits, and income supports. Individuals must continually gain new capabilities to stay relevant. The days of lifelong stable employer relationships appear gone. For policymakers, balancing inflation control and labor health presents acute challenges. Achieving a soft landing that curtails price spikes without triggering mass unemployment hardly looks guaranteed. The Fed’s rapid tightening applies tremendous pressure to an economy still experiencing profound demographic, technological, and cultural realignments. With less room for stimulus, other central banks face even more daunting dilemmas. Premature efforts to rein in inflation could induce deep recessions and lasting scars. But failure to act also risks runaway prices that erode living standards and stability. There are no easy solutions with both scenarios carrying grave consequences. For business leaders, adjusting to emerging realities in workforce priorities and automation capabilities remains imperative. Companies that embrace flexible work options, prioritize pay equity, and intelligently integrate technologies will gain a competitive edge in accessing skills and talent. But transitions will inevitably be turbulent. On the whole, the global economy's trajectory looks cloudy. While the inflation fever appears to be modestly breaking, risks of resurgence remain as long as labor markets show tightness. But just as rising prices moderate, the delayed impacts from massive rate hikes threaten to extinguish job growth and demand. For workers, maintaining adaptability and skills development is mandatory to navigate gathering storms. Any Coming downturn may well play out differently than past recessions due to demographic shifts, cultural evolution, and automation. But with debt levels still stretched thin across sectors, the turbulence could yet prove intense. The path forward promises to be volatile and uneven amidst the lingering pandemic aftershocks. Navigating uncertainty remains imperative but challenging.
TVC:US10YEducation
by BitcoinMacro
5
Gold xauusd rate hike on 26 July and looming recession Dear Ziilllaatraders, A rate hike increases the interest rate in the country whose central bank implements it. This often leads to a stronger currency, in this case, the Dollar, as higher interest rates attract foreign investors seeking higher returns. As a result, the value of the Dollar may rise relative to other currencies, including gold. This could potentially put downward pressure on the XAUUSD price. But as we have seen after the NFP news, a significant bearish movement has unfolded, making me think that at the end of the month, we will see a bearish candle for the dollar and a bullish candle for XAUUSD. I will let you guys know what the future possible movements are. Furthermore, we have a looming recession last 2 years had a negative GDP which would suggest a recession is looming. Adding to this, the FED has released a probability chart where you can see that there is more chance of a rate decrease in March 2024. Good to know that we have some time before the highly possible recession. Conclusion: short-term retracement of DXY which will pressure XAUUSD down. After this DXY will probably continue the downtrend and so will gold move up to the 2000 levels. Greetings, Ziilllaatraders
OANDA:XAUUSDLong
by ZILATRADES
1
SP500 Black Swan Event Incoming!Following on from our alternative account which has now become our primary count we have cleaned up the chart and think we are very close to the top of this B wave, as retail traders and the media are turning bullish on the stock markets we think it's a matter of time before the rug is swept out from under the bulls feet and we come crashing down to our target of 3200. A 1300 point move from current prices! What could spark such a sharp move? China invading Taiwan? Inflation staying stickier than analysts expect? Moving into a negative growth environment? There are plenty of things that could spark this move, what it will be is anyones guess. All we know is if our analysis is correct this move will be very sharp and catch a lot of people off guard.
