Dear Reader,
We’re back in positive momentum conditions… just like that.
Crazy right?
Yesterday, Atlanta Federal Reserve Bank President Raphael Bostic decided to suggest a rate pause later this summer. The algos and arb-strat traders decided to create a rally…
We were right at the 200-day moving average for the S&P 500. Another move down, and it would have really gone sideways. Now, we’re talking about another move up – maybe to 4,050.
It was either on purpose… or Bostic doesn’t understand that his statements fuel rallies and breakdowns. I can’t be both. You’re either intentional or you’re naive. There’s no middle ground.
I’ve cut short positions and found a long portfolio in FlashPoint Trader holding up.
The question now is how long this rally can actually last.
And how bad things will EVENTUALLY get.
Buckle up.
Conditions Are “Improving”
This will be a VERY difficult rally to trust. I’ve seen three of these short-term, positive rallies over the last year, all ending in calamity. And what catalyst for next week could be worse than another red-hot jobs report?
Jerome Powell is speaking on Tuesday.
Nothing significant has changed in the last 24 hours, despite Bostic’s warning. Inflation is still running very hot. In fact, the latest PMI data from this morning shows another hot read on economic activity.
As I’ve noted, economic conditions started to expand in November and December. It’s hardly surprising to see stronger consumer spending, stronger PMI data, and a bounceback of inflation. It makes me wonder who – if anyone – studies economics anymore…
Even the people in charge.
Bostic suggested that we might see a pause in Fed rate hikes.
That might be possible, but we’d also need to see a decline in liquidity and economic conditions in the future months as well. You can’t keep printing money (Congress) while the global central banks pour gasoline onto the fire.
Even if we do see a “pause,” there is still a rising probability that we’re at 5.5% this summer
And I don’t think that a move to 6% is unreasonable.
The way I view this – the harder people buy into the pivot, the uglier this will get on the backside. The politicians might be doing victory laps that they’ve gamed GDP enough to avoid a technical recession. But at some point, the music will stop playing.
I encourage everyone to be very cautious right now. Focus on trades with higher return probabilities and less on swing trades that can quickly stop out due to the sentiment games that are common.
The BEST way you can maximize the upside of these names is to trade with me at Flashpoint Trader.
Today’s Momentum Reading
Broad Market: Green
S&P 500: Green
Recap: The World’s Biggest Indicator (Momentum) is Green…
BE CAREFUL. It’s very difficult to look at this move down on the 10-year bond and see that as a sustainable move lower. As this market trades, the algos will see short-term upside gains, and the trend will be quick highs and quick lows. It will be very choppy along the way, and I would suggest that we get to 4,050 as a key level as Mr. Powell speaks.
What You Missed
Look, the permanent wealth strategy that I’m about to tell you about is NOT for everyone.
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Stay Liquid,
Garrett
