The Week on Wall Street: Bears Still Hold the Key

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“I believe that, young or old, we have as much to look forward to with confidence and hope as we have to look back on with pride.”

– Queen Elizabeth II

The view from the U.S. MACRO sceneIt would not be complete without mentioning the Eurozone. Shortly after the Energy Crisis, the economic warning lights began to turn yellow. The situation has worsened to the point that it is flashing RED. Market analysts will remind investors, however, that a US recession was never caused by a recession within the EU. This is not a cause for concern. That thought doesn’t negate the poor state of affairs in the US economic sector.

The Federal Reserve faces many problems, while the European Central Bank is facing a new set of challenges. Recent commentary from corporate earnings indicates that the US has seen inflation stabilize at best. There is no sign of an economic slowdown. Despite this, the eurozone economy continues to experience supply shocks. Inflation pressures don’t seem to be slowing down. Nearly half the EU countries have double-digit inflation. Inflation rose rapidly due to a global energy crisis.

Eurozone in Crisis Mode

The ECB halted its bond-buying program and lifted interest rates by 50 basis points last month—its first rate hike in over a decade. Although the ECB is expected raise rates by a similar amount in September it is a sign that the European economy is at the edge of a recession. The euro has fallen by 12% to its lowest level since 2002, breaking parity to the dollar.

On one hand, the weaker currency makes its goods more competitive in the global market and will likely boost last year’s record ~$400 billion of exports to the US. This will also increase the cost of import goods, which will continue pushing inflation higher. Just as important, a weaker euro compounds the upward pressure on key imports such as oil—which is priced in dollars. The ECB noticed this and increased interest rates to compensate for a worsening outlook on growth and inflation.

Both the US as Europe have high energy costs. This is due to policy errors made in the US and Europe that have now led to panic within the EU. The seasonal norm is now 13x higher than the power prices. While not breaking new records, US natural gasoline prices have reached a new high of $10/Mcf in the past 14 years. The benchmark EU gas price is at an astounding $85/Mcf. This is a record-setting price, as the market continues to send price signals for all available LNG cargoes. In July, European household energy bills rose by 35% compared with 15% in the USA. These bills are likely to be higher because of recent energy spikes and proposed usage levies. For example, Germany’s new levy allows energy importers, who are working to replace the Russian supply, to pass along some of the higher costs. In average, households will pay 500 annually more for the per-kilowatthour natural gas usage fee.

Catastrophic energy costs

European consumers are still planning for the worst, even as their bills rise. Anecdotal evidence suggests Europeans have begun to stockpile wood (imagine doing that in the summer heat), as well as bought stoves in order to stay warm during winter. Even beyond the consumer impact, Europe’s energy-sensitive industries are struggling as well. Zinc and aluminum production have dropped by about 50% over the last year. While the primary focus has been on the impact on consumers (both spending power and sentiment), it is important not to overlook the wider economic or industry-level impacts. The EU is Talk about capping energy pricesHowever, this amounts in subsidies that someone has to pay through increased taxes, among other things. This situation is expected to last at least one winter, according to many analysts.

Last month, Euro Zone PMI Manufacturing Index entered contract territory for the first-time since June ‘20 and the preliminary August report showed further deterioration. For as much concern that has been voiced over the US economy, the situation is direr in Europe. recently we have seen the Eurozone release economic sentiment, PMI manufacturing, and the all-important inflation report. All painted a concerning picture.

None of this is a huge surprise, the die was cast when the Energy crisis arrived. Since late last year, the message has been consistent. Energy costs show up in EVERY facet of the economy. There is no way inflation is going to roll over and drop rapidly with energy costs at high levels. With energy prices yet to peak, Europe’Inflation readings will likely set a new multidecade record. They will also impact consumer sentiments as well as business outlooks. Forecasts Inflation levels in the UK are currently at 22%. This is due to high energy costs.

Negative GDP

If you look at the U.S. again, regardless of whether investors believe that we are currently in recession, a negative print on the first-half GDP and subsequent data reports does not indicate strength. Two global dominoes are likely to fall or, at a minimum, to be so weak as not to have any impact on global economic growth. This will continue to reflect in stock markets in both the US and EU.