CME_MINI:ES1!Short
by RAA_Trading
1
PPI Good News on Inflation Bad News on Recession?S&P 500 INDEX MODEL TRADING PLANS for THU. 07/13 The softer than expected PPI on the top of yesterday's softer inflation numbers are likely going to stoke the "Half Full, Half Empty" debate to a higher pitch. The die-hard bulls would like to see it as an indication of the coveted "soft landing", while the die-hard bears would like to cast this as an indication of potential recession ahead. The next question that needs to be answered to resolve this debate in one way or another: is the softening inflation going to impact earnings numbers? We will start getting a glimpse into this starting from tomorrow. If early earnings show any unexpected weakness ("unexpected" is the key word there), then we might have seen an interim top; but, if the earnings appear to be on track or with a bias to the upside surprises then the next bull leg could get well entrenched. The previously stated level of 4500-4505 is the next area of resistance. Positional Trading Models: Our positional models indicate staying out of the markets until otherwise stated. By definition, positional trading models may carry the positions overnight and over multiple days, and hence assume trading an index-tracking instrument that trades beyond the regular session, with the trailing stops - if any - being active in the overnight session. Aggressive/Intraday Models: Our aggressive, intraday models indicate the trading plans below for today. Aggressive, Intraday Trading Plans: For today, our aggressive intraday models indicate going long on a break above 4507, 4491, 4467, or 4454 with a 8-point trailing stop, and going short on a break below 4497, 4486, 4478, or 4448 with a 9-point trailing stop.  Models indicate explicit long exits on a break below 4463, 4483, or 4504, and short exits on a break above 4483 or 4500. Models also indicate a break-even hard stop once a trade gets into a 4-point profit level. Models indicate taking these signals from 09:41am EST or later. By definition the intraday models do not hold any positions overnight - the models exit any open position at the close of the last bar (3:59pm bar or 4:00pm bar, depending on your platform's bar timing convention). To avoid getting whipsawed, use at least a 5-minute closing or a higher time frame (a 1-minute if you know what you are doing) - depending on your risk tolerance and trading style - to determine the signals. (WHAT IS THE CREDIBILITY and the PERFORMANCE OF OUR MODEL TRADING PLANS over the LAST WEEK, LAST MONTH, LAST YEAR? Please check for yourself how our pre-published model trades have performed so far! Seeing is believing!)  NOTES - HOW TO INTERPRET/USE THESE TRADING PLANS: (i) The trading levels identified are derived from our A.I. Powered Quant Models. Depending on the market conditions, these may or may not correspond to any specific indicator(s). (ii) These trading plans may be used to trade in any instrument that tracks the S&P 500 Index (e.g., ETFs such as SPY, derivatives such as futures and options on futures, and SPX options), triggered by the price levels in the Index. The results of these indicated trades would vary widely depending on the timeframe you use (tick chart, 1 minute, or 5 minute, or 15 minute or 60 minute etc.), the quality of your broker's execution, any slippages, your trading commissions and many other factors. (iii) These are NOT trading recommendations for any individual(s) and may or may not be suitable to your own financial objectives and risk tolerance - USE these ONLY as educational tools to inform and educate your own trading decisions, at your own risk. #spx, #spx500, #spy, #sp500, #esmini, #indextrading, #daytrading, #models, #tradingplans, #outlook, #economy, #bear, #yields, #stocks, #futures, #inflation, #recession, #earnings, #ppi
SP:SPX
by TradersAICorp
Fasten your seat belt, please.Hello investors. I repost and re-edit my chart multiple times to be updated. Take this one as long-term based on daily time frame. I think, crisis ain't done and the worst will come yet. We can spot a lot of similarities with 2008, when Bitcoin does not exist. It is on SP500 chart. To make is simple I let bars pattern in chart as an example: It would happen very soon, probably with start in this May ( traditional "Sell in May and go away" ). Don't read news if wave is done. This rally was suspicious from its beginning and only made Lehman formation. I don't expect much upsides - to be clear. I am just a passenger as you. So let's wait and see. My belt is fasten already ;-) With care always, Emvo.
