Australian (ASX) Stock Market Forum

January 2025 DDD

Politics:

The big and broad tariffs promised by Trump could permanently shift trade norms that have shaped the global economy for decades.

Why it matters: Even if Trump-era trade wars recede, the effects might live on. Global leaders might follow the country's lead and weaponize tariffs more often to extract demands from trading partners.

What they're saying: Other countries are "coming to the conclusion that if the U.S. is willing and able to impose tariffs in an arbitrary way from a trade-law perspective, they can, too," Michael Froman, president of the Council on Foreign Relations and a former U.S. trade representative, tells Axios.

  • "Every government around the world is under protectionist pressure," Froman adds. "They all have domestic interests and would rather not compete with imports from other other countries."
The intrigue: This copycat effect is already underway. Trump's return to the White House could supercharge it.

  • The U.S. has increasingly imposed trade restrictions on the grounds of national security, invoking an exception to World Trade Organization rules. Other countries, including Mexico, have followed suit.
  • "This used to be an exception that was rarely used. Now it is used more freely," Froman says.
The big picture: When in office, Trump will have to decide whether to turn to the tried-and-true tools to implement tariffs he used when he was last in office — which are powerful but take time and care to enact — or rip up the playbook.

  • In a disruption scenario, Trump could declare a national economic emergency, which gives the president wide latitude over international economic policy.
  • Then he could move quickly on tariffs. But he'd face blowback in the form of higher consumer prices, a slumping stock market, angry CEOs and congressional Republicans, retaliation from trade partners, and legal challenges.
What to watch: Speedier tariffs could also mean speedier retaliation from major allies that might take a huge toll on domestic producers. If U.S. tariffs are broad-based, retaliation might follow suit.

  • Canadian officials are already readying tariffs as high as 25% on nearly everything America sends to its neighbor to the north, Bloomberg first reported last week.
  • "We are ready to respond with tariffs as necessary," outgoing Canadian Prime Minister Justin Trudeau told MSNBC this weekend.
  • "We are the No. 1 export partner of about 35 different U.S. states," Trudeau added. "Anything that thickens the border between us ends up costing American citizens and American jobs."
The bottom line: Similar across-the-board responses from other major economies would make the 2018 trade war look tiny as global leaders embrace the new protectionist world.

  • In 2018, countries hit back with tariffs that aimed to hit Trump where it would hurt: red-state economies that export products like soybeans and bourbon whiskey.
JC:

It's the Dollar.

This is the current headwind for equities around the globe, not just in the United States.

I will say that I'm impressed with how well stocks and other risk assets have done despite the absolute ripper in the Dollar since last quarter.

But there's only so much the stock market can withstand.

Here's the U.S. Dollar Index breaking out to the highest levels since 2022.
1736766986649_DXYdollar_01JHFP265PW8N76EWSKDXS5QFX.png
Over the weekend, we went over all of the sector rotation and bullish characteristics that you regularly see during bull markets. And we're currently seeing many of these.

The headwind, however, that is the U.S. Dollar remains in place. I still believe that it's going to take a Dollar rollover, for the next leg in this bull market to get going.

Sector rotation is the lifeblood of a bull market. We've seen it this whole time.

Can they step in and rotate them once again to get this party started?

I think the Dollar will need to take a break.



Screen Shot 2025-01-14 at 7.52.10 AM.pngScreen Shot 2025-01-14 at 7.52.26 AM.pngScreen Shot 2025-01-14 at 7.53.02 AM.png

Another bubble in house prices.

Screen Shot 2025-01-14 at 7.54.19 AM.png

Not really news, but worth watching if passive flows reverse.

Screen Shot 2025-01-14 at 7.54.38 AM.pngScreen Shot 2025-01-14 at 7.54.58 AM.pngScreen Shot 2025-01-14 at 7.55.40 AM.png

Now this (above) is critical:

Screen Shot 2025-01-14 at 8.01.00 AM.png

When the interest rate (10yr) is HIGHER than GDP growth and debt = 125% of GDP, you have a crisis as you will create a death spiral in the debt.

This needs lots of liquidity fast, ie. INFLATION.

This is the message of the high USD.

Screen Shot 2025-01-14 at 7.56.01 AM.png

God forbid if unemployment moves into recession territory.

Screen Shot 2025-01-14 at 7.55.16 AM.png

Markets are or were, celebrating a 0.1 downtick. Noise. The trend is in the wrong direction.

Screen Shot 2025-01-14 at 8.07.22 AM.png

Mag 7 are holding the market lower. Everything else is pretty ok today.

Banks are fairly solid ahead of earnings. I wouldn't expect any major shocks, the banks are simply too integral and important to allow any nasty surprises to be lurking. Of course they are pretty much bankrupt if they actually had to mark-to-market their UST holdings, but obviously they don't. LOL.

So assuming decent earnings, the market this week should at least consolidate. We have had our little shakeout and scare, now the market starts its inexorable march higher.

Don't get me wrong, this market is absolutely fu*ked, but not today.

Screen Shot 2025-01-14 at 8.17.54 AM.png

Looks like a bit of a rotation going on. The XLY, XLK and XLC are the Mag 7 ETF's. So with the Mag 7 churning, exactly what you would expect to see.

jog on
duc
 
Fires effect, insured lossed above 150 billions it seems, and power utilities might be hit as well.
It seems ,as in Australia, a lot of fires are actually started when not by arson, by power lines.
 
Trudeau is going/gone awaiting an anointed ( NOT elected ) replacement

will have plenty of popcorn as the Left stabs each other trying not to lose the next election
 
Oil News:

The US Department of Treasury implemented its most sweeping round of sanctions as it OFAC-listed 183 individual oil tankers, doubling the list of ships heretofore targeted by the US, UK, and the European Union.

- Up until now, OFAC had designated 39 tankers that carried Russian oil or products since it started its sanctioning spree in October 2023, with 33 penalized ships failing to lift cargoes since they were lifted.

- With 117 ships out of the 183 specializing in crude supplies, accounting for roughly a quarter of the 430 tankers that were involved in Russian crude exports last year, the sanctions are poised to have a knock-on effect on tanker availability for Iranian and Venezuelan exports, too.

- The biggest disruption seems to be taking place in Russia’s Far Eastern exports of the medium sweet ESPO grade as freight costs have tripled on Monday alone, with a voyage to northeast China rising to 5 million on a lumpsum basis.

Market Movers

- UK energy firm BP (NYSE:BP) has postponed its usual capital markets event after the company’s CEO Murray Auchincloss had to undergo a ‘planned medical procedure’, returning to his job in the second half of February.

- US oil major ExxonMobil (NYSE:XOM) has made a discovery with its first-ever wildcat in offshore Egypt after its Nefertari-1 well in the North Marakia block found commercial reserves of natural gas.

- US nuclear power giant Constellation Energy (NASDAQ:CEG) agreed to buy privately-held natural gas and geothermal firm Calpine Corp for $16.4 billion, turning it into the country’s independent power provider.

Tuesday, January 14, 2025

The sheer scope and ambition of US sanctions on Russia, arguably the last big energy industry move of the Biden Administration before passing the baton to Donald Trump, saw ICE Brent futures settle above $81 per barrel this Monday. This marks the first time that oil has traded that high since August 26 of last year and even a potential ceasefire in Gaza couldn't push prices back below the $80 per barrel threshold.

White House Rolls Out Sprawling Russia Sanctions. Global freight rates started to soar after the US Department of Treasury sanctioned 183 tankers that shipped Russian oil along with the OFAC listing of producers Gazprom Neft and Surgutneftegas, a move only reversible by a Congress vote.

LNG Giant Frenzies Market with Monster IPO. Arguably the largest IPO happening this year, US LNG developer Venture Global is seeking up to $110 billion in valuation in its NYSE initial public offering as it plans to raise at least $2.3 billion with the offering of 50 million shares, priced at $40-46 each.