My opinion is that there are many methods to make money. “V”It was unlikely that there would be a shaped recovery from the bear market. This has changed. It is unlikely it will happen. As equities seek to rebuild themselves, we can expect back-and forth trading. The most recent bear markets, 2018 and 2020, saw a sharp recovery of the lows. However inflation was low back then and the Fed could ease policy – we don’t have that luxury right away. If it isn’t, there is a LOW chance of ever getting one.

Global Stock Markets

The end of August saw a wild ride in U.S. equity as measured by S&P 500 ETFs (SPY). SPY reached its mid-month peak with a 4.3% gain for the month. But, this was quickly erased and the month ended lower by 4.4%.

Similar results can also be seen in the country ETFs of each major global economy. These countries saw an average 3.1% increase in monthly highs, but ended the month with a decrease of 3.5%. Overall, developed markets have performed worse than emerging markets with an average decline in 4.8% and 1.2%.

There are only two ETFs—Brazil (EWZ) and India (INDA)—that were positive for the month. China (MCHI), however was not affected. At the opposite end of the spectrum, Sweden’s (EWD) performance has been nearing a 11% decline. Many other European countries are following suit with worsening results. Most stock markets have fallen below their 50 Day moving mean technical support, with many falling as early as August. Only four countries are currently above their 52-week pre-COVID 52week highs: Taiwan, India and the United States (EWC). This group must fall to return to their previous highs.

The Week On Wall Street

All Indices are entered the shortened week at the end of a three-week losing streak. The NASDAQ 2000, Russell 2000 and NASDAQ 2000 entered the day after a six-day losing streak. Post-labor Day trading was similar to pre-labor day trading, in that rallies don’t have staying power. Tuesday saw another session of up/down trading, with the S&P closing at 391.1%. All indices lost ground while the NASDAQ and Russell 2000 experienced seven consecutive days of losses.

Wednesday saw a shift in sentiment. All major indexes rallied ending losing streaks. Ten of the eleven sectors were part of the rally, which saw strength across the board. Crude oil prices fell seven months ago to their lowest level, with the Energy sector the only loser of today’s rally.

The rally continued as the seven-day losing streak turned into a three–day winning streak, which lifted all major indexes to post gains for this week.

The Economy

The Atlanta Fed GDP NowReport shows Q3 GDP at 1.4%, down from September 1st’s view of 2.6%. I am certain that there will be many changes before the quarter ends. My belief is that we will continue to see slow to non-existent growth, with negative growth in the first half of the year, and no changes to our fundamental economic backdrop.

The Services PMIAccording to a report, business activity was very high The fastest rate of contracting since May 2020Despite a steady fall of new order.

PMI for US Services

In August, the index was at 43.7. This is lower than the 47.3 in Jul, and lower than the flash estimate of 44.1.

In the meantime, ISM-NMI index servicesThe ISM adjusted ISM–NMI rose to a peak of 56.9 after a July peak of 56.7. The ISM adjusted ISM–NMI rose to a 3 month high of 54.7, from 54.3 in July. This is higher than the June 2 year low of 53.7. Today’s gains include increases for the Chicago PMI and Philly Feds, as well as gains for the Empire State and Richmond Feds. This is a 9-month reduction in producer confidence from the robust peak in November 20201.

The Global Scene

As expected, the European Central Bank raised its key interest rate by 75 basis points Wednesday. It expects more rate hikes as it attempts to keep inflation under control during a possible recession.

“This major step frontloads the transition from the prevailing highly accommodative level of policy rates towards levels that will ensure the timely return of inflation to the ECB’s 2% medium-term target.”

The ECB raised its inflation forecasts for this year. The average inflation rate is 6.8% for this calendar year, which is more than the 5.1% forecast in March. However, it is projected to be 3.5% in 2023, and 2.1% by 2024. The ECB also decreased its growth forecasts for 2023 from 2.1% – 0.9%, and 2024 forecasts – from 2.1% – 1.9%. The outlook is positive, especially regarding the growth outlook.

