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Money Daily has been providing business and financial market news, views, and coverage on a nearly continuous basis since 2006. Complete archives are available at moneydaily.blogspot.com.
Money Daily has been providing business and financial market news, views, and coverage on a nearly continuous basis since 2006. Complete archives are available at moneydaily.blogspot.com.
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Friday, May 27, 2022, 9:12 am ET
Just a little housekeeping to close out the week here, tracking the major indices and questioning the motives of two biggies in the investing universe.
Before getting to the juicy story of Bloomberg and JP Morgan pumping Bitcoin, stocks have fared quite well since the miracle rally last Friday. The Dow is now up five straight sessions, which contrasts with the eight straight weekly losses the average has racked up since, fittingly, April Fool's Day.
The latter streak looks to be broken, regardless of wither the Dow gets bumped or dumped. With the index making a 2000-point move off the Friday (May 20) lows and in range of the 38.2% Fibonacci retracement level, Friday could well experience a key reversal. The Dow may have been "oversold" (love that term, indicating somehow that stocks are worth more than the last fool paid for them) at 30,600, but it almost certainly is "overbought" at 32,600, and twice on Thursday got into higher reaches at 32,774 (high of day and week) before being ratcheted back down.
For all the tape-painting that's been done the past few months, Thursday's close was the polar opposite. The Dow dipped a solid 135 points in the final 10 minutes.
Is that important? Maybe. It's at least worth noting and keeping a close watch as markets close out, heading into a three-day weekend. Considering the recent (2022) volatility, who has a stomach to hold over Memorial Day? Those brave souls would likely be in the bullish minority.
For the record, the Dow is ahead 1,375.29 points (4.40%) as of Thursday's closing bell. The NASDAQ has added 383.03 (3.40%) and has actually only had three winning days in the past five. The S&P 500 chimes in with a gain of 156.48 (4.01%) with a minor loss on Tuesday its only blemish.
It easily looks like the weekly losing streak could end today, though speculators will be prudent to keep a wary eye as they've seen profits vanish in blinks of eyes recently and Friday could be a watershed or waterfall.
Roughly an hour prior to the US open, futures are hovering just above unchanged and European stocks are clinging to gains of less than one percent. Right at 9:00 am ET, futures went vertical, to the upside, assuring a positive open.
A couple of years ago, JP Morgan CEO, Jamie Dimon, famously said he would fire any of his traders venturing into the crypto space. One year ago, JP Morgan hated Bitcoin at $30-32,000. On Wednesday, they issued a buy recommendation.
Very strange. It gets even more weird, as Bloomberg is recommending cryptos as well.
Essentially, JPM is saying it prefers Bitcoin over real estate as a preferred alternative asset. Bloomberg says they prefer Bitcoin over stocks, essentially tech stocks, which have cratered.
But, wait, aren't stocks on the rebound here? Even Gregory Mannarino was getting giddy in his post-market wrap up on Thursday, reiterating his prediction for stocks to make all-time highs later THIS YEAR. Considering Mannarino's spotty (mostly wrong) track record thus far into 2022, the inclination is to fade him.
Are Bloomberg and JPM really serious about buying Bitcoin? Skeptics will argue that they probably have some large upside-down positions to unload, and that would probably be correct. Bloomberg cites bitcoin's lower volatility as compared to the stock market (that's kinda funny, actually) and sees scenarios tilting in favor of bitcoin.
JP Morgan's analyst breaks it down in four steps:
First, After the virus crisis, the role of alternative currency was played by both bitcoin and gold.
Second, increased confidence among institutional investors.
Third, 2020 further boosted institutional investors' confidence into bitcoin and other cryptocurrencies.
Fourth, the pandemic accelerated the shift towards digitization and cryptocurrencies.
Not very convincing, since those points add up to roughly ZERO. After the demise of Terra, LUNA, or whatever that suicidal algorhythmic nightmare stable-coin was called a few weeks ago, confidence in bitcoin was shattered. Coinbase, one of the major exchanges, saying that users could lose all of their holdings should the exchange declare bankruptcy didn't help matters any.
There's been no real corporate adoption of bitcoin since PayPal's big announcement back in late 2020, and, even now, PayPal doesn't allow withdrawal of bitcoin from PayPal without first converting it to a fiat currency. Fail.