EU Plans Let Gas Price Cap Expire. The European Union intends to let its €180 per MWh natural gas price cap expire as scheduled at the end of this month, first introduced in December 2022 to limit soaring gas prices but now no longer deemed necessary as TTF trends around €50 per MWh.

Ukraine Drones Target Key Pipeline Compressor. The Russian Defence Ministry stated that Ukrainian drones attacked the Russkaya compressor station in the south of the country, incurring minor damage to the 31.5 bcm/year Turkish Stream gas pipeline, accusing it of energy terrorism.

Oil Sands Output Rises to Record Highs. Crude oil production in Alberta reached an all-time high of 4.2 million b/d in November, the most recent month covered by the province’s energy regulator AER, with relatively stagnant oil sands output boosted by rising condensate volumes.

Saudi Arabia Mulls Uranium Enrichment. Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman announced that Riyadh would seek to enrich and market uranium fuel further down the road, raising concerns that their 2018 promise to develop nuclear weapons if Iran did might be true.

Utilities Bear the Blame of LA Fires. A group of homeowners and businesses filed a lawsuit against US utility firm Edison International (NYSE:EIX) for allegedly causing the deadly Eaton Fire due to improper maintenance of power lines, sending the company’s stock plummeting by 25%.

US Steel Finds a New Suitor. US steel manufacturer Cleveland-Cliffs (NYSE:CLF) is reportedly preparing an all-cash bid for US Steel (NYSE:X), teaming up with Nucor (NYSE:NUE) and offering in the high $30s per share, having its previous 2023 takeover bid rejected.

Chinese Mining Giants Eye Mergers. The post-COVID M&A spree has finally reached China as well as the country’s top copper miner Zijin Mining (SHA:601899) is reportedly in talks to purchase a controlling interest in lithium producer Zangge Mining, in a deal worth $6.4 billion.

UK Nuclear Costs Balloon Out of Control. The cost of building Britain’s next nuclear plant, the Sizewell C project in southeast England, could require as much as $49 billion as projected costs of developer EDF have doubled compared to initial estimates, eyeing a 2029 commissioning.

Norway Awards 53 Licenses in 2025 Auction. Norway’s Energy Ministry awarded stakes in 53 offshore oil and gas exploration blocks in its annual licensing round, slightly down compared to last year’s 62 awards, with the country’s major Equinor (NYSE:EQNR) taking a stake in 27 of them.

Mali Starts to Renationalize Metals Industry. The government of Mali has started to enforce its own provisional order to seize all gold inventories owned by Barrick Gold (NYSE:GOLD) at the Loulo-Gounkoto site, marking a new escalation as the cost of seized gold could reach $400 million.

LME Flirts with Idea of Chinese Expansion. The London Metal Exchange is finalizing the procedure of approving Hong Kong as a potential warehouse location for its global storage network, a long-mulled step ever since HKEx bought LME in 2012 as Hong Kong remains the gateway for mainland China.

From JC

Both of these trades are actually very similar in their setups.

They've each been huge winners that have recently pulled back a bit to give us an ideal entry point.

In bull markets, it historically pays better to be a buyer of stocks. The sellers of stocks, and Cash HODLers tend to be penalized for that kind of misbehavior.

This cycle has been no different.

It's a bull market, and the weight of the evidence continues to point to these trends continuing.

The first trade from this week involves Heavy Construction and is a bellwether in the Industrial Sector.
1736856189067_XLI2626_01JHJB4ESKA0PE62A72W6AKW9B.png

Industrials are the sector that is historically the most correlated with the S&P500 of all the sectors.

So if this bull market is going to continue, as the evidence suggests, then Industrials, and our sector bellwether trade is likely going to do very well for us.

Get all the details for this trade here.

The next one, like the trade above, has been a big winner that has recently pulled back. It's a Materials stocks that focuses more on Metals and Mining.

Look at this huge base in the Metals and Mining Index:
1736856152823_XMEaa_01JHJB3BG444KAXNYKBG0DQBB1.png

I like both of these trades, for similar reasons.

One is in Materials and the other is an Industrial. But the setups are similar. I believe that each of them have over 50% of upside potential over the next several months.

This is the time to profit. Investors are racing to cash, which is the exact opposite of what historically works well in bull markets. We want to take advantage of their mispositioning.


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Inflation issues back on the table.

People are worried about inflation. The US needs inflation and lots of it to manage its debt levels. If they fight it, the debt will win. So far Trump policies are generally looking to drive inflation higher: tariffs, lower USD (devaluation).

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Lightened up the position taking some profits.

Choppy day:

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Bears seem unable to push the market lower.

jog on
duc
 
Inflation:

The latest Consumer Price Index offers some hope that inflation might be back on a cooling trend. It also shows why that might not translate into immediate relief for consumers.

Why it matters: Underlying inflation finally ticked down after it looked stuck for much of late 2024, but that measure excludes the soaring food and energy prices that were especially brutal on household budgets last month.

  • Financial markets are celebrating because they see softer underlying inflation.
  • But consumers likely didn't feel that cooling much at all. Prices shot higher for gasoline and other energy sources, and for eggs and many other groceries.
What they're saying: "Core inflation rising less than expected may portend good news for inflation in the months ahead, but this was a particularly painful report for consumers," Robert Frick, an economist at Navy Federal Credit Union, wrote in a note.

  • "The cost of necessities that hurt household budgets, especially for lower-income Americans, were among the top reasons inflation rose in December," Frick added.
By the numbers: CPI rose by 0.4% last month, the second straight monthly increase. In the 12 months through December, CPI increased 2.9%, up from 2.7% in November.

  • Among the culprits: higher prices for gasoline and some grocery staples, like eggs. Energy prices rose 2.6% in December alone, accounting for 40% of the monthly increase in CPI.
  • Overall grocery prices ticked down, but that disguises sharp increases for everyday foods. Egg prices were up 3.2% in December and up 36.8% over a year ago.
  • Airfares were up 3.9% in December, and rose 7.9% over the last 12 months.
The other side: The inflation picture brightens a bit once energy and food prices are excluded. That core measure makes little sense for consumers, but economists watch it for clues about underlying inflation.

  • Core inflation rose 0.2% last month, the slowest pace since last summer. For the 12 months ending in December, core CPI was 3.2% — a leg down after moving sideways in recent months.
  • Shelter costs — a key category keeping inflation elevated — rose just 0.3% for the second straight month, a sign that price pressures might be normalizing.
  • Over the last three months, core CPI rose 3.3% on an annualized basis, down from 3.7% in November.
"The Federal Reserve is ok with watching the headline CPI go up temporarily if that increase does not spill over into the core CPI, and this is what happened in December," Eugenio Aleman, chief economist at Raymond James, wrote in a note.

Politics:

President-elect Trump's administration will be intently focused on making the U.S. border more secure and deporting people who are in the country illegally, but may prove more open to legal immigration of highly skilled workers.

  • Done right, that would be an economic boon, a new paper argues.
Why it matters: The report, out this morning from the centrist Economic Innovation Group, finds that when some of the world's most talented and entrepreneurial people are allowed into the United States, the results are faster growth, higher wages for native-born citizens, and lower fiscal deficits.

  • It is America's "not-so-secret weapon," they write, while identifying numerous weaknesses in current policy that prevent those benefits from fully accruing.
State of play: MAGA world has been roiled in recent weeks by a clash between Trump allies (led by Elon Musk and Vivek Ramaswamy) who want more legal immigration of highly skilled workers and the nativist right (including Steve Bannon and Laura Loomer) who want less.

  • Trump sided with the pro-skilled immigration crowd last month.
  • While that conversation specifically focused on the H-1B visas, it implies some broader openness to rethinking how America might open its doors to the world's best and brightest, as Musk and Ramaswamy seek.
By the numbers: The authors calculate that under the current H-1B program, the typical skilled immigrant pays more than $32,000 per year in federal taxes, while consuming only about $3,500 worth of government services.