COINBASE:BTCUSDShort
by Emvo10
15
Guide to Recession - What Is It? Recession is a scary word for any country An economic recession occurs when the economy shrinks. During recessions, even businesses close their doors. Even an individual can see these things with his own eyes: 1. People lose their jobs 2. Investment lose their value 3. Business suffers losses Note: The recession is part of an economic cycle. If you haven't read that article, you can check it below: What is the Recession? Two consecutive quarters of back-to-back declines in gross domestic product constitute a recession. The recession is followed by the peak phase. Even if a recession lasts only a few months, the economy will not reach its peak after serval years when it ends. Effect on supply & Demand - The demand for goods decreased due to expensive prices. Supply will keep increasing, and on the other hand, demand will begin to decline. That causes an "excess of supply" and will lead to falling in prices. A recession usually lasts for a short period, but it can be painful. Every recession has a different cause, but they have the main reason for the cause of the recession. What is depression? - A deep recession that persists for a long time eventually leads to depression. During a recession, the inflation rate goes down. How to avoid recession? 1. Monetary Policy - Cut interest rates - Quantitative easing - helicopter money 2: Fiscal policy - Tax Cut - Higher government spending 3: higher inflation target 4: Financial stability Unemployment : We know that companies are healthy in expansion, but there is a saying, "too much of anything can be good for nothing." During peak, The company is unable to earn the next marginal dollar. Companies are taking more risk and debt to reset the growth Not only companies but investors and debtors also invest in risky assets. Why does lay-off occur? After the peak phase, companies are unable to earn the next marginal dollar. Now, the business is no more profitable. CCompaniesstart to reduce their costs to enter into a profitable system. For example - Labour Now, Companies are working with fewer employees. Fewer employees must work more efficiently. Otherwise, they may be lay-off by the company too. You can imagine the workload and pressure. You may argue that they should leave the company! Really? Guys, we just discussed the employment rate declines. How will you get a job when there is no job? Now, you get it! Let's assume the effects of the recession on the common man: Condition 1: He may be laid off. Condition 2: Perhaps he will be forced to work longer hours. The company is unable to maintain a positive outlook. Fewer employees are doing more work due to massive lay-off. His wages decline, and he has no disposable income. As a result, consumption rates are reduced, resulting in lower inflation rates. A slowdown in the economy is caused by lower prices, which decrease profits, resulting in more job cuts. Four Causes of Recession: 1. Economic Shocks 2. Loss of Consumer 3. High-interest rates 4. Sudden stock market crash 1) Economic shocks - When there is an external or economic shock the country faces. For example, COVID-19, 2) Consumer confidence - Negative perception about the economy and the company from consumers who lack confidence in their spending power. Instead of spending, they will choose to save money. As there is no spending, there is no demand for goods and services. The absence of spending results in a lack of demand for goods and services. 3) High-interest rates - High-interest rates will reduce spending. Loans are expensive, so few people take them out. Consumer spending, auto sales, and the housing market will be affected. There can be no good demand if there is no lending. There will be a decline in production. 4) Sudden stock market crash - evade people's trust in the stock market. As a result, they do recall their money and emotion drives them crazy. It can also be considered a psychological factor. As a result, people will not spend money and GDP will decline. Consumer Spending: During the recession, consumers don’t have additional income called disposable income. Consumer spending parts -- Durable goods - Lasts for more than one year -- Non-durable goods - Lasts for less than one year -- Service - Accounting, legal, massage services, etc. Durable goods surfer during the recession. Non-durable goods are recession-proof because their day-to-day fundamentals are not affected by recessions. Let's take an example of two stocks, ABC Food vs ABC car But, will you stop buying food because of the recession? Will you reduce your consumption of toothpaste, bread, and milk? The answer is "NO". Consumers buy the same amount of food in good or bad times, On the other hand, consumers only trade in or trade off their car