There are legions of reasons not to own bitcoin. Anonymity is dead. As a store of value, no. It's still not widely accepted as currency except in places like Nigeria and El Salvador. Governments seek its destruction.
Beside it being down more than 50% from all-time highs, there's no compelling reason to own bitcoin. Chalk up a couple more devious recommendations by Wall Street Titans. Money Daily will gladly take the opposite side of this hocked-up luggie of a trade.
At the Close, Thursday, May 26, 2022:
Thursday, May 26, 2022, 9:02 am ET
Figuring that stocks cannot continue to fall for a ninth straight week on the Dow and NYSE Composite and eight straight on the S&P and NASDAQ, the past five trading days offer some instructive charting scenarios.
Taking just the Dow Jones Insdustrial Average as a proxy for the entire market may be a bit of a mistake, but probably not a huge one.
The Dow ended Friday of last week at 31,261.90, but the low point on the day was 30,650.02, around 1:30 pm ET, meaning the Dow advanced more than 600 points in the final 2 1/2 hours of trading, which just happened to be post options expiration (1:00 pm).
Not to be fooled by the massive dowside to upside shift, much of that late-day rally had to do with exercising those options by buying the underlying stock at what looked to be bargain-basement prices. It's implied that the stocks and indices looked to be bargains only because everybody in the stock market herd was heading in the same direction at the same time.
What to make of this? Well, the rally continued into the following week, despite the major averages ending on the downside for the one prior.
Indeed, the major indices all put in significant double bottoms on May 19 and 20. The Dow closed at 31,253.13 on Thursday (5/19) and 31,261.90. The NASDAQ, 11,388.50 Thursday, and 11,354.62 Friday, but subsequently dropped below both levels the following Tuesday, closing at 11,264.45, and rendering it somewhat useless for technical analysis. The NASDAQ is close to a 30% loser year-to-date, which puts it in a different category from the Dow and S&P, both of which haven't fallen to a -20% close, yet.
The S&P's closes of 3,900.79 on Thursday and 3,901.36 on Friday are about as close to a true double bottom as one could hope for, setting up 3,900 as the newest temporary support for the 500-stock index.
Looking at the closes for the Dow and S&P as of Wednesday (5/25), we have the Dow up about 867 points at 32,120.28, and the S&P up 78 points at 3,978.73 from their respective closing lows.
Prior peaks for both indices came on March 29. 35,294.19 for the Dow and 4,631.60 on the S&P. putting the entire spread - high to low - at 4,041.06 for the Dow and 730.81 for the S&P.
All of these numbers infer that the current rally will cease at or near Fibonacci retrace levels of 23.6%, 38.2%, 50%, 61.8%, and 100%, when the indices attain those levels and then fail to move higher.
It's safe to say that 100% retracement is probably not a likely condition. As of Wednesday's close, the Dow has retraced 867 points, or 21.5%, putting it pretty close to the first (23.6%) level. The S&P's 10.68 gain is less instructive and also offers a perspective on market breath, i.e., there isn't any. That's a good reason to use the Dow in calculating the degree of retracement. The other reason is that the Dow has been the least damaged of the majors, so tracking it gives some wiggle room down below on the other exchanges.
Assuming it continues to rally past the 23.6% retracement, the next important level for the Dow resides at 32,796.81, a retracement of 1543.68 points (38.2%). After that, 33,274.13 (50%) and 33,750.51 (2497.38 points, 61.8%).
Should the Dow rise beyond that final figure, nothing can be assumed in either direction, though just from current conditions and economic data, one would assume a drawdown to commence.
The point here is to keep an eye on the Dow and those important Fibonacci levels. The S&P and NASDAQ may very well underperform - already are - so the Dow may be able to correctly predict when the next turn comes. If it's the S&P Fibonacci levels that require inspection, there's a long, long way to go and the Dow would either overshoot or exhibit weakness as the other indices gain ground.
For now, however, the Dow seems to be the more accurate predictive model.
With a half hour to the opening bell, things are again looking up for stocks, though not excessively. As has been demonstrated repeatedly throughout this cycle of 2022, markets can pivot on a dime.
Happy Fibonacci tracing!
At the Close, Wednesday, May 25, 2022:
Wednesday, May 25, 2022, 9:05 am ET
Raise your hand if Tuesday's market action was one you'd seen before.