Zoom in: "Our high-skilled immigration system should be designed first and foremost to advance the national interest of the United States and the interests of its communities and workers," write Adam Ozimek, Connor O'Brien and John Lettieri.

  • "Designed well, immigration policy can make our workers more productive, make American industry more globally competitive, spark new growth in left-behind parts of the country, and improve living standards nationwide," they add.
  • They argue that the system should be based on bringing in workers with the highest earnings, as opposed to the lottery system used in the H-1B program or offering visas based on education.
  • This, they argue, would ensure it's the immigrants with unique skills and the greatest ability to add to economy-wide productivity who are allowed in — not just undercutting wages of native-born workers.
  • The authors also advise abandoning quotas by country, further pushing toward a system based on merit that brings in tippy-top talent.
What they're saying: "The fact that the president-elect has reaffirmed his support for high-skilled immigration presents a very interesting moment where what has been an afterthought in our broader immigration has a chance to become a centerpiece, as we think it should be," Lettieri, the president of EIG, tells Axios.

  • "There's enormous pressure to turn the tide on the fiscal outlook of the country and to find ways to boost the economy that don't carry a huge price tag," he adds. "There are very few levers to pull that meet those criteria."
Demographics (related to the above);

Falling fertility is a problem across the developed world. Unlike many other risks, demographic changes can be predicted with some certainty; sliding birth rates translate directly into smaller populations ahead. That is a good thing in many ways. Two hundred years ago, the Malthusian fear was of population growth so rapid that it outstripped natural resources. But there are other ways in which it’s a serious problem, which could also create opportunities for those who offer solutions. And so the McKinsey Global Institute offers a new report on “confronting the consequences of a new demographic reality.” As it sounds, it’s not cheerful reading, but it shouldn’t be avoided.

The fall in birth rates to date is universal, but far sharper in the developed world and Greater China. These countries make up what McKinsey calls the “first wave” of depopulation:

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More than two live births per woman are needed to sustain populations, so declining numbers are already more or less guaranteed for much of the developed world. Lower populations will mean a smaller economy, but do not necessarily entail lower gross domestic product per capita. Problems arise as the smaller cohort of people arrives at working age. This chart from McKinsey shows those of working age (between 15 and 64) as a proportion of the total. The lower this drops, the fewer workers there are to support children and the elderly. In the “first wave” developed nations, this number peaked more than a decade ago, and is now on a serious decline. In sub-Saharan Africa, workers should keep increasing as a proportion of the population for another 50 years:
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The chances are that the rest of this century will see some shift in economic power toward the Global South, and specifically sub-Saharan Africa. At present, the region accounts for 16% of the world’s population. By the end of this century, it will have risen to 34% — almost double the population of China and the current developed world:
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How is the developed world going to deal with this? One obvious solution is for people to work more, both through longer hours and through waiting longer before retiring. Outside of China, where people work far longer hours per capita than in the west, that is doable. McKinsey’s numbers, from the International Labor Organization, confirm that people in Western Europe at present work significantly fewer hours than in North America or the developed nations of Asia. That is in many ways a policy choice; people are glad to eschew some economic growth in return for more opportunities to enjoy life. But that deal will grow harder to sustain:
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However, working longer hours on its own cannot realistically deal with the issue. McKinsey did the math. This chart shows how many extra hours different groups of the population would need to work to sustain economic growth per capita at the rate to which people have become accustomed. South Koreans under 50 would have to work 24 more hours each week. For Spaniards, this number approaches 30 hours. This, surely, is not going to happen:
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If people want to keep working the same hours, however, economies are going to have to make some really dramatic improvements in productivity (outside of China, where productivity growth has been far higher than anywhere in the west). Across the west, most countries would need to treble their annual rates of productivity growth to keep their economy growing at the same speed. That implies a big turnaround after years of steady declines, and it’s very hard to see it happening:
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Some combination of the above is going to be needed. People will have to work longer hours and retire later, which will mean reversing generations of gains made by workers. Improvements in longevity and health care would help this to happen, but the passionate objections to attempts to raise retirement ages (most dramatically in France, but nobody wants to have to wait longer for their pension) show how difficult this will be. That leaves, it seems to me, two obvious conclusions:
  1. Productivity has to improve somehow. That’s easier said than done, as the history of the last few decades makes clear, but the fact that it’s growing so urgent to find a way to get each worker producing more does suggest that the excitement over artificial intelligence has some justification. AI really might liberate a lot of people from jobs altogether, and boost others’ productivity. It does make sense to invest a lot in a technology that has true potential to solve the productivity problem.
  2. Heavy emigration from sub-Saharan Africa makes immense sense. The region will be producing more workers, who can fill the gaps emerging in the labor forces everywhere else. The region has made great progress in eliminating extreme poverty, but is much less far forward in the attempt to build a prosperous middle class. Immigrant remittances, and the job experience to be gained overseas, would be just what the region is needing. Solving the problems caused by falling fertility in the developed world while bringing some prosperity to the region where it is most conspicuously lacking would make eminent sense.
Of course, western populations do not at the moment seem ready to encourage an influx of African migrant labor. Quite the reverse. But the problem can only intensify, and that will force us all into examining some unpalatable alternatives.



Commodities:


Housing Market

We start with what’s happening with housing. Right now housing just isn’t working.

It all starts with where mortgage rates are at. The 30-year mortgage rate just hit 7.64%. That’s the highest level since May.

Take a look at this chart of the 30-year mortgage but notice what has happened to rates since the Fed started to cut.

s%2F140e786f-afa3-4b85-8cf2-76ec39018f8c_2508x1346.jpg
Source: Ben Carlson
This has essentially turned off mortgage demand. Last week saw single-family home applications fall for the 4th consecutive week. U.S mortgage demand is at the lowest since 2011.

The mortgage demand index has now fallen to the lowest since February 2004. That’s the 3rd lowest level in the past 30 years.

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Source: Nick Gerli
If 7% mortgage rates are going to be the new normal, it’s very hard to see housing working in that environment.

This chart shows just what has happened to mortgage loan applications since mortgage rates have started to rise.

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Source: RenMac via Daily Chartbook

You can guess what this has done to home construction.

Home builder spec inventory, which are homes that get built without a buyer ready to buy it are at the 2nd highest level going back to 1972. Only the 2008 housing bubble had a higher inventory than today.

s%2Fd8706865-2213-4c47-b072-f9350be7020a_1808x1446.jpg
Source: Michael Burry Stock Tracker
Home construction stocks (ITB - iShares US Home Construction ETF) is now at a 5 month low. This is an important industry reading that I watch as it’s important to the overall health of the economy and stock market.

J.C. Parets does a great job showing just how closely industrials (XLI - Industrial Select Sector SPDR Fund) another very important industry and home construction have been so closely correlated.

s%2F3abfb937-e8ed-44b5-a80f-9d7ea3601709_2890x1514.jpg
Source: J.C. Parets
You now exactly where this is then leading for construction sector jobs. This real estate slowdown is now reflected in these two charts that show construction job openings and postings. They’re about back to 2020 levels.

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Source: The Kobeissi Letter
s%2F086d0966-3b92-454e-891e-0fc92a5d7e81_2776x1446.jpg
Source: MacroEdge

Next let’s take a look at some worrying signs around the stock market, inflation and the labor market. ...


Bank Earnings (yesterday's thoughts)

  • Earnings season kicks off tomorrow, with several major banks reporting on Wednesday morning, including $JPM, $GS, $BLK, $WFC, and $C.
  • The Financial Sector ETF ($XLF) has stabilized after correcting -7.8% over the past month. Today marked its first back-to-back gain of the new year, gaining +2% in this week's choppy tape.
  • Larry points out that $XLF is primed for a meaningful rebound. It formed a Failed Breakdown by reclaiming its December low yesterday. RSI has created a Bullish Momentum Divergence, and 80% of its members are above their long-term moving averages.
The Takeaway: On the eve of big bank earnings, the Financial Sector ($XLF) has set the stage for a potential rebound.

