Taking a Pause for a few Days…

As I see it, the stock market is setting up for shot through the 4333 level of the S&P in the next couple of weeks. Obviously. the employment numbers coming out this Friday will lend a piece of data that could support the move.

The three possible catalysts for an up move in stocks that observers are citing are:

  1. The FED starts cutting interest rates due to declining production data and looming recession.
  2. The FED stops raising rates, but doesn’t cut. i.e. Fed takes a break and tries patience.
  3. The last possibility is production data remains strong and underlying numbers including sentiment show that the economy can handle 5 % rates.

For me the first two possibilities are non-starters. Thus, I am at the moment in the strong growth camp that keys on Climate Tech initiatives. The strength in CHIP stocks seems to me to be an early core indicator.

Trading Notes….

Stocks are currently bouncing around in a trading range that started on February 2nd. The S&P closed at 4141.9 and the Nasdaq 100 at 12803.1 on that day.

On February 10th we noted some whiplash setting up in a number of the 14 algorithms we follow on these two markets. That whiplash included both hedge sell signals and outright buy signals that triggered around the 4090 level on the S&P and the 12,300 level on the NASDAG 100. These signals in both directions have not resolved into moves of consequence. Obviously, which way we go out of here will be important. The current trading range on the S&P is 3928 to 4195 with a swing point of 4062. This makes 4062 to 4090 a hotly contested space. Likewise on the NASDAQ 100, the current trading range is 11830 to 12880 with a swing point of 12355, making 12304 to 12355 a highly contested space.

And, Powell Testimony today…compliments of Joe on Bloomberg News

Good morning and Happy Powell Day. The Fed Chairman has the first of his two Capital Hill appearances today, in which he will deliver his Semi-Annual assessment of monetary policy and also take questions from Senators.

Here’s a few scattered things on my mind.

1) Obviously it will be interesting to hear Powell talk about the seemingly renewed growth momentum. Earlier in the year, virtually nobody was using terms like “no landing.” How much acceleration is happening now? And more importantly, why would there be acceleration happening after such a rapid pace of rate hikes in 2022?

2) More broadly, you know, going back to the beginning of 2022, even the most hawkish of pundits didn’t expect such a fast pace of rate increases. And yet we got these rate hikes exceeding everyone’s forecasts, and still inflation is hot.

3) To some extent the answer to this mystery is going to be some combination of “Well the economy was stronger, and inflation was more entrenched, than had been appreciated at the beginning of the year.” But then to some extent, this is question-begging. What is giving the economy this durability? And why didn’t mainstream forecasters recognize this strength earlier in the year? 4) Speaking of labor market strength, the next Non-Farm Payrolls report will be interesting. There continue to be incremental signs of labor market easing — companies saying that it’s getting less hard to find workers, and so forth.

Early Tuesday trade prior to Powell comments…

We see the S&P trading weakly, below it’s contested zone while the NDX is trading right in the middle of its hotly contested zone.

Late Comment at 3:35 PM CST….

Our trading algo that divides a stock basket by market interest rates is showing a rare buying opportunity at the moment with S&P at 3988.

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