The J.P.Morgan Global Composite Output IndexAugust’s output dropped to 49.3 compared to 50.8 in July. Both the manufacturing and service sectors saw an increase in output.This is the first time both categories have experienced simultaneous downturns since June 2020.

Global PMI

JPM Global PMI

The Eurozone

Final Eurozone Composite Output Index48.9 (July: 49.9) A 18-month low.

Final Eurozone Services Business Activity Index at 49.5 (July 51.2).A 17-month low.

August: Countries ranked using Composite MPI Output Indicator

Ireland 51.0 Low for 18 months

Spain 50.5 7-month low

France 50.4 (flash49.8) 17-month low

Italy 49.6 2-month high

Germany 46.9 (flash47.6) 27-month low

The U.K.

The UK Services PMI Business Activity IndexThe index was above the 50.0 mark in August. However, August saw the index drop to 50.9 from 52.6.

The data from China and other Asian countries show a very different picture.

China

Chinese inflation dataAugust saw a collapse in producer prices. The headline CPI fell at 2%+ and core CPI, ex Food and Energy, increased only 0.7% annually following a July drop that was so severe. While the rest struggle with rising inflation pressure, China is not.

Credit growth is also moderate at 7% annually; headlines growth beats estimates. After seasonal adjustment, the best indicator to measure mortgage lending was capable of accelerating to the fastest rate of growth within six months.

The seasonally adjusted headline Caixin Business Activity IndexThe August reading was 55.0, compared to 55.5 in July. This indicates a slightly softer, but not surprising reading. The activity in the service sector is still high.Notably, the pace was the fastest since 2021. As the effects of the pandemic continued to recede, business activity increased in tandem with increased customer demand.

Japan

The au Jibun Bank Japan Services PMIAugust’s figure was 49.5, which is a decrease from 50.3 in July. It also marks the beginning of a decline in Japanese service sector activity since March. The decline rate was slower than that at the beginning 2022.

ASEAN

The headlineASEAN Manufacturing PMIIt was 52.2 in July, but 52.3 in Aug. 11 months of expansionThe latest data also indicated significant improvements in the health sector for ASEAN manufacturing.

Political Scene

Congress will resume session in May with defense authorization, Taiwan policy, and defense authorization. permitting reform, government funding and FDA fee reauthorization. A year-end tax extension bill is leading the fall/winter calendar.

These are some of the things you should remember: permitting reformThis was the agreement between Senator Manchin, Chuck Schumer, Senate majority lead. This add-on was what brought Mr. Manchin aboard and allowed him to pass the entire Tax and Spending legislation. This legislation is Now, the matter is under scrutiny and there are many questions. It becomes law. This reform was included in the agreement in order to streamline permitting. This is a process that is out-of-touch and archaic.

It is highly probable that it will stay that way.

Geopolitics

Newly elected U.K. Prime Minister Liz Truss’s team announced several InitiativesTo reduce stress due to rising energy prices. A longer-term strategy is more effective.She announced that the ban against fracking had been lifted and that she plans on approving more drilling for oil.. The new PM also announced a price ceiling on energy prices that consumers will see in the next two-years. This was a shorter-term-based decision.

The plan would reduce household bills and pay the difference to utilities (subsidies). Businesses are also eligible for support as electricity and gas rates rise in the regular reset process. The UK’s power price swings are already affecting UK households.

Subsidies come with two problems. First, eventually someone will have to pay for the subsidies through taxes, etc. There is no free lunch. For additional debt, the U.K. government will be required to pay 10s of Billion Pounds. The Brits will have to pay the cost of subventioning their failed projects “green initiative”It will also cost more. They are now in an unenviable situation. Subsidizing all their energy consumption.

Second, consumers shouldn’t be isolated from reality. This is only temporary. Consumers feel better if the situation is accepted by them. “comfortable “Their subsidized bills make them more likely to use energy, creating more demand. But policymakers are in a difficult spot. Either they alleviate the cost pressure or deal with the growing civil unrest caused by these failed policies. I warned that the “pushback”This absurd agenda will be stopped eventually.This day is coming!.