Banks are up biggly today. Should not be a shock. If there is one area of the market that can be manipulated...this is it.


False Starts, Fails, and Shakeouts​

STEVE STRAZZA
JANUARY 14, 2025
We’ve been talking all about the lack of follow-through in recent weeks.
Fons just wrote an excellent post about failed breakouts. Upside resolutions won’t stick. We’re seeing it all over.
But, there’s more to the story. Breakouts failing to print is just one half of it.
BreakDOWNs are not sticking, either.
There is simply no directional bias in either direction. Resolutions are hard to come by. False starts, failed moves, and whipsaws are the norm. Both bulls and bears are getting chopped up and shook around.
I wanted to share a few failed breakdowns that stood out to me today, as this is an important distinction to make in a messy market environment.
Here’s Energy $XLE:
image%20-%202025-01-14T194448.137.png
After exploring a breakdown to lows not seen since Q1 of last year, bulls stepped in and reversed it.
XLE shook below the double-top breakdown level for a few sessions before digging in and ripping higher.
This failed move has already resulted in a fast move higher. XLE has gone from an extreme oversold reading to just about overbought in less than a month.
Next is Health Care $XLV:
image%20-%202025-01-14T194443.021.png
This one was also sitting around fresh 52-week lows with momentum at an extreme oversold level recently.
Bears had their chance to knock it down and complete the top, but couldn’t get the job done. XLV has fired higher off the breakdown level over the past few weeks.
Last but not least, here is Materials $XLB:
image%20-%202025-01-14T201254.934.png
After collapsing to its lowest level since February, XLB is soaring higher this week.
What looked like a clean break below a well-tested level of former resistance, has now morphed into a bear trap.
We’re one green candle away from an epic scoop n’ score for materials.
The takeaway here is simple. These are three of the worst-performing sectors since the back half of last year. It doesn’t matter though. Bears still can’t take control of these trends.
These sectors just hit some of their most oversold readings in history. And with all that selling pressure, they didn’t even break down.
If you tried to short these laggards, you just got smoked.
The same thing would have happened if you tried to buy the recent breakouts in small-caps, transports, or even the market darling, Nvidia. They all failed and rolled over.
So whether you are buying breakouts or shorting breakdowns, you are probably struggling out here.
It’s a messy market. And it’s the case for both bulls and bears.
Trendless.
Don’t fight it. Listen to it.
I think it’s a good time to buy the lower bounds of ranges instead of the upper bounds. I think we can anticipate failed moves to get better entries. I think we can be quicker to take profits.
But I don’t think we should keep buying breakouts if the market keeps punishing us for it.


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Big green day.

jog on
duc
 
You packed a lot into that post.

The takeaway here is simple. These are three of the worst-performing sectors since the back half of last year. It doesn’t matter though. Bears still can’t take control of these trends.
These sectors just hit some of their most oversold readings in history. And with all that selling pressure, they didn’t even break down.
If you tried to short these laggards, you just got smoked.
The same thing would have happened if you tried to buy the recent breakouts in small-caps, transports, or even the market darling, Nvidia. They all failed and rolled over.
So whether you are buying breakouts or shorting breakdowns, you are probably struggling out here.
It’s a messy market. And it’s the case for both bulls and bears.
Trendless.
Don’t fight it. Listen to it.
I think it’s a good time to buy the lower bounds of ranges instead of the upper bounds. I think we can anticipate failed moves to get better entries. I think we can be quicker to take profits.
But I don’t think we should keep buying breakouts if the market keeps punishing us for it.

These comments describe the current market conditions perfectly. It's been a messy market for both longs and shorts. I've struggled to find high probability entries in markets that normally run for a few days. Even though we discussed the contrarian opportunities in both XLV and XLU they just don't move enough (for me) in choppy markets.

I tend to lose focus on markets that aren't providing lots of trading opps and turn to other markets. I've noticed that as soon as I turn away from a market this is the time where lots of good opps appear. I realise later that I've missed them because I ignored the market. Nose to the grindstone.
 
I call that "Bloody Unlucky" P2

However If you watched the Livermore Doco I posted recently you'll note towards the end Real Smart Traders concluded
Don't Read or listen to anyone .
They either Don't Know what they are talking about or are Hopelessly Conflicted

They even Only used a broker who promised not to talk stocks and shares and Just execute their orders

I was in awe when I saw this as you know I have been Sailing the Global Exchanges on Technical Analysis
ONLY for decades
I Banned any Debating Society forming on my Ship but as you know This is Harder than it Seems

I have been training my 14 yr old Grandson /1st Mate for nearly 4 years and Still have to tell him

"DON"T DO as I DO -----------DO as I SAY "

tumblr_nlnovsSITo1qciqqno5_540.gif
 
You packed a lot into that post.



These comments describe the current market conditions perfectly. It's been a messy market for both longs and shorts. I've struggled to find high probability entries in markets that normally run for a few days. Even though we discussed the contrarian opportunities in both XLV and XLU they just don't move enough (for me) in choppy markets.

I tend to lose focus on markets that aren't providing lots of trading opps and turn to other markets. I've noticed that as soon as I turn away from a market this is the time where lots of good opps appear. I realise later that I've missed them because I ignored the market. Nose to the grindstone.


So:

Both SPY and SPY=weight are basing:

Screen Shot 2025-01-16 at 6.20.27 PM.pngScreen Shot 2025-01-16 at 6.21.27 PM.png

Equal weight looks more bullish, supported by:

Screen Shot 2025-01-16 at 6.22.00 PM.png

PUT buying is near turning points (bullish for stocks)

Screen Shot 2025-01-16 at 6.22.37 PM.png

New lows are declining

Screen Shot 2025-01-16 at 6.23.21 PM.png

50% are still above 200EMA

Screen Shot 2025-01-16 at 6.24.03 PM.png

Those below 50EMA are bouncing

Screen Shot 2025-01-16 at 6.24.36 PM.png

$SKEW supports PUT/CALL ratio, Calls are raising their IV (buyers are buying Calls as opposed to PUTS and MM are adjusting)

Screen Shot 2025-01-16 at 6.26.11 PM.png

This is the only BEAR chart. We are at the higher (top) end of range. But as you can see, we still have space.

Fundamental Factors:

(i) Passive flows (will provide more buying for the SPY than RSP) but in this scenario, that's bullish
(ii) Treasury and Fed want/need higher stocks, will actively add/provide liquidity
(iii) Powers that be will force USD lower
(iv) Someone will rustle up some buying support for Bonds in the short term, moving rates a bit lower.

Now I think that this market is incredibly dangerous in that it is horribly overvalued. Bubble.

We are somewhere between 1999 and 2000. There is still some upside, possibly accelerating upside, all to end in tears.

The higher projections that I have heard are S&P500 at 7000 to 7500.

Get in there my son...buy,buy,buy!

LOL.

jog on
duc
 
I call that "Bloody Unlucky" P2

However If you watched the Livermore Doco I posted recently you'll note towards the end Real Smart Traders concluded
Don't Read or listen to anyone .
They either Don't Know what they are talking about or are Hopelessly Conflicted

They even Only used a broker who promised not to talk stocks and shares and Just execute their orders

I was in awe when I saw this as you know I have been Sailing the Global Exchanges on Technical Analysis
ONLY for decades
I Banned any Debating Society forming on my Ship but as you know This is Harder than it Seems

I have been training my 14 yr old Grandson /1st Mate for nearly 4 years and Still have to tell him

"DON"T DO as I DO -----------DO as I SAY "

View attachment 191322

Cap't

There are many traders that love discussion, market and macro information. Sure there are some who don't.

There is no right or wrong way, only the way that makes you money. If you are making money, stick to your guns. If you are not or not making ENOUGH money, then investigate ways of improving.

