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My wife: “You suck at vacation.”

A few notes after Powell jawboned the market yesterday:

• The thing I find annoying about the market’s reaction is that Powell is merely stating what the bond market (both on the short end T-bills and notes and the long end e.g. our Continuum view) has been telling him to state for many months now. You wouldn’t think it would be so easy to simply look at the Fed’s jawbone schedule and short the market, but apparently it is.
• That said, Brainard came before Powell. Then there is the ever present Bullard. With a brief bit of dovish noise by Bostic in the interim. Really, they should (IMO) just STFU. But…
• Anyone with even a moderate degree of market knowledge already knew the Fed was behind the curve and that the hawking would continue. Still, the market did the predictable thing. It seems there are some real literalists programming the algos.
• While I hate to react to inflammatory news events, this really was not news. It was a central bank administrator doing as [should have been] expected.
• But the bottom line is that the market’s larger trends were rolling over before the jawbone, subject to what I had thought may be bounce potential (in progress until yesterday).
• So while loath to react to the ‘news’ (that really isn’t) if this bounce/recovery attempt fails (and it’s right on the edge of that now) the main trends are those weekly charts that have been rolling over beneath the formerly supportive moving averages (ref. last 2 NFTRH editions). Unless a rally takes out those moving averages, the larger view is turning bearish.
• It seems to me that a view I’ve mentioned before may be what the Fed wants, as it could be the only way out of the inflation problem currently causing so much hysteria. That would be for a good market liquidation.
• Not predicting it, but being aware that such an event would pile ‘em all into notes and bonds, which would probably kill or temporarily drop inflation expectations.
• Many people think that the Fed defends stocks no matter what. But IMO the Fed exists to inflate the system over the long run but can only continue this process by refueling periodically with deflationary phases. Some ‘deflation scare’ busts come about of the market’s own accord when it has had enough of the Fed’s toxic input. But this one has not rolled over in a ‘transitory’ way as expected and so, a little shove over the edge may be in order.
• Powell knows that the markets are rolling over technically and yet he hawks. That is what we knew he’d do if/as inflation expectations and signals continued upward. He’s out of nice, gentle gestures and now it’s live ammo. At least that is the view I have at this time.
• If stocks lose immediate support areas (please realize I have not had time, tools or inclination to take serious looks at the charts) I’d expect the weekly chart vulnerabilities to take over and resume the roll-over.
• As for commodities and related, they are vulnerable too.
• Precious metals? Well, who’s been driving them in lockstep with the inflated stuff? Yup, inflation-centric gold bugs. Gold is above its 1920 gateway and the gold miners are still trending up. But to this point we have NOT achieved a clearly positive macro-fundamental view and the sector fundamentals are not great as evidenced by gold/commodities and especially gold/oil.
• As a final thought, think about how long it takes for markets to respond positively when a bust disaster is unfolding and yet the Fed is full on steroidal in its inflationary policy. There are a lot of violent ups and downs before markets finally resolve the way the Fed wants them, which in that case is up.
• Today, think about the opposite. As the Fed withdraws its support in an ever more stern manner, there are a lot of violent ups and downs. But the weekly chart roll-overs quiet things down and smooth out a process whereby the market may eventually get a message that is opposite to Q1 2020’s message.
• At this time – and again, this is just one guy on vacation giving his best interpretation of the situation – it appears the market is still in the process of receiving the message. Just as people should not have been shorting against the inflating Fed in H1 2020, bulls should not be fighting the Fed now. These things take time to play out and it seems Powell has gotten a little impatient with the process.
• The markets will go up and they will go down on any given day. The sentiment relief bounce (such as it was) may or may not be over, but the bearish weekly charts are still driving the bus.