Offbeat Ideas and Commentary from the Depths of Gil's Trading Notes
Not much mania today, just a continuation of Friday's rally on the last day of the first month of the New Year. At this stage of the decline short-sellers have to tread carefully, and in my view it is likely that we will need to see the market put in some time before the short side sets up optimally again. Be patient. When the need to sell gets obvious, and the big money is probably hedged up to their eyeballs, we may be ready for a rally of at least a few days. Meanwhile, I am not averse to whatever I can find on the long side.
I often like to the play the game of "What Does the Crowd Know???" If we think about what the crowd knows right, it is that the Fed is about to go ballistic on interest rates. Obviously, what would fool the crowd badly on that assumption is if the Fed goes dovish and keeps stalling as it did last week. Powell did not commit to an interest rate increase in March, although many seemed to view the Fed announcement and Powell's press conference as hawkish. Watch the $TNX closely. If rates start to come in then the market may be signaling a dovish Fed ahead. And with retail and retail auto inventories rising sharply according to recent data, then we could see a Fed that is stuck. And if the Fed remains dovish and fools the crowd, look for inflation-related stocks to kick in, including precious metals and related, industrial metals, agriculturals, etc., some of which are in U&R Land as discussed in the weekend report.Stocks like fertilizers CF Industries (CF) and Mosaic (MOS) might be investigated here as pullbacks into near-term support as volume contracts early in first half of the day. Watch for these to dry up further, otherwise the any longs in either would use the nearest moving average as a tight selling guide.