I personally enjoy the challenge of understanding the macro.

I post what I think is interesting. I may not actually agree with what I post. In fact I may disagree quite strongly.

Interspersed with what I post, I will tell you what I think the big picture is and occasionally some actionable ideas.

I also treat the posts as a bit of a market diary. Useful to return to years later when a similar market presents, to see what has happened in the past.

jog on
duc
 
Bonds:

Screen Shot 2025-01-16 at 6.58.16 PM.pngScreen Shot 2025-01-16 at 6.58.31 PM.png

Today's Chart of the Day was shared by @SubuTrade.


  • Stocks and Bonds gapped higher today, fueled by a cooler-than-expected inflation report. The +20yr Treasury Bond ETF ($TLT) had its best session since the election, rising +1.7%.
  • $TLT filled a huge gap from November 2023 yesterday before closing at a 52-week low and gapping higher this morning.
  • @SubuTrades points out that sentiment and positioning are ripe enough for Bonds to form a meaningful bottom. Short interest for $TLT is highly elevated while experiencing massive outflows over the past 2-months.
The Takeaway: After exhibiting signs of capitulation, the +20yr Treasury Bond ETF ($TLT) had its best day since the election today.

Today's number is... 28.5
Market sentiment is shifting as the average bears reached 28.5 last week, the highest reading since November 2023.
Here’s the chart:
e%20II%20-%20AAII%20Bulls%20-%20Bears%20CLOSE%20UP.png
(right-click and open image in new tab to zoom in)
Let's break down what it shows:
  • The blue line in the top panel represents the price of the S&P 500 index.
  • The green line in the middle panel shows the average bulls from the Investors Intelligence (II) and the American Association of Individual Investors (AAII).
  • The red line in the bottom panel shows the average bears from the II and the AAII.
The Takeaway: We're beginning to notice more bears entering the market, as the average sentiment among bears has reached its highest level since November 2023. At the same time, optimism appears to be fading, with the average sentiment among bulls hitting the lower end of a year-long range.
Typically, we say that nothing influences sentiment like price movement. However, that's not entirely the case in the current environment, as most indexes are only 3-4% off their all-time highs.
Do the bears have insights into further weakness incoming for stocks?
From my experience analyzing market sentiment, I’ve learned not to take a contrarian approach but rather to follow the crowd until a reversal occurs.
Is that reversal happening now?
Given the weight of the evidence is leaning bearish, it is quite possible.
What are your thoughts?

I am OVER these market holidays:

Since 1998, markets have closed for Martin Luther King Jr. Day, which is this coming Monday. Can we predict the market’s direction for the upcoming week? In this article, I examine whether there’s a tendency for the S&P 500 to go up or down during the shortened trading week. I also break down the week by trading day then finally, I look for stocks that, for whatever reason, tend to outperform or underperform next week.

MARTIN LUTHER KING JR. WEEK​

The table below compares the S&P 500's performance during the week of Martin Luther King Jr. Day with its performance in other weeks. Historically, the holiday week has been a bad week for stocks with the index averaging a loss of 0.57%, with just 41% of the weeks being positive. Other weeks, the S&P averages a gain of 0.17% with 57% of weeks positive. Even when the holiday week has been positive, it tends to be limited in upside based on the average positive return being significantly below the typical average positive return.
iotw1jan14.jpg
This next table breaks down MLK week by the day. The week tends to get off to a bad start with Tuesday averaging a loss of 0.26% and less than half of the returns positive. In fact, the S&P 500 has been down the day after Martin Luther King Jr. Day in seven of the last eight years. During the holiday week, Wednesday has tended to be the best day for the market and Friday has tended to be the worst.
iotw2jan14.jpg

BEST AND WORST STOCKS FOR NEXT WEEK​

This first table below shows stocks which have bucked the trend of the general stock market during MLK week and have tended to perform well. The table is sorted by percent positive then by average return. No stocks have been positive in each of the last two years. Two stocks, however, have beaten the S&P 500 every year for the last 10 years -- Workday (WDAY) and Intuit (INTU). Technology and software stocks are prevalent amongst the best S&P 500 stocks during MLK week.
iotw3jan14.jpg
This next table shows the worst performing stocks during the week of Martin Luther King Jr. Day. Again, it shows the stocks with the least positive returns and then sorts it by average return. Financial stocks and coal, oil and gas stocks are overrepresented on this list.
iotw4jan14.jpg
I want to add JPMorgan Chase (JPM) and Eastman Chemical (EMN) to the worst performers list. They didn’t make the list because they’ve been positive 30% of the time during MLK week over the past 10 years. To make the table above, it needed to be 20% or worse. These two stocks, however, were the only ones to be defeated by the S&P 500 in each of the past 10 years.
iotw5jan14.jpg

Screen Shot 2025-01-16 at 7.02.59 PM.pngScreen Shot 2025-01-16 at 7.03.12 PM.pngScreen Shot 2025-01-16 at 7.03.37 PM.png

jog on
duc
 
I call that "Bloody Unlucky" P2

However If you watched the Livermore Doco I posted recently you'll note towards the end Real Smart Traders concluded
Don't Read or listen to anyone .
They either Don't Know what they are talking about or are Hopelessly Conflicted

They even Only used a broker who promised not to talk stocks and shares and Just execute their orders

I was in awe when I saw this as you know I have been Sailing the Global Exchanges on Technical Analysis
ONLY for decades
I Banned any Debating Society forming on my Ship but as you know This is Harder than it Seems

I have been training my 14 yr old Grandson /1st Mate for nearly 4 years and Still have to tell him

"DON"T DO as I DO -----------DO as I SAY "

View attachment 191322
For those who Missed the MUST WATCH DOCO on LIVERMORE Go to "Storm at Sea" post #1958 --ENJOY Learning to UN-Learn
I Noted that Sea-Cadet-Officer Froggie out of QLD gave it a Thumbs up WELL before the End and Missed the Life Changing Bits!
Too Busy on Tic-Toc I Guess?
 
Last edited:
Economics:

The U.S. economy will remain the world's growth powerhouse in 2025, IMF economists anticipate, even as uncertainty around trade and immigration policies creates inflation risks.

The big picture: The latest World Economic Outlook envisions a more robust U.S. growth picture than seemed likely just three months ago, driven by strong consumer demand and productivity growth.

  • That adds up to a favorable backdrop for the incoming Trump administration, even as the fund warns about some risks and uncertainties for the medium term.
  • A separate report out today from the CBO projects continued high deficits over the years to come, not factoring in changes to fiscal policy enacted by the new administration.
By the numbers: IMF economists now project 2.7% U.S. GDP growth in 2025, up from 2.2% in their October projections. They simultaneously marked growth expectations down for major European economies.

Between the lines: The WEO does not mention President-elect Trump by name, but the impacts of his expected policies are evident throughout the document.

  • "Confidence and positive sentiment in the United States, partly driven by deregulation, could boost both the demand and the supply side of the economy," the fund's economists write.
  • They add that "relaxation of unduly tight regulations and reduced red tape for businesses may spur near-term US growth through higher investment," while warning that this could cause the dollar to appreciate and thus create financial headaches in many emerging markets.
What they're saying: In a blog post, IMF chief economist Pierre-Olivier Gourinchas writes that "while many of the policy shifts under the incoming US administration are hard to quantify precisely, they are likely to push inflation higher in the near term relative to our baseline."

  • He adds that policies "such as higher tariffs or immigration curbs, will play out like negative supply shocks, reducing output and adding to price pressures."
The CBO's latest "Budget and Economic Outlook" for the coming decade contains reminders that strong U.S. growth in recent years has been propped up by high fiscal deficits.