By now, everybody's got both hands and even their kid's hands up above their heads. Stocks open lower, quickly fall to lows of the day, only to rally significantly throughout the session, especially in the last hour, approaching positive territory.
It's the same game, over and over and over. Completely normal... maybe.
There are multitudes of explanations for this behavior. The PPT. The NY Fed's trading desk. Short covering. Dip buyers. It's probably a combination of all of them, in varying degrees on different days. SSDD for short.
Invariably, however, this activity shows up best on candlestick charts, which show precisely the levels to which certain stocks or entire indices have fallen before magically recovering. There are some really good ones at stockcharts.com.
That's not the whole story. Charts can tell us a few things, like direction, potential breakouts or breakdowns, good entry and exit points. Intraday movements reveal more. The continuing pattern of down at the open, up at the close offers a glimpse of what the major movers are doing, as the bulk of trading is performed in the first half hour and last hour of any given trading session.
Big money, the kind under the control of major banking interests, massive hedge funds, and major concerns like Vanguard and Blackrock, are selling at the open or nearby and buying at the end of the day. These monied interests are likely selling in bulk and buying in smaller increments in the quieter hours between 10:00 am and 3:00 pm ET. End of day buying almost certainly has to be short position covering, since nobody wants to hold positions overnight as a solid short can be fully erased by a positive open. Almost everybody has seen that happen too many times to be fooled by it. Big money, huge money can afford to stake out positions across the spectrum, in size, or in smaller amounts. It's all a matter of their particular risk preference.
There is no doubt that the bulk of profitable trades have been made on the downside since the start of the year. It's been the easiest way to make hay, and there's no shortage of it, either in individual names or entire indices.
Just take a look at some of the losses sustained by some widely-held stocks. All of these figures are year-to-date. The declines for many of them are even larger from ATH positions, generally from September through December of 2021.
Those are some of the biggest corporations in America. They were all overvalued when their declines began. Most of them are still overvalued looking forward because the economy is in free-fall. There are other stocks that have fallen more, some that have not dropped quite so much and even some that are winners on the year. Big surprise, ExxonMobil (XOM) is up 48.57%. Chevron (CVX) is up 44.76%. You pay for those gains every time you pump gas into your car.
It's not fair. It's not pretty. But, it is pretty easy to see where stocks are headed in a general manner. Yesterday, new home sales plunged 16.6% in April, to the lowest level since April 2020. Last week, data showed existing home sales in the US declined by 2.4% to a seasonally adjusted annual rate of 5.61 million in April of 2022, the lowest since June of 2020. Housing, despite stubbornly high prices, is about to crack, then crumble. Housing is simply unaffordable to many and becoming a major drain on the economy. When housing goes, the rest of the economy crashes. If housing slows during the summer months, it's even worse, because that's when it's supposed to be booming.
One can either be picky about stocks, positions, housing, other asset classes in this environment, or be a generalist and just take the path of least resistance. Despite weird and wild gyrations on day-to-day noisy stock markets, that path is clear.
At the Close, Tuesday, May 24, 2022:
Tuesday, May 24, 2022, 9:05 am ET
Stocks rose on Monday in a snapback rally that had less to do with fundamentals and economic conditions than happy talk from bankers like JP Morgan Chase CEO Jamie Dimon.
In remarks to the assemblage at the company's annual investor appreciation day, Dimon said of the general business climate and risk of recession, "strong economy, big storm clouds. I'm calling it storm clouds because they're storm clouds. They may dissipate. If it was a hurricane, I would tell you that." Dimon also predicted that the bank's net interest income would total $56 billion in 2022, a significant increase from prior guidance of $50 billion and that "there's a very good chance this year" of a 17% return on tangible common equity, which is a measure that can be used to calculate a capital adequacy ratio as one way of evaluating a bank's solvency and can be used to estimate a bank's sustainable losses before shareholder equity is wiped out.
Dimon's shaded emphasis on the bank's resilience and downplay of a recession sailed right over the heads of most attendees, sending JPM stock up six percent on the day and fellow travelers in the banking space higher as well. Morgan Stanley (MS) gained four percent, Bank of America was up six percent, and Citigroup rose seven percent.
