Major market indexes ended the week with a down day on Friday following the S&P 500 Index's test of resistance at the 200-day moving average on Tuesday. The S&P 500 is also back near the 4227.28 level which marks the boundary of a 50% retracement off the June lows, closing Friday just below its 10-day moving average on higher options expiration volume.This remains a dicey environment for the long side. Several members have questioned why we aren't sending out "updates" and reports for the long side every day. Very simple: we don't view this as anything more than a bear market rally. Cameco (CCJ) posted a subtle pocket pivot on Tuesday but now merely serves as an example of a failed potential long set-up. One would have been using at least the 200-day moving average on this pocket pivot set-up after trying to buy as close to the 20-dema, the point of origination for Tuesday's pocket pivot, as possible. CCJ eventually rolls below the 200-dma as it also triggers a short-sale entry at the line which now serves as a covering guide.
We took one shot here and it was swatted away very quickly. Its subsequent morphing into a short-sale entry at the 200-day line on Friday is perhaps not a good sign for the market as numerous other oversold rallying stocks did likewise on Friday. We note that high-PE and infinite-PE "innovation" stocks and the like, which we have referred to as Ponzi-Stocks, that have been staging deeply oversold rallies after losing 80-90% of their value during the 2022 Bear Market have suddenly rolled over and broken back to the downside over the past few days.
Investors continue to pin their hopes on a so-called Fed pivot, but there is as yet little evidence of this. Market-based interest rates certainly don't seem to be buying this as the 10-Year Treasury Yield ($TNX) pushes up near the 3.00% level, closing at 2.989% on Friday. High yields make bonds more attractive so capital drains out from stocks. Furthermore, the U.S. dollar is also shooting back towards new highs.
The macro environment looks dire as Fed members target rate hikes to eventually hit anywhere between 325-375 bps by the end of the year. This will do little to break the back of inflation. Such higher rates will force markets to retest lows. And where stocks go, so goes crypto. A $10K bitcoin would not be surprising. That’s more than a 50% drop from current levels.
Eventually, another crisis will hit allowing the Fed to justify another round of money printing. M2 never materially decreases once debt reaches these levels.
Meanwhile, economic evidence, this week in the form of a continuing collapse in the housing market, continues to point towards a potential crash-landing as the Fed faces the proverbial rock and hard place. As we approach the end of summer and the historically and seasonally weaker fall period of September to October, the market pieces are set-up for some potential fireworks. This remains a market for swing-traders and may soon resume its prior role as a market for short-sellers.
The Market Direction Model (MDM) remains on a SELL signal.