purchase when they are not only employed but optimistic about the safety of their jobs & confident that they could get a promotion or a high paid job with another employer. And People's disposable income is absorbed during the recession. Consumer spending is the crucial point to displacing recession. Auto sales: As we discussed, few people buy cars during a recession. New car sales count as economic growth. You may have heard about 0% loans. The company facilitates a 0% loan to increase auto sales. Mostly, people repair their cars or buy old cars during the recession. You may see a boost in the used car market and spare parts selling companies’ sales. Home sales/housing markets: I have a question now! Which is your biggest asset? Most of you will say, my home! New home sales are part of economic growth. Also, house price impact how wealthy consumer feel. Higher the home prices, the more they feel rich, and vice versa. When home prices are higher, consumers feel they are wealthy and they are willing to spend. But when house price declines, they reduce spending/consumption. If your biggest asset price declines, you don’t spend and the economy takes a longer time to recover. A higher rate stops increasing the home price because they have to pay more EMI. central bank reduces rates during the recession, and the housing market rate boosts because the loan/EMI is cheap. Interest rates: Generally, interest rates decline during a recession. Central banks cut interest rates that’s why loans become cheap. Benefits of Lower interest rates - - - Boost in the housing market. - - Increase sales of durable goods - - Boost in business investment - - Bonds and interest rates have an inverse relationship. An economic downturn tends to bring investors to bonds rather than stocks, which can perform well in a recession. - - During the recession, interest rates are lower and banks higher the criteria for getting loans, so that people can face the abstracts while lending money. Stock Market: I want to clarify that, the stock market is not an economy. The economic cycle is lagging behind the market cycle and sentiment cycle. It gives me a chill as a technical analyst and a sad moment as an economics lover. Sometimes it's ahead, and sometimes it's behind. Recession = bear market . Recession-Proof Industries: * Consumer staples * Guilty pleasures * Utilities * Healthcare * Information technology * Education I will write about this in the future, but for the time being, let's get back to technical analysis .
NASDAQ:MSFTEducation
by Money_Dictators
8
Recession Timeframe Horizon Macro Monday (2) Potential Recession Time Horizon Below you will find a breakdown of how many months pass before a confirmed Economic Recession (shaded grey areas) after the yield curves first definitive turn back up towards the 0% level: 1) 13 Months (Dec 1978 – Jan 1980) 2) 9 Months (Nov 1980 – July 1981) 3) 16 Months (Mar 1989 – Jul 1990) 4) 12 Months (Mar 2000 – Mar 2001) 5) 22 Months (Feb 2006 – Dec 2007) 6) 6 Months (Aug 2019 – Mar 2020) 7) 4 Months so far (Mar 2023 - ????) Average Time frame: 13 months (reasonable time horizon would be 6 – 18 months). I consider the first definitive turn up towards the 0% level as no. 7 on the chart (March 2023). Since this date we have rolled over below the -1% level (see additional chart in comments). March 2023 appears similar to the bounce in Dec 1978 (No. 1 in the chart), it also rolled over to the lower sub -1% level. If we assumed a similar 13 month timeframe to recession commencement as in Dec 1978 of 13 months, which also aligns with our 13 month average above, we would be looking at April 2024 for a recession to commence. Interestingly 1978 - 1980 was a similar peak inflationary period known as the Great Inflation, a defining macroeconomic period of high inflation. You might be wondering, has a recession ever occurred in the month of April before? I personally thought this was a strange month but it has occurred in the past. In April 1960 a recession commenced and lasted 10 months to February 1961. The 1960 recession was mainly a result of an over-tight monetary policy whereby the Federal Reserve raised interest rates from 1.75% in mid-1958 to 4% by the end of 1959 and maintained them at that level until June 1960. The Federal Reserves motive for raising interest rates and maintaining them was fear of high inflation (as in early 1951 inflation soared to +9.5%). Is it just me or is this all starting to sound a little too familiar? If we wanted to cater for all time scenarios in the chart and noted above (no. 1 - 6) we could argue that the start of a recession is possible at the earliest within 6 months (Sept 2023) and at the latest 22 months (Jan 2025). Also, the month of April 2024 has some eerie similarities to two prior recessions, the 