  • The good news in the report is that strong growth has improved the fiscal outlook relative to its June forecasts.
  • The CBO now anticipates $1 trillion less in cumulative fiscal deficits over the coming decade than it did six months ago, and that debt as a share of GDP will reach 117% of GDP in 2034, compared to 122% in the June projection.
Yes, but: The CBO did not try to account for likely changes to fiscal policy under the incoming Trump administration, which will alter the trajectory of deficits and debt.

  • Extending the 2017 Trump tax cuts would push deficits higher in the CBO's models, while spending cuts and faster growth would make them lower.
Of note: In its economic projections, the CBO is quite a bit more restrained than the IMF, seeing 1.9% GDP growth this year, well below the Fund's 2.7%.

Demographics:

Around the world, people are having fewer babies than in the past. A new report from McKinsey puts sobering numbers on that reality, a profound economic threat for the decades ahead.
Why it matters: The entire social contract in rich countries — of ever-rising wealth and the ability to retire and live comfortably in old age — is threatened by the reality of "youth scarcity," as researchers at the global consultancy put it.
  • It implies that too few younger people in their prime working years are producing goods and services, relative to retirees consuming but not producing.
  • Productivity growth achieved thanks to AI and other technologies could help lessen the dilemma, as could higher immigration rates from places where population is still growing. But both create their own risks of contributing further to societal strains.
What they're saying: "Falling fertility rates are propelling major economies toward population collapse in this century," a team from the McKinsey Global Institute, the firm's in-house think tank, writes.
  • "Our current economic systems and social contracts have developed over decades of growing populations, in particular working-age populations that drive economic growth and support and sustain people living longer lives," they write.
  • "This calculus no longer holds."
By the numbers: For a country's population to remain steady over time, absent migration, it needs a fertility rate of 2.1 live births per woman. Two-thirds of the world population lives in countries with fertility rates below that, McKinsey finds.
  • In Western Europe, the fertility rate was 1.4 in 2023. In North America, it was 1.6; in China, 1.0; in Latin America, 1.8; and in India, 2.0.
  • The major exception was sub-Saharan Africa, with a 4.4 fertility rate in 2023.
Between the lines: The structure of pension systems across rich countries is that when adults hit some advanced age, usually in their 60s, they stop working and become recipients of support. That's ultimately borne by the working-age population, typically aged 15 to 64.
  • "Without significant changes, the world's aging population means a growing number of older people who aren't working will require the support of a shrinking number of younger people who are," the McKinsey researchers write.
  • These trends cannot be changed quickly. Even if people around the world start having more kids tomorrow, it takes years for those progeny to contribute to economic output.
  • Babies and small children, famously, are not very good workers.
Of note: "I think this will be a big, big source of tension because of the intergenerational burden," Anu Madgavkar, a McKinsey partner and author of the report, tells Axios.
  • "Younger people are going to find that they will possibly have to work much longer and harder," she adds. "They will have to probably be taxed more at the same time, and they're probably going to wait longer for intergenerational wealth transfer to occur."
  • "Negotiating that burden is not going to be easy or pretty," she says.



Oil News:

The recent relentless oil price rally that saw Brent break $82 appears to have slowed, but backwardation continues to expand in both Dubai and Brent futures. A potential de-escalation between Israel and Hamas, leading to the Houthis ending their maritime warfare in the Red Sea, could bring flat prices lower from next week onwards, but this week remains firmly in bullish territory.

BP Pledges Massive Layoffs and Cost-Cutting. Embattled UK oil major BP (NYSE:BP) confirmed this week that it would cut 5% of its global workforce, reducing headcount by around 4,700 positions, citing the need to simplify and refocus the company after some 30 projects were halted since June last year.

The Ouster of Libya’s Top Oil Executive Raises Disruption Risks. According to media reports, the head of Libya’s National Oil Corporation Farhat Bengdara has left his post after three years at the helm of the state oil firm, blighted by repeated shutdowns, militia interference and haggling over revenue allocation.

US Subsidizes Utilities’ Infrastructure Buildout. The US Energy Department announced $22.92 billion in financing for utility companies across 12 states to develop ageing grid infrastructure, most notably two Detroit-based firms that received $8.8 billion to reduce gas leaks and add renewable capacity.

Canada Threatens Tariffs on Critical Minerals. Canada’s Energy and Natural Resources Minister Jonathan Wilkinson could include critical minerals in its list of potential US retaliatory tariffs, potentially imposing countermeasures on up to $105 billion worth of trade.

Secretary Rubio Eyes Venezuela Sanction Snapback. Donald Trump’s Secretary of State nominee Marco Rubio stated at his confirmation hearing that the US will need to re-examine the 2022 sanctions waiver that enabled Chevron (NYSE:CVX) to expand operations in Venezuela, producing some 200,000 b/d.

Chevron’s Namibia Wells Disappoint Again. Failing to expand on the success of TotalEnergies’ (NYSE:TTE) multi-billion Venus prospect, US oil major Chevron (NYSE:CVX) stated it did not discover any commercial hydrocarbon reserves with its Kapana-1X exploration well in Namibia’s Orange Basin.

Singapore Bunker Sales Boom in 2024. The world’s largest bunkering hub in Singapore posted record-beating numbers in 2024 as Houthi attacks in the Red Sea have buoyed Asia’s bunkering demand even further with sales totalling 54.92 million metric tonnes, up 6% compared to 2023.

Asian Freight Rates Spiral Out of Control. Freight rates for giant VLCC tankers soared on the back of the US crackdown on Russia’s shadow fleet, with rates on the Persian Gulf-China route rising by 53% since the beginning of the year at $15 per metric tonne as Asian refiners scramble for available oil.

Saudi Oil Firms Seek Lithium Expansion. Saudi Arabia unveiled a new mining partnership that would see oil giant Saudi Aramco (TADAWUL:2222) team up with mining firm Ma’aden in a bid to extract lithium, building on a 2024 breakthrough in extracting lithium directly from oilfield brine in Aramco-run fields.

Mining Giants Mull Biggest Ever M&A Deal. Catching the mining universe by surprise, two of the world’s largest miners, Rio Tinto (NYSE:RIO) and Glencore (LON:GLEN), were reported to be in early-stage merger talks, potentially marking the biggest ever mining M&A deal with a market value of $158 billion.

Mexico Promises to Settle Debt with Drillers Soon. Mexico’s President Claudia Sheinbaum promised that the arrears of state oil firm Pemex vis-à-vis oil service companies, assessed around $5.1 billion, will be paid off in March, potentially lifting the upstream capex freeze currently in place.

Iran Ready to Sign Nuclear Pact with Russia. Iran’s President travelled to Moscow to sign an extended partnership pact with Russia, finalizing commercial terms on the construction of a new nuclear power plant in Iran, potentially the fourth nuclear object to be developed by Russia’s Rosatom.

Azerbaijan Turns Fashionable Again. US oil giants ExxonMobil (NYSE:XOM) and Chevron (NYSE:CVX) have revisited their stance towards Azerbaijan, with the former no longer selling its stake in the Azeri-Chirag-Guneshli fields and the former holding talks with state oil firm SOCAR to use its Baku-Supsa pipeline.


Trump and the USD:

Today’s Points:​

The Dollar’s Trump Checklist​

To many practical purposes, Donald Trump took over as US president two months ago. He’s told us what he intends to do, and markets have adjusted accordingly. But only on Monday can he enact actual specific policies, and there is feverish speculation that it will instantly bring a raft of executive orders. In this last Points of Return before the second Trump era begins (the US has a long weekend to celebrate Martin Luther King Day, so markets will be closed on inauguration day), we offer this road map to the most important financial variable confronting him: the US dollar.

The Smile
The dollar moves with what the foreign exchange strategist Steven Li Jen described as a “smile.” The model has gained wide currency in the decades since he promulgated it, and is illustrated with this diagram from the website of Jen’s firm, Eurizon SLJ Capital:
-1x-1.png
Because the dollar is a haven, it rises in times of trouble, even if the difficulties emanate from the US. It also gains when the US economy is booming. Its performance will be wishy-washy during “soft landings” when growth is unexceptional and nobody is that worried. This Goldilocks combination can be good for stocks and bonds, but for the dollar it’s bad.