The banking sector has been one of the hardest-hit since the start of 2022. Even including Monday's gains, JP Morgan is still down nearly 23%, Bank of America a 22% loser, Morgan Stanley down 17.85%, and Citigroup shares lower by 16%, all on a year-to-date basis.
Bank of America CEO, Brian Moynihan, chimed in with this nugget, "The probability [of a recession] is rising, the fear is going up, but the reality is that no one is really saying 'there will be a recession,'" in an interview aired on CNBC.
A little happy talk from some of the worst money managers on the planet was enough to get stocks higher to open the week, a better spot from which to fall as the days proceed. Never mind that CPI inflation is running at 8.3%, gas prices continue making new record highs every day, first quarter GDP came in at -1.4%, the Fed is set to hike interest rates by 50 basis points at each of their next two meetings, or that many of these wealthy CEO compensation packages are partially tied to stock performance. Just trust them.
In a related note, some of these JP Morgan investors rejected a pay plan for Dimon and other top executives just last week. Just 31% voted in favor of the company's higher pay package, already approved by the Board of Directors. The vote by investors is non-binding, so it's likely that the people running the bank will receive lucrative rewards even though the stock is sinking.
Taking a line from th Bard of Avon, William Shakespeare, the bankers are, "full of sound and fury, signifying nothing." Their statements are likely to amount to nothing more a one-day bounce as the stock market continues to implode alongside the US and global economies.
Consumer sentiment fell to an 11-year low earlier this month. The University of Michigan's Consumer Sentiment Index fell to 59.1 in May from 65.2 in April, the lowest reading since 2011.
With the US consumer representing 70% of the economy, or GDP, how is it that so many economists and high-level government and business "leaders" don't see a recession developing?
We're probably already in one. You're just not supposed to know.
At the Close, Monday, May 23, 2022:
Sunday, May 22, 2022, 12:20 pm ET
Another troubling week for equity investors has just passed. Stocks lost ground with impunity, the worst of it coming on Wednesday, when all of the major indices suffered sizable losses. In each case, the mid-week declines were worse than the totals for the entire week. Wednesday's rips were:
Dow: -1,164.52 (-3.57%)
Worst of all was the Transportation Average, which on Wednesday alone lost 1,096 points (-7.41%). It ended the week down 6.68%. The index, with just 20 components, is down 3,548.41 points from its all-time high of just more than six months ago, 17,039.38 (11/2/21). That's a drop of 20.82 percent, making the transports the third major index to find itself in "official" (-20%) bear territory, joining the Russell 2000 (-27.41%) and the NASDAQ (-29.29%). That leaves just the Dow Jones Industrial Average (-15.15%) and the S&P 500 (-18.66%), though the S&P did dip into bear country for a brief time Friday afternoon, prior to the miracle, last-hour rally which lifted all indices except the NASDAQ into positive ground. The S&P had sunk as low as 3811.28 and the Dow was down more than 600 points. It's magic, or, Adam's Smith's invisible hand, or the PPT, or the NY Fed's trading desk.
Whatever it was, it amounts to a band-aid attempting to cover a major gash. Stocks are in serious trouble and the global economy is sinking fast.
There need not be said too awful much about the current state of affairs for our spinning little round asterisk in the universe. Humans have managed to make a complete mess of their own affairs, either through direction or apathy, the elitists versus the minions. In the long run, everybody perishes. It's merely a matter of how well one lives and prospers that makes any difference at all. Currently, elitists have the upper hand, but preppers and those of a conservative bent are gaining ground through unconventional means like gardening, protecting valuable resources, hoarding, alternative currencies, non-compliance, and escapism.
Middle ground, being largely occupied by clueless masses in cities, is not a safe refuge. Population centers are under attack, either by relentless taxation and overregulation, crime, inflation, or threat of annihilation by war.
Safety is located in rural land holdings, control of resources (food, water, energy), and sustainable lifestyles. Measuring one's wealth in terms of money (currency) or financial holdings is fast giving way to accumulation of hard assets, proximity to life-sustaining resources and the ability to defend family and assets (guns).
500 shares of GOOG and AAPL may sound like a reasonable hedge, but a house and barn on 20 acres of farmland, a herd of cattle and some pigs and chickens is beginning to sound, to many, like a better bet, long term. While both asset baskets are eventually taxed, the real estate is at a much lower rate, and the produce and animals, mostly not at all. There's a considerable difference in understanding, moral clarity, and values between differing lifestyles. At best, land, herds, and produce don't rise or fall on the whims of markets. Stability, being the safe keeping of hard assets, is becoming a preference over potential monetary gains.