1978 and 1960 Recessions. Lucky 13 Since World War 2 bear markets have on average taken about 13 months to reach their bottom and a further 26 months to recover their losses. Our average time before a recession would start is 13 months. It’s worth remembering that it could take an additional 13 months before a bottom is established and then 2 years or 26 months (2 x 13) of price action below the pre-recession price highs. Over 3 years is a long time to wait to recover losses. It would be pertinent to start deleveraging or increasing your hedge from the 6 month mark (Sept 2023 in this case) as subsequently the likelihood of a 3 year period below the Sept 2023 price levels increase as each month passes. For reference the S&P 500 index has fallen an average of 33% during bear markets over the avg. timeframe of 13 months to the bottom. I actually find it very hard to accept that a recession is possible in the near term (within 6 - 12 months) and I would in fact argue against it, however I cannot explain away the data in the chart which speaks for itself and warrants at least some consideration & caution. Nothing is a guarantee and maybe this time it will be different, especially factoring in the amount of unprecedented liquidity added to the market in recent years, sticky inflation and financial supports provided to systemically important banks. All the chart really indicates is a probable window for a recession to start some time between Sept 2023 – Jan 2025 and no guarantees. The rule of 13 is worth remembering, simply from a timing perspective (before and during a recession) as it may help your timing. Based on two similar periods in history, the 1978 and 1960 recessions suggest the month of April 2024 may be a key date. Again, no guarantees. It is also worth noting that for the last six recessions, on average, the announcement of when a recession started was up to 8 months after the fact…meaning we will have no direct indication when a recession starts, however the un-inversion of the yield curve (back above the 0% level) and a rise in unemployment will be the early tells, so these are worth paying attention too. We will keep you posted on any sudden changes in these metrics. I hope the chart is helpful, provides one perspective of which there are many, and can help time and frame the situation we currently find ourselves in. NO GAURANTEES, just probable timeframes that may be worth paying attention too. PUKA List of Recessions: 1. COVID-19 Recession (February - April 2020) 2. The Great Recession of 2008 (December 2007 - June 2009) 3. The September 11 Recession (March - November 2001) 4. The Gulf War Recession (July 1990 - March 1991) 5. The Iran/Energy Crisis Recession (July 1981 - November 1982) 6. The Energy Crisis Recession (January - July 1980) 7. The Nixon Recession (December 1969 - November 1970) 8. The “Rolling Adjustment” Recession (April 1960 - February 1961) 9. The Eisenhower Recession (August 1957 - April 1958) 10. The Post-Korean War Recession (July 1953 - May 1954)
FRED:T10Y2Y
by PukaCharts
5
GB10Y - UK pensions at risk? update. #BOE #recession"The Bank of England has hiked interest rates to 5 per cent in a further blow to homeowners struggling with spiralling mortgage costs. The rise, up from 4.5 per cent, is the sharpest increase since February – surprising economists who had been expecting a smaller increase of 0.25 percentage points – and sends interest rates to their highest level in 15 years! The move is set to deepen the mortgage crisis as borrowing costs rose for the 13th time in a row in an effort to curb inflation." *Fractal taken from 2007 high for the GB10Y - Gilt/Bond, reaching similar level's before reversing back down. I would expect the same to happen going forward. inflation is way above current interest rates, with the BOE stuck between banking crisis or a recession. I believe we'll see both! - Banking crisis, potential bail out's - expanding the currency supply further which will create more inflation! Pension's will continue too loose value, as bank of England will not be able to raise rates high enough to match inflation. "It comes as the rate of inflation remains unexpectedly stubborn – frozen at 8.7 per cent in May. Analysts had expected the Consumer Prices Index, which peaked at 11.1 per cent in October last year, to fall back to 8.4 per cent." What does this mean for the value of the pound? I'm actually expecting more strength in the GBP - purely from the weakness of the dollar. I would expect the fed to continue to pause now that inflation is finally dropping. FedNow expected to launch on the 1st of July, this will enable faster payment's and a surplus of dollars entering the markets if needed. again weaken's the purchasing power of the DXY - by adding more supply to the currency.