A few months ago, the world was positioned for just such a meh outcome. Rates were falling as central banks looked likely to engineer a soft landing after the post-pandemic inflation. Then came the Trump victory, and data suggesting that the economy had far more puff than people had thought. Yields rose, as did the dollar. Much of the rest of the world, meanwhile, is terrified of what’s to come. Perversely, the dollar seems to be at both ends of the smile. Strength at home has combined with a sharp increase in the perceived risks everywhere else.

Precedents
Recent history offers little guidance. Trump has taken office once before, but in very different circumstances. The dollar is far stronger now. The Fed’s measure of the real, broad dollar, taking into account different rates of inflation, puts it at its strongest (and for the purposes of exporters least competitive) level in 40 years:

-1x-1.png
When Trump took office eight years ago, the long-term bull market for Treasury bonds (meaning yields moved steadily downward) was in full swing. That is over. Comfortable assumptions that there is a lid on yields no longer apply. Traders working today, in bonds and forex, have no experience of a dollar this strong, or of rates that are steadily rising:
-1x-1.png
And that’s before Trump arrives and reveals exactly how he’s going to go about levying tariffs. This matters because the secular trend toward ever lower barriers to trade has endured much longer even than the downward drift in bond yields. Some of Trump’s pronouncements, if enacted, would reverse this in truly spectacular fashion. Even the more moderate and targeted tariffs that Wall Street currently expects would represent a historic shift. This chart from Barclays Plc, which we first published last year, indicates the scale of what now seems possible:
-1x-1.png
Another factor seemed new and temporary eight years ago but now is taking on some of the trappings of permanence. US and German yields traced each other very closely for years, but that changed with the euro zone crisis at the beginning of the last decade. Euro zone government yields dropped to zero and below as the European Central Bank promised to do “whatever it takes” to save the euro, and big differentials in favor of the US have steadily become the norm:

-1x-1.png
Finally, inflation is higher than it was eight years ago, and has brought higher rates in its wake. And Trump 2.0, with four years to prepare a detailed plan, may well be far more focused and consistent than the first version, so the comparison may not in any case be that helpful.

Put all of this together, and both sides of the smile are working. Risks are high, particularly outside the US, and that prompts flows into the dollar; but those risks seem to be skewed to the upside, so good news for the US is also pushing up the currency. It’s never possible to prove causation, but the dollar’s rally overlaps almost perfectly with his improving political fortunes:
-1x-1.png

What Next?
No foreign exchange strategist disagrees that tariffs will be dollar-positive to an extent. The currency market will move to counteract them, because that’s what it does. But there’s still room for intense disagreement over how far this will go, and whether raised tariffs are already in the price. Jonas Goltermann of Capital Economics says that “both economic theory and the experience during the 2018-19 US-China trade war suggest that an increase in US tariffs would, all else equal, result in a stronger dollar,” while sharp dollar moves in response to press reports about tariffs in recent days confirm that it’s having an effect.

More Trump-aligned figures downplay tariffs and assert that inflation is still primarily about the Fed and monetary policy. Kevin Warsh, a former Fed governor often mentioned as a possible Trump nominee to replace Jerome Powell, opined in the Wall Street Journal that a 10% tariff increase “shouldn’t be statistically significant” for inflation, and that the Fed should “look through” one-time price changes. Trump’s nominee for Treasury secretary, Scott Bessent, told Congress on Thursday that for every 10% tariff increase, currency markets tended to move about 4% to readjust its impact. Dan Clifton of Strategas Research Partners commented that if this is true, “the Chinese yuan has moved almost identically to that 4% rate since the election and is close to pricing in the first 10% of tariffs.” He added that that the fall for the euro since the election might also reflect tariffs.

Certainly, the dollar’s rally has come further than rate differentials on their own can explain. However, the foreign exchange market does tend to overshoot, particularly when the US is performing well, so Deutsche Bank argues that this is not necessarily surprising (and, therefore, that it may not be necessary to invoke tariffs to explain the rally to date):

-1x-1.png

It’s a fascinating picture where arguments on all sides are going to seem political. But as it stands, it’s reasonable that uncertainty is elevated — and hence, given thesmile, that the dollar is also looking overvalued for now.



Earnings:

If earnings season were a red carpet event, Wall Street’s appearance would be grand and magnificent. The nation’s biggest banks have already handily beaten expectations. But as with the dollar, it’s very hard to separate politics from the debate over where earnings will go next. Serial optimists in Donald Trump’s pro-growth agenda point to likely good results as the dawn of great things. But companies are actually trying to talk down expectations somewhat more than usual. FactSet notes that 106 S&P 500 companies have issued quarterly EPS guidance for the fourth quarter. Of these companies, 71 were negative — above both the five-year average of 56 and the 10-year average of 62:

-1x-1.png
Beyond the rise in negative guidance, the consensus still points to thoroughly robust S&P 500 earnings growth near double digits. Analysts at Deutsche are forecasting nearly 13% growth in the just-ended quarter, typical outside of recessions. This would mark the highest year-over-year growth rate since the fourth quarter of 2021 (at 31.4%) when the Fed was still holding rates effectively at zero.

Global growth supports this, but low oil and commodity prices and the dominant US dollar, which tends to shrink multinationals’ overseas earnings, are headwinds. Outside of energy, where earnings are expected to fall 28%, analysts forecast broad-based growth across sectors:

-1x-1.png

Thanks to companies’ usual game of lowering expectations ahead of results, earnings will likely be far better than these forecasts. FactSet’s analysis shows that the actual growth rate of S&P earnings has exceeded the Street’s final estimates in 37 of the past 40 quarters. The only exceptions were the pandemic-hit first quarter of 2020, and the last two quarters of 2022 when the Fed’s rate-hiking regime got into high gear. On average, the earnings growth rate has come in by 5.4 percentage points ahead of expectations.

Even if earnings growth is a virtual certainty, the more difficult task is for companies to back up the post-election optimism. In particular, can the Other 493 (the S&P 500 excluding the Magnificent Seven tech platforms) start to improve on their fundamentals? As shown in this Societe Generale chart, technology has done far better than other sectors in juicing both profits and markets, so this is a big task ahead:

-1x-1.png
Still, that’s not an insurmountable task for the Other 493, providing the economy recovers on cue. Bank of America’s analysts predict an improvement in the fundamentals in 2025 driven by a cyclical rebound in manufacturing. With half of S&P earnings tied to manufacturing, that should lead to volume growth, driving better operating leverage and margins:

-1x-1.png
Some of this is about animal spirits. A consumer splurge post-election is expected to boost retail earnings. And much depends, of course, on the exact policy mix chosen by Trump, and whether it has the desired effect of reviving US manufacturing. BofA’s Ohsung Kwon and Savita Subramanian see corporates unleashing capex, while tariffs provide additional wind in manufacturing’s sails:

We believe tariffs are initially positive, driving demand pull-forward and potentially igniting a restocking cycle. Companies so far cited they’re better positioned to mitigate the impact this time compared to 2018 for two reasons: 1) China exposure has been reduced by over a third, and 2) tariffs never went away (current effective tariff on China: 20%).
If CEOs repeat that story in their earnings calls over the next few weeks, they might help to boost the stock market more than any policy that emanates from the White House.

From JC:

One of our favorite setups occurs when a stock breaks a key level, fails to follow through, and then reverses sharply in the opposite direction.

These patterns are known as “shakeouts”, and the best ones set the stage for powerful breakouts.

It is no surprise these shake n’ go setups have earned us the quickest doubles. They’ve also delivered some of our best trades in 2024.

When we notice something working, we keep doing it.

This week, we saw a lot of breakdowns failing, and shaking traders out before ripping higher. We jumped on the opportunity and put a new trade on the Regional Banks ETF $KRE.

