“To suppose that the value of a common stock is determined purely by a corporation’s earnings discounted by the relevant interest rates and adjusted for the marginal tax rate is to forget that people have burned witches, gone to war on a whim, risen to the defense of Joseph Stalin and believed Orson Welles when he told them over the radio that the Martians had landed.” – Jim Grant
In December, we wrote that “stocks would get hit in January and volatility would be intense throughout 2022.”
But I didn’t imagine that 30% of all sessions this year would 1 ½ % moves.
Despite Wednesday’s sharp rally, it was the lowest volume day of 2022. The rally was more about lack of sellers than genuine/conviction buying.
As I’ve stressed, this is a “managed decline.” The Fed wants the market down to “dampen” buying power to tame inflation, but they don’t want a crash, do they “it was our fault and we won’t let it happen again, Bernanke?”
So we get this yo-yo/slow motion car crash. The washout cometh.
One day NVDA is downgraded, the next it’s upgraded.
The standouts on Wednesday were Precious Metals and two techs bought by one-eyed technicians with crooked rulers.
CRWD looks pretty good… until you pull back the lens and check the weeklies.
Ditto ZS.
Earnings season is on deck just as stocks have completed the Right Shoulder of a Head & Shoulders top for the 3 major indices. And while revenues may be good, the bottom line will contract due to rising costs of raw materials and labor.
Guidance will be puny. They’ll take the “cover” and throw in the kitchen sink while they can to clear the decks.
Let’s take a look at the Glamour Index, QQQ.
The Q’s rebounded yesterday after a stab down to the region of the January low close. As stressed on Tuesday, the market could setup the perception of a bullish inverse Left Shoulder.
However, trade now below Tuesday’s low will trigger a Blade Runner sell signal — a broken “Right Shoulder.”
As you know, fast moves come from failed patterns.
Below is the breakout in the daily GDXJ Cup & Handle with the recent triangle being the Handle.
Tuesday looked like another false breakout, one of many since September 2020.
However, Wednesday was a Reversal of a Reversal, or what I call a Keyser Soze.
GDXJ on Wednesday was a textbook case of the second mouse gets the cheese.
Checking a weekly GDXJ shows the big Rule of 4 Breakout.
Notice that following the Bear Trap low stressed in this space in February that once the 3 Week Chart turned up on the week of Feb 21, the very next week, GDXJ broke out of its long declining trend line.
Checking a monthly GDXJ shows a massive Cup & Handle and the “blue sky” above Wednesday’s high.
From the 36.50 January low, 180 degrees up is 49.
Since GDXJ has cleared 49 nicely, the next decrement of 90 degrees higher is 56/57.
From there, a 360 degree move projects to 64, which ties to the August 2020 peak.
Gold knows that the Fed can try to dampen demand, but it can’t create the supply shortages.
Gold may be smelling that if the Fed keeps pushing until it breaks something that the Powell Pivot may be Weekend At Jay’s.
Gold may be getting a sense that the Jawbone's connected to the tail bone and that there is a lot more smoke than roast in the FOMC kitchen.
At the end of the day, the only way to deal with the specter of debt is to monetize it. Is there another way at this stage?
Be that as it may, we don’t really concern our self with the why, it’s the what and the when that pay us.
To think that there is anything really other than the supply and demand of Time & Price that determines stock prices is to think that the market operates rationally.
I suppose any reason is better than none to justify the dismal science of economics.
The same folks who told us that “this” is all transitory are the same ones who are trying to be the first on their block to say inflation is peaking.
It’s just like bulls trying to be the first ones to claim the bear market is over at the first nice rally.
Everyone has turned into a momentum buyer perpetuated by decades of the Fed Put.
But all of a sudden, when it comes to a 3 month bear market and a few months of inflation… it’s all over.
What’s that they say about picking tops and bottoms?
What if it’s just beginning?
Yeah, Captain Smith, that iceberg is just a white cap.
Bulls crying wolf is what makes bear markets.
But… you had me at transitory. I’m just a persistent trend follower.
P.S. SRO at the Bitcoin Conference in Miami last week. Reminds me of the investment conference in San Francisco in August 1987, reminds me of the Winners of the New World Conference in NYC in March of 2000.