TVC:GB10YShort
by dibz1996
Yields are Yelling: Recession is comingIt looks like we are turning over. Coupled with gigantic short positioning of speculators on bonds (highest in history bsed on the COT Data), the chart indicates that yields will fall again. Why would they fall? Because of a flight to saftey and/or a recession. I am keeping it very simple, I just buy Bonds via ETF. I am long TLT, IEF and SHY. With that trade, I am also long USD, since my native currency is EUR. If we have a weekly close above 3,5% on the US10Y, I will exit my positions. It might also be lucrative to go short stocks now, but I wont do that too much. This might be a great trade, but I am viewing it as a set up for an even better one. We might get a great opportunity to buy stocks soon.
TVC:US10YShort
by Cyranus
2
🔥 FED Pauzing Interest Rates Is NOT BullishAs of a couple of minutes ago the FED has announced that they will pauze the interest rates and not hike any further. Since rising interest rates seems bearish for markets, a pauze is often a much more bearish signal. As seen on the lower chart, once the FED pauzes the hiking cycle ('flat mountain top'), it has often signaled a stock market crash in the not so distant future. With the most recent pauze, one would be cautious for the future at the very least. Do you think a stock market crash is coming? Share your thoughts🙏
SP:SPXShort
by FieryTrading
19
Signs for a looming recessionInvestigating the 2008 recession, with specific regards to Interest Rates and Inflation. We can observe a similar pattern occur here. Should history rhyme, we will see at least some more months of bullish price action before the top is set. From there, months of slow decline, before bearish acceleration kicks in - deflation. Correlative projection puts the top in April 2024, however I have reason to believe that it will happen earlier this time, sometime this year. Reason being, is that the dynamic is different. There is a lot more leverage and this isn't about a housing market. The USD is being ditched as world reserve currency. Generally, the price increases that we should see in the coming months, would pale in comparison to the price decreases that we will see later. Invest wisely, and stay safe.
SP:SPXShort
by Alien_Algorithms
Is tomorrow the day we predicted last year to be the market top?FOR THE FULL ANALYTICAL RIGOR THAT IS WORTH READING START HERE (otherwise skip to the section titled if you only care about the future “START HERE IF YOU SKIPPED THE TOP”) It has been a long year since we got the program working, calculating probabilities, and identifying where we likely were in time. Sometime early 2022, I realized what would happen if we took all S&P 500 price data, applied structured Elliott Wave Theory to it, identified the relationships between all macro and micro wave structures, and determined our current location in time to forecast future movement. By early July 2022, I realized if we completed SubMillennial wave 1--Grand Supercycle 5--Supercycle 1 in January 2022, then I could take prior wave relationships to forecast the 3 waves inside of Supercycle 2 based on the data from Supercycle wave 1. This forecast can be found here: It forecasted the bottom of the first wave down (Cycle wave A) to end around October 18, 2022, the top of the second wave up (Cycle wave B) to end around mid-July 2023, and the final bottom (Cycle wave C and Supercycle wave 2) likely in the first quarter of 2025. I would update my program every time I believed waves completed and re-calculate these points and the movement over the next few weeks to months. Feel free to head to my profile to view all ideas. A few reversal points did occur earlier or later than forecasted at higher and lower levels, but I learned the original forecasts were normally the most accurate. One of the key places I rushed a forecast was as we got closer to October 18th I had the bottom occurring later in the October or closer to November. This August 20, 2022 analysis had the levels and days for the bottom spot on, but I temporarily went a different way. The relational data was proving more and more accurate. The actual bottom in October was on the 13th instead of the first forecast of the 18th. I finally accepted the bottom by December 5, 2022, once I went back to review my older analysis. From there the program continued to call waves out well, with Primary wave A happening lower than expected but on the date as seen in the December 5th analysis above. Primary wave B was long and the internal wave C never broke below the initial wave A which