After hitting fresh two-month lows last Friday, it’s reversed higher and trapped the bears this week.
37041175280_image%20(5)_01JHQVHSPDATGDSM31H5ZE62WP.png
The bounce is resulting in a textbook “scoop n’ score” setup—just as momentum is shifting in our favor. The best trades start working right away, just like this.

Think of the shakeout or the scoop as a failed move. The score, or the subsequent rally, is the fast move that follows.

You don’t always get the fast move in the opposite direction. But when you do, these trades work right away and can turn into huge winners. It’s already happening with our KRE trade.

This isn’t new to us.

Look back at $PLTR in early August. It faked a breakdown, only to squeeze the shorts and launch higher.
37041174873_image%20(6)_01JHQVHS9GAMJM90G0AE1KSZ6H.png
This was such a nasty shakeout. PLTR fell more than 10% intraday on August 5th which was not just an epic volatility event, but also marked a short-term bottom for the market. We got in the very next day. The stock has been on a tear ever since.

And we can’t forget our $SQ trade from November—a flag pattern appeared to fail but quickly turned into a textbook shake n’ go.
37041174159_image%20(7)_01JHQVHRNS96NHYKS51HHTXVBR.png
SQ went on to break out of a massive base. This was the move that sparked it.

Both of these trades became multi baggers. But before their big moves, they looked similar to how KRE does right now.

We only put the trade on a day ago, but the calls are moving in our favor with bank earnings season just getting underway.

It looks like the rally in interest rates may finally be cooling here too, tempered by today’s inflation numbers.

Both of these are potential catalysts that could fuel a big reaction rally from the banks in the coming days and weeks.


From Yesterday:

Thursday, January 16, 2025

Indices: Russell 2000 +0.15% | Dow -0.16% | S&P 500 -0.21% | Nasdaq -0.69%

Sectors:
8 of the 11 sectors closed higher. Utilities led, gaining +2.53%. Technology lagged, falling -0.77%.

Commodities: Crude Oil futures fell -2.74% to $77.85 per barrel. Gold gained +1.22% to $2,751 per oz.

Currencies: The US Dollar Index fell -0.11% to $108.96.

Crypto: Bitcoin fell -0.53% to $99,975. Ethereum dropped -4.17% to $3,308.

Volatility: The Volatility Index rose +3.04% to 16.60.

Interest Rates: The US 10-year Treasury yield dropped to 4.613%
at%207.20.37%E2%80%AFPM-01JHRT4E71BQYQ88GGZ3BT1YM9.png
Today's Chart of the Day was shared by Michael Nauss (@MichaelNaussCMT).
  • All seven components of the Magnificent 7 closed lower today, while the majority of S&P 500 stocks closed higher.
  • The Equal-Weight S&P 500 ($RSP) outperformed by the widest margin in six months today, rising +0.8%, while the S&P 500 fell -0.2%.
  • Breadth has been abysmal since the beginning of December. However, Michael points out we're seeing a healthy rotation out of the Mega Cap leaders.
The Takeaway: While the S&P 500 closed slightly lower today, the Equal Weight S&P 500 ($RSP) outperformed by a wide margin, indicating healthy rotation into the broader market.


jog on
duc
 
Some additional stuff:

Screen Shot 2025-01-18 at 6.52.46 AM.pngScreen Shot 2025-01-18 at 6.53.35 AM.pngScreen Shot 2025-01-18 at 6.54.43 AM.png

Gold baby!

Screen Shot 2025-01-18 at 6.55.00 AM.pngScreen Shot 2025-01-18 at 7.06.45 AM.png

Equal weight breaking out.

Screen Shot 2025-01-18 at 8.03.56 AM.pngScreen Shot 2025-01-18 at 8.02.18 AM.png

Full:https://www.wsj.com/finance/investi...4?st=2k2qZ9&reflink=desktopwebshare_permalink


Intel Capital on Tuesday said it will split off from its chipmaking parent, into a standalone investment fund.
Why it matters: Intel Capital is one of the oldest and most active corporate venture funds in Silicon Valley.

  • It was founded in 1991, and has invested more than $20 billion into over 1,800 companies.
Zoom in: The group will become independent in the second half of 2025, at which point it will be renamed.

  • Intel plans to remain a cornerstone investor, but the new firm also will solicit other commitments.

Some recent trades:

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I think that this is a useful tool, still trying to work out a good way to use it.

Definitely need to combine it with a pre-scan and then look at potentials. WMT was entered yesterday on this basis. Watch this space.


jog on
duc
 
From JC: bullish

Screen Shot 2025-01-18 at 4.23.37 PM.pngScreen Shot 2025-01-18 at 4.36.11 PM.png

Making the point that 'sentiment' is bearish.

Screen Shot 2025-01-18 at 4.39.52 PM.pngScreen Shot 2025-01-18 at 4.42.01 PM.png

But that credit and defensives are not confirming.

Screen Shot 2025-01-18 at 5.03.34 PM.png

Commodity bull market

Screen Shot 2025-01-18 at 5.04.34 PM.pngScreen Shot 2025-01-18 at 5.07.11 PM.pngScreen Shot 2025-01-18 at 5.12.39 PM.pngScreen Shot 2025-01-18 at 5.13.16 PM.pngScreen Shot 2025-01-18 at 5.15.12 PM.png

LLY is a short on confirmation, a break below the support.

Can the market be wrong?

Absolutely. It is all the time.

The last couple of big breaks that we have had, 2020 and 2009 (started in late 2008) have both been really fast. If (when) this market breaks, it will likely be really fast, it won't be a slow sort of bear like 2000.

It will be fast and come out of 'nowhere'.

But for the moment, it's a bull and we move higher.

jog on
duc
 
I have read in the media(AFR) there's to much money just going into US stocks, in particular US tech stocks like the mag 7, the market is looking vulnerable at the moment and high risk. Market players seem to think the Stockmarket will only go higher under Trump but be careful. If inflation starts to pick up again the market might actually crash, it all depends on how Trump is serious about his policies or his just full of hot air and bluster. The economists are suggesting his policies are inflationary, only time will tell.

I still have 3 stocks but have moved more of my super money to cash and fixed interest just as precaution, I don't want to be all in with shares at the moment. Should the market correct or crash I want to have cash ready to deploy like Buffett.
 
I have read in the media(AFR) there's to much money just going into US stocks, in particular US tech stocks like the mag 7, the market is looking vulnerable at the moment and high risk. Market players seem to think the Stockmarket will only go higher under Trump but be careful. If inflation starts to pick up again the market might actually crash, it all depends on how Trump is serious about his policies or his just full of hot air and bluster. The economists are suggesting his policies are inflationary, only time will tell.

I still have 3 stocks but have moved more of my super money to cash and fixed interest just as precaution, I don't want to be all in with shares at the moment. Should the market correct or crash I want to have cash ready to deploy like Buffett.
well Trump is well known for his bluster ( some call it bullying ) but he does get some deals done , but usually at some mid-point compromise

the problem is .. just how much trouble is the US actually in ,

official data has been questionable for years , so will the fudging continue or will we see glimpses of the truth ( as an excuse for extreme/emergency measures , )

now i am NOT US-focused although a crashing US market will affect some holdings , anyway

but even though i am less exposed to the US than many i still expect some contagion

studying the GFC in hindsight ( 'cos i had really important stuff happening at that time , so wasn't watching at the time ) my observation suggests the market went to cash ( ideally US dollars ) first .. and then other investments got some positive momentum ( like the precious metals ) as those who had reduced their debt levels exploited the cheaper prices

given recent events will the 'rush to cash' ( US dollars ) be as strong this time , some already have cash on the sidelines , and some will be avoiding US exposure ( like the Russians and Iranians )

In Her Last Official Act, Yellen Warns US Will Hit Debt Ceiling One Day After Trump Inauguration​


 
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