Now there is Something to Talk about…

The markets have been treacherous since the short term trading top that we cited back when it happened on July 23. Since then we saw a sell-off into August 18, then a trading rally, and now a sell-off back into the August 18 low. To me it is a plus if we see that the stops under the August 18 low are taken out and all the technical triangle traders are put on the sidelines, or even become bears.

The big story for the past 13 months has been the strength of the economy that no one expected, Powell even cited this yesterday in his argument of why he needed to keep interest rates moving up. The fact remains however, that however you look at it, rates have topped and we are now in a little short term rate excess period.

The Key Question at this point is “Will the Economic Growth Continue to Surprise?”

I am on the side that it will, mainly because most of the stock players still have not figured where it lies. As we have been saying since June 2022, this is not about discretionary consumer spending or AI, it is about deep growth investment. That is why we had the chip rally, we needed to get the core equipment designed and purchased, now the installment and activation period is coming up.

Charts that I have focused on for years are these two:

  1. Economic Restrictions, an algo that combines numbers expressed as negatives, prices times -1, this includes gold prices, oil prices, dollar price, and 2 year rates. The 30-05 year YC is then added to the algo.
  2. Economic Demand, an algo that includes stock prices for the S&P, Nasdaq 100, Russell, and Real Estate ETF’s.

First we will take a look at the Economic Restrictions chart because that is where market players have been lost for the last 15 months. For this comparison then, with all that is going on today, it is important to use a chart based on 2 hour bars in order to see the massive turn being expressed.

The Economic Demand chart is really a Big Picture chart, The chart based on weekly bars is probably the best way to express core demand.

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