was confusing, however Primary wave B was forecasted on December 6th to occur in the middle of March and sure enough it occurred on March 13, 2023 as seen below: But after this original forecasting from the program I continued to attempt to find Primary B in many places after a traditional ABC wave down which never came. Finally by March 2, I reviewed my original analysis and updated Primary wave B to end around March 14 and it ended March 13 as seen here: Upon completion of Primary wave B, I forecasted the market top and end of Primary wave C. The forecasted date was June 16th no higher than 4403.88 as seen here: After the completion of Minor wave 2 inside of Intermediate wave 1, I updated the market top to June 20th, based on Intermediate wave 1 likely lasting longer than initially expected when Minor wave 1 ran long as seen here: At this time I loosely placed Intermediate waves 1-5 in their projected locations as well. The market top was re-adjusted again back to June 16th on April 9th as seen here: Intermediate wave 2 was forecasted on April 17th as was spot on on April 26th here: Intermediate wave 3 was much longer than expected after gaining 33% of the expected gain in the first day followed by being slow and trading sideways at times too which is very abnormal of a wave 3. By May 7, I had backed the market top back up to July and then debt ceiling chaos broke out. With the debt ceiling resolved Intermediate wave 3 was still slowly moving. Then my program threw me for the biggest curveball I could not believe and thought it was an error. Intermediate wave 3 had finally wrapped up. All preceding waves to that point had been 12-25 days long. In my wisdom, Intermediate wave 4 would likely be in the middle of that range. The program urged it would only be 2 days AND only retrace 15.06% of Intermediate wave 3’s movement. I was skeptical but went with it and said it could last 4 days. Intermediate wave 4 lasted only 3 days and after I adjusted the Fibonacci tool retracement levels, 15.06% said the bottom would be at 4261.479 as seen here: The actual bottom was 4261.07. Finally on June 8, 2023 Ziggy spits out the plan for Intermediate wave 5 as seen here: START HERE IF YOU SKIPPED THE TOP The models are pointing for Intermediate wave 5 to last between 3-5 days with the likely top around 4393.93. I chose 4 days and around but not likely over 4400. After all the projections and models and recalculations over the past year we are here. Still around 4400 and back to mid-June. AND it’s Fed day with some high expectations of no hikes and word of a future cut in 2023. Elation should follow if this happens, but what else is going on. Inflation since 2021 is now around 16% and has increased every month since mid-2021. Wages for everyone have not increased even close to 16%. Mortgages are around 7%, not many people rushing to trade their 2% mortgage for a 7% mortgage now. Students with loan need to start paying the piper as they begin to accrue new interest again. Those that did not wisely save their payments and collect interest on that money over the past two years are about to give up some luxuries which means retailers and restaurants are will soon see declining sales. Chaos bound to rattle the 2024 Presidential tickets is just gaining steam with outcomes unknown. Meanwhile the VIX was at its lowest level since pre-COVID last Friday signaling complacency in an economy that continues to lay off workers. All the numbers are not moving synchronously in the proper directions which likely precedes market corrections. In this case, based on all the data, this is likely the major bear market I identified last year. I can always be wrong, or we can go up a little higher before correcting. But I have learned my lesson to trust the original analysis and that says the top is in. It would be smart to not repeat 2008 and watch your retirement accounts and 401Ks plummet 50% when you have the opportunity to do something about it today. Maybe move to cash or something with less exposure to major companies and indices or the G Fund for you government employees. You may not make much money and can always switch it up if the program is wrong, or you can save your retirement and sit out of the market for 14-18 months until we find the bottom. While others begin recovering and realize they need to pick up a second job or leave retirement for work again (Tom Brady might not mind) to survive, you could then ride the next major bull market up. Follow me if you would like to see where the models take us moving forward.
SP:SPXShort
by StockSignaler
3