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#STOCKS – $HYG, $LQD, $VIX, $VVIX
#MACRO – $SPY, $QQQ, #RATES, #DOLLAR #SOFR #
- RTM: CPI Trending Hotter Than Expected
- RTM: Yield Curve Inversion Suggests Recession May Be Far Off
- RTM: A Turn Lower For Stock Could Finally Be Here
- RTM: Stocks Enter The Land Of Confusion
- RTM: Stocks Are Still Living In The Land Of Make Believe
NEWSLETTER- $99 FOR THE FIRST YEAR:
- RTM Lite: Falling Dominos
- RTM Lite: It’s As If The Powell Rally Never Even Happened
- RTM Lite: Bizzaro World
- RTM Lite: Now They Believe
- RTM Lite: February 3 Will Be A Big Test For The Bulls
THIS WEEK’S FREE YOUTUBE VIDEO:
The week of February 13th is significant, with CPI, PPI, retail sales, a ton of Fed speakers, a 20-year bond auction, and a 30-year TIP auction. Last week, rates broke out after a 30-year bond auction didn’t perform well. The auction results ended up sending rates sharply higher across the curve, along with Fed Chairman Jay Powell indicating that the Fed has more work to do and that rates would have to stay higher for longer. Depending on the data, he even noted that the Fed might have to go higher than thought at the December FOMC meeting.
All of this led to a dramatic move higher in the Fed Funds Futures, with the August contracts peaking at 5.18%. That rate is higher than the Fed’s terminal rate in the December summary of economic projections of 5.1%. Meanwhile, the December contract is now trading at 4.98%, as the market has quickly shifted to the Fed’s point of view on rates.
SOFR Futures
As I highlighted in this week’s video, some traders are placing bets that the Fed’s terminal rate peaks at 6%, based on SOFR September 94 Puts, which have seen their open interest levels explode in recent days.
CPI
This week’s CPI report will have a big say in what happens, and while analysts are looking for CPI to climb by 0.5% m/m and 6.2% y/y, the Cleveland Fed sees CPI climbing by 6.5% y/y and 0.65% m/m. If you get numbers that look like the Cleveland Fed’s estimates, it will be a massive blow to the hopes of many that inflation was cooling because the 6.5% y/y rate would match that of the December inflation rate. This week’s free story: The January CPI Report Could Be A Massive Shock To The Market
30-Year Rates
A lousy 30-year auction on Thursday caused the rate to surge and push above at least one downtrend line, setting up a battle with a second downtrend at 3.9%. The break of the second downtrend quickly sets the 30-year up to rechallenge the 4% barrier.
10-Year Rates
For the 10-year, it appears to have already broken both downtrend lines and is on a path currently to challenge the 3.9% level.
Corp. Debt – LQD
Additionally, the LQD has broken down and appears to be heading toward 105.30.
High Yield – HYG
The HYG has not broken an uptrend yet, but it has broken support at $75.75 and appears to be heading to the uptrend line to test whether it can hold or not around $74
S&P 500 – SPX
The S&P 500 has fallen below a short-term uptrend and below its 10-day exponential moving average. When the index has tended to rise or fall below its 10-day EMA, it has marked a change in trend. In this case, it has only dropped below that moving average for two days, which is not long enough to verify a change in direction. But if the index is trading below that 10-day EMA at Tuesday’s close, I think it would confirm that the trend has shifted to bearish.
NASDAQ 100 – QQQ
The QQQ ETF has broken an uptrend that goes back to the beginning of January and is also trading below its 10-day EMA. So, like the S&P 500, the QQQ is in danger of a further drop, especially if that CPI report comes in hotter than expected.
Volatility – VIX, VVIX
In an evening note for subscribers to my daily newsletter, RTM Lite, I noted that the VIX has broken out, along with the VVIX. The break out has caused the ratio of the VIX to VVIX to drop significantly and move back to a range that falls within the historical norms. I noted, “The ratio is now at levels not typically associated with market stress. However, I am not sure that the relationship should drop back to its lows, as that would imply a state of tranquility, and I don’t believe we are currently in a tranquil period.”
Since then, we have seen the VIX ratio break out of its downtrend, which could mark a significant change in trend now that volatility appears to have reset.
Dollar – DXY
What is also taking steps to break out is the Dollar index, which broke one downtrend and is now testing its 50-day moving average and a secondary downtrend. A rally beyond the moving average and the downtrend would push the dollar higher toward $108.
Financial Conditions
By the way, rising yields, a strong dollar, increasing volatility, and falling stocks are not happening simultaneously purely by chance. No, these are all interconnected as financial conditions begin to tighten, as noted by the GS Financial Conditions Index.
Have a great week!
-Mike
Charts used with the permission of Bloomberg Finance LP. This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index. Exposure to an asset class represented by an index may be available through investable instruments based on that index. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.