Recent optimism about the EU’s energy crisis has been reflected in positive comments, given the progress made in reducing building inventories and industrial demand. Many people are now saying that there are good reasons to be optimistic about the winter’s outlook. However, inventory issues could become very serious if it is cold. A decline in one-sided markets is not always indicative of large gains. I don’t think that watching Nat Gas futures is a good indicator of whether Europe has survived the worst. This issue is far from over and it’s very unlikely that this will be the last winter with challenges.

Food for Thought

We are glad to have you here “Battery World”

The U.S. is on the same path that the Eurozone. While the outcomes may not be as dire as the Eurozone’s, it will still result in a failed plan that will stifle the U.S. economy. It also abandons energy independence.

The transition to “green energy”Continues with some states, and around 50 cities Natural Gas bannedAs an energy source to power new buildings. The US has proven reserves of Nat Gas for more than 100 years. This helps to keep the US strong. “energy independent”. It is also Considered one of the most affordableOne-fourth the price of electricity. China is the only alternative energy source available. “Green New Deal”It would make the US more dependent upon other countries.

Solar panels are dependent on communist China, as well. They use more energy, require more fossil fuel-burning machinery to mine and make, transport, as well as transport, than they save.. They also contain Toxic chemicalsThese are used in manufacturing.

The costs of solar and Nat Gas are roughly $0.05-$0.06/KWh. However, it is the solar subsidies which bring down these costs. These subsidies are paid by taxes and other fees. We can’t ignore the fact that both are reliable. “sketchy” at best.

Finally, today’s energy demands exceed supply. This is causing rolling blackouts and other restrictions. Ironically, the commentary is focusing on the future consumers and asking for a step back into the past. It’s 2022. It’s 2022. Everyone should be asking this question “new era”They find themselves in. This is where consumers start to push back.

If infrastructure isn’t built to meet demand then the current path will see supply surpass demand. Now, everyone can do the math to predict the outcome. Let’s not forget that These projects are currently in the permitting phase. It will take some time.Even if it is simplified, “Battery World”They will only get a fraction of what was expected. This is due to the fact the green deal has not been considered. Every day brings new economic consequences that will ripple through the financial markets. As this happens, consumers will feel more pain. It’s not just financial pain.

The EU is about to propose a “mandatory target”Reduce peak electricity consumption. California, the U.S. posterchild of what is wrong is here “green”One can only guess at what mandates might be passed during the current administration. “transition” occurs.

2023’s energy independence will be entirely dependent on fossil fuels. “green”It doesn’t matter if the movement is ready to embrace it. Failure to do this will have serious consequences both for the global market and economy. Prime Minister Truss was the first to lift the ban on drilling, which could help in the slow dismantling and improvement of the failed Green Energy transition. I’m not suggesting that. “green”It is obvious, however, that fossil fuels must be part of the transition. It was wrong from its inception and many policymakers still think it is wrong. You don’t get energy independence by burning fossil fuels or going to a new source.

The War on Fossil Fuels

The debate over energy policy and how to increase U.S. crude oil production has been ongoing since 2021. Let’s end the endless debate about leasing, permitting, and other nonsense regarding US energy production, and just acknowledge the FACTS.

“President Biden’s Interior Department leased 126,000 acres for drilling in his first 19 months in office. Truman was the last president to lease out fewer acres (in 1945-46), when offshore drilling was just beginning & the government didn’t yet control the deep-water leases.”

OIl leasing

Oil leasing (Bureau of Land Management).

The other presidents who are included in that list all have “millions”Many acres are right next to their names. The Mineral Leasing Act of 2020 requires that offshore oil- and gas leases be made at the least once a quarter. Although the Biden administration has been in office for six quarters, it has only held auctions one quarter. After increasing pressure to control rising gasoline prices, this auction was held in June.

There is only one solution to the current energy crises. Increase production and distribution. We’ve already seen this. “initial”Today’s energy policy will have serious implications. This will continue to drive up inflation, and could lead to severe energy scarcity that could hinder economic growth.

Don’t believe me? Take a look at the Eurozone right now. Those who have control. “ENERGY Resources”All others will follow Willie’s example and all other people will be left with their economic futures.