That said, focus for the most-monied class remains in equities and fixed-rate investments, though one can bet a bottom dollar that the wealthiest amongst us also hold real estate in size as protection against collapse, which has accelerated since political systems crashed and burned with the 2020 US presidential election.
Treasury Yield Curve Rates
There was little in the way of instructional action in the treasury market this week other than the entire curve flattening out and inversion spreading to 5s and 7s over 10s, with 20s remaining considerably higher than 30s. Shorter dated bills and notes were gaining yield or flat, as opposed to declines in longer-dated maturities, particularly the 7, 10, and 20-year issues, which dropped by 13, 15, and 15 basis points respectively.
In strictly parochial terms, a flatlining yield curve indicates economic stagnation or decline, which is precisely what is occurring, so no surprises from the funding markets.
Give it a break. WTI crude remained elevated at $112.70, after closing out the prior week at $100.49 per barrel. The minor fluctuation in price was the result of a discussion over supply and diminishing demand. While summer driving urges are taking up the cause for higher prices at the pump, winter heating season is essentially over in the most populous parts of the world. Besides seasonal changes in energy resource structure, there's little to support excessively high prices other than people's willingness to pay them.
Changes in driving habits this summer may force prices lower, which would come as a surprise to the bulls in the oil patch. They've pretty much managed to gouge consumers as much as possible without tipping over the entire world economy, which may be the plan, anyhow.
Gas at the pump set record after record through the week, the national average in the US currently residing at $4.59/gallon, up 12 cents from a week ago and a whopping 47 cents from a month prior. It's gotten to such ridiculous levels that Democrats in the US House of Representatives passed the Consumer Price Gouging Prevention Act of 2022, that would give the president the power to issue an emergency declaration that would make it unlawful to hike gasoline and home energy prices "in an excessive or exploitative manner." As if it mattered, not a single Republican member voted for the measure, which faces almost certain failure in the senate. Price controls, last tried by President Nixon in the early 1970s, were a complete failure. They never have worked and never will.
$29,698.40. Looking like a lot of dead money in crypto-land. As long as Bitcoin (forget about all the other scam alt-coins) is treated like any other financial asset, expect further declines. A rebound may occur in places like Nigeria or El Salvador, but, unless you live there, you cannot and will not gain from it.
Gold and silver both gained on the week, though it's more likely than not that the week's gains are nothing but technical responses in an otherwise bearish environment. Premiums, of benefit mainly to dealers and sellers, remain high, but overall prices have declined steadily since the end of March, with seemingly no support levels in place besides possibly a range of $1450 to $1520 for gold and $18 for silver.
Should economic conditions continue to deteriorate - a solid bet at this juncture - expect all assets to decline, especially the largely-artificial spot prices for precious metals. Bottoms near $1200 for gold and $14 for silver are in the prospective range six to 18 months out.
Gold price 05/01: $1,896.90
Silver price 05/01: $22.79
Here are the latest prices for common one ounce gold and silver items sold on eBay (numismatics excluded, shipping - often free - included):
While prices for gold coins and bars and silver coins were fairly stable, pricing for silver bars resembles a slaughterhouse. Good time to load up for those whose main concern is stacking, over current valuation.
The Single Ounce Silver Market Price Benchmark (SOSMPB) saw a slight gain over the course of the week, to $36.73, rising 51 cents from the May 15 price of $36.22.
Anybody ignoring the obvious economic forces doing severe damage to living standards around the world had best start learning how to garden, do carpentry, sew, and cook rather than exploring the arcane worlds of economics and markets. Basic skills are going to be more a necessity than an occasional chore.
Plumbers, carpenters, electricians and HVAC specialists are experiencing the best wages ever. Housecleaners, maids and gardeners are also in high demand, a condition that should remain in place until all the financialized wealth from real estate gains, stocks, and fixed income investments are wiped clean. Then, such skills will be seen as necessary to survival, as they should have been all along.
A utilitarian world pays best for those who embrace utility.
At the Close, Friday, May 20, 2022:
For the Week:
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