This is FACT and not OPINION, as history has shown. U.S Energy policy plans continue with theOil from the Strategic Petroleum Reserve is released. This is not a long-term strategy. Policy mistakes will have a significant impact on the near-term direction and performance of global economies and markets.

China is patiently watching this nightmare unfold and should be smiling. While the “greenies”China won’t admit it, but their selfish strategy gave them the keys to the kingdom.

Sentiment

Only 18.1% received weekly responses in the most current update AAII sentiment survey Bullish reports were reported. This was the third consecutive decline in bulls. It resulted in the lowest reading since April. The Bearish sentiment is higher than usual, with more than 50% of the market last week, and then increasing to 53.3% this week. This week has seen the highest level of bearish sentiment since June 23, and it ranks among the top 2.5% all time.

Although I would love to believe that this was a positive outcome for a contrarian perspective in this bear market these contrarian signs have not been successful. This report may yield a different outcome.

The Daily chart for S&P 500 (SPY).

Here we go again. The rally has lifted S&P 500 above resistance, a move that was not in my trendline.

S&P

S&P 500 9-9 (www.FreeStockCharts.com)

However, if the rally is to continue, there are many other resistance levels.

Investment Backdrop

As you can see, major indices entered this week with losing streaks. Despite all the selling, the S&P 500 didn’t reach oversold levels. Only three sectors – Consumer Staples (Health Care), and Communication Services – were sold out, while Energy was the only one at overbought levels. The WeakStay tuned to the BEAR market trends and stay on top of the Strong get stronger. The message is the exact same. These are the markets I have focused my attention.

Analysts, investors, as well as pundits, continue to discuss stocks such Microsoft (MSFT), Nvidia, NVDA, Google [GOOGL](GOOGL), Amazon (AMZN), Google(GOOGL), and other well-known names that are great places to be in this area. These are CORE holdings but not the right place for your attention because they all fall within BEAR market trends. If an investor doesn’t have a long-term view, there is no reason not to be interested in any stock that falls within a BEAR market trend.

Ironically, I don’t hear anyone talking about it. “hedges”. Investors were always putting money into BULL markets. “hedges”They claimed that the rallies were too far-fetched. They were all “playing”For a pullback. They were also playing against primary UP tendencies. Hedge funds are no longer popular with most people. It’s amazing how the average investor’s mind works. It happens every single time. Emotions can sneak up on people and tell them that the stock markets are too stretched. There is no reason to take a position for further downside. I will know when the Bull-market hedgers start telling you to play the down side.

We appreciate your time reading this analysis. If you enjoyed this article, please read the next section. It gives a glimpse at what members of my market receive in DAILY Updates. These weekly articles might be of interest to you. You might also consider joining a group that has uncovered these valuable insights for SAVVY Investors. “how the market works”.

You can download the 2022 Playbook right now “Lean and Mean”

Opportunities are available in Energy, Commodities, Utilities, Healthcare, as well as Utilities. Two other opportunities have been identified. Bullish to Bearish reversals. My message to clients and all members in my service has not changed. Stay true to what’s working.

Every week, I return every week to the “canary message”It served as a warning to the economy. The main focus was on the Financials, Transports, Semiconductors, Small Caps, and Transports. They were a tool that I used to help me. “tell”It was not clear which direction the economy was heading. This strategy will be used for a short-term strategy. Unfortunately, all the canaries are still sick.

Sectors

Energy

OPEC took a new step in order to maintain Oil prices at this level. An announcement of a small production reduction. However, market participants saw it as a sign of concern about a global economic recession that would kill demand. Crude oil plummeted to a seven-month low before stabilizing and closing at $83 per week

I continue to buy any weakness in the group.

Natural Gas

The same analysis can be applied to the dip that was seen this week at the Nat Gas ETFs. Both EnergyPlays remain in BULL Market trends.

Commodities

This week saw strong (new highests) Uranium and lithium (URNM), (SQM). Despite falling Agriculture stocks, they recovered later in the week. Some areas of the market are still performing well. “work”.

Financials

The “talk”This week was all about the Financial ETF (XLF) strength. This is a positive sign for overall market but it is not prematurely to talk about a new Bull trend within the group.

Healthcare

The Healthcare ETF (XLV), is still hovering just below the Long Term bullish trendsline. This is a group I have been following. “selectively”Recent activity in

Biotech

Although volatile, the Biotech ETF (XBI) remained above its trendline that marked this Bearish Bullish reversal. Friday’s close shows that the uptrend has returned 34% to its June origin.

Semiconductors

The semiconductors (SOXX) suffered a seven-day losing streak that sent the entire tech complex lower. There is a lot overhead resistance and the emphasis is on BULLS as support for their case.

ARK Innovation ETF ARKK

Last week, I felt the ARKK eTF would have to be challenged to maintain the Bear to Bull reversal. The ETF has rebounded from July’s lows and has maintained the string HIGHER lows that have been in effect since the Bear to Bull rally began.

For those who have retained their gains, they have been decreased (now only +16%) “trade”It is still living.

Cryptocurrency

Despite equities and risk assets moving lower this week, cryptos have been mostly ignored. Major cryptos have stabilized. They are mostly coming off high levels, which could simply be mean reversion. As September was a bad month in Bitcoin, Ethereum, and other asset types, it is clear that seasonality does not favor the asset class.

Even though cryptos are slightly higher this week, any movement is within a specific range. Bitcoin traded in a narrow range of $17700 to $25,000. Although it may seem like a lot, a few thousand dollars is actually a small spread historical.

BTC

Bitcoin (www.bespokepremium.com)

If Bitcoin doesn’t reach a new high/low in this trading range before the end of the month it will be the tightest three months since spring 2019. My new Alert service sent trade signals to members Friday in two trades for Grayscale Ethereum Trust (OTCQXXX:ETHE).

Final Thought

It’s been a tough year, a tough August, and now a volatile start to September with the S&P still down 16% YTD. Stocks are still being affected by many economic hurdles and they will continue to do so. My approach to this year’s backdrop has worked well. I have resisted the temptation not to grab falling knives, and resisted any temptation to simply invest in a stock because it is popular. Instead, I chose not to be a fool and let the market prove itself. Despite occasional FOMO moments, the market has not shown any signs that it is regaining its momentum. The market rally at the end is encouraging but is it the unwinding a large short position or new buyers entering the market?

Although there may be turning points (upward or downward) ahead, I do not anticipate the market’s reaction. The Fed could raise its rate by 50 to 75 basis points, the next inflation report might show 6 -7%, and prices of energy may fall. My strategy and positioning (other than tweaking) will continue following the primary trend of downward.

I’ll let other pundits debate the headlines.

A moment of silence to remember Queen Elizabeth II who died this week.

Queen Elizabeth II ruled 15 prime ministers. During Queen Elizabeth II’s reign, 13 separate bear market events occurred in the US (a 20%+ decline from a high on closing basis with no rallies greater than 20% between) which included one where the S&P 500 plunged over 50% and another where it fell over 48%. Five other bear market situations saw the S&P 500 lose more than a third of their value. Since 1953, when the Queen was coronated, the US has experienced eleven recessions. We could be on the edge of a 12th.

During the Queen’s 70 year reign, the S&P 500 rallied more than 16,000% or more than 7.6% annualized before even taking dividends into account. The annualized rate for dividends returns is greater than 10%. The US Real GDP per person increased by three-and a half times over that period, rising from $17.093 up to $59.288. With all that experience, if the Queen was told that the economy was declining or that stocks were in danger of a bear-market, she would likely have responded calmly with something like ” “been there, done that”.

A truly remarkable woman. May her soul rest in Peace.

Postscript

I want to take a moment and remind everyone of an important issue. I offer investment advice to clients and members of my marketplace service. I try to provide investors with a backdrop that will allow them to make their own investment decisions every week. These forums are open to all types of situations and variables. It is hard to know which option is best for each situation.

In different circumstances, I can determine each client’s situation/requirements and discuss issues with them when needed. This is not possible for readers of these articles. This is why I will attempt to form an opinion but not give specific advice. This is an important point to remember when you are creating your investment plan.

We are grateful for all the contributions to this forum that made this site better for everyone.

All the best!

Source: The Week on Wall Street: Bears Still Hold the Key

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