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THE MARKET AND ECONOMY IN FIVE CHARTS

The markets are flat today after a sharp reaction to economic activity in China.

But we shouldn’t be watching China today. We have to worry about America.

We’ve got so much happening right now. Energy prices continue to collapse due to
weak demand. Homebuilders argue we’re in a housing recession.

And there’s a real problem brewing in the credit card market.

Today, I’ll show you five charts that will change your perspective of this
market… and economy. Let’s dig in.

Let’s Go to the Charts

These are the key stories that you’ll need to watch over the next two months.

Credit Bubble

I’ve been watching the situation around credit cards for the last few months.
While U.S. real savings rates are climbing, the number of new credit card
accounts continues to explode.

 



Americans continue to face a cost-of-living crisis, and we’re putting more and
more on plastic to maintain our standard of living.

This pattern continues… until it breaks.

VIX Sub 20

The streak is over. The CBOE Volatility Index (VIX) fell AND closed under 20 for
the first time in 86 trading days. No one should sound the all-clear…



We haven’t seen the VIX close under 20 since April 4.

Well, keep in mind that two days later, we experienced the strongest selloff
among ETFs since 2018.

Be careful out there. Especially with the July Fed minutes arriving on
Wednesday. We’ve seen the Fed signal plans to stay aggressive with interest
rates, but the market has only priced in a 45% chance that we go to 75 basis
points again in September.

Bear Market Rallies

I must pay close attention to Mr. Burry’s projections on this market and updates
out of Syz Group. They pulled this chart on Saturday, citing Bloomberg and a CFA
named Nick Reece.



Syz Group notes that the bear market rally that we’ve seen since June 16 has
largely been in line with historical norms. Since 1920, the average bear-market
rally is about 18%. But in the post-World War II years, Syz Group notes, we’ve
only averaged 13%. That’s effectively our gains over the last eight weeks.

Short the World

As we witness a decoupling of stocks from real interest rates, Bloomberg shows
that hedge funds continue to short this market with aggression.



The CFTC’s Commitment of Traders report shows big bets against bonds and stocks.
It’s been clear that forced buying has been a trend, but eventually, the funds
will be correct… right?

Death of the Bull Market

Well, this is something. Dig into the STOXX 600, and you’ll see the largest
number of buy ratings since 2001.



This is a contrarian indicator. We have to pay close attention because when
everyone gets TOO bullish, we start to see the rug disappear from under us.

I’ll talk more about these charts and how to play them today.

Today’s Momentum Reading

MOMENTUM INDICATOR

The World’s Biggest Trade.

Broad Market: Green

S&P 500: Green

Recap: Momentum is Green. After the China economic news, there remains some
sharp weakness in the energy and materials sectors. The key thing today isn’t
“Selling.” It’s a lack of buying in the market… and concerns about the upcoming
minutes from the Fed meeting. I’m watching volatility closely. Remember, there
has been a lack of selling over the last few weeks, and low volumes remain the
story. This is a very unusual market, so act with caution.

Three Things I’m Watching

These are the major stories and trends that have my attention today. While each
may not have a trade, it will impact my decision-making and strategies.

 

 1. Data Slump: It’s getting pretty ugly out there. The New York Fed’s Empire
    State Manufacturing Survey collapsed from 11.1 to NEGATIVE 31.3 in July.
    This move is the second-largest drop on record and is a serious warning
    about durable goods demand heading into the fall. A hard-landing recession
    appears inevitable, and the stock market will likely start to react to
    negative indicators once again. I’ve been taking gains in certain sectors.
    The other problem with this report is that it showed a decline in hourly
    work. Numbers like this raise serious concerns about BLS data.
 2. Housing Woes: Over the weekend, I read an article that said, “How to sell my
    house,” and other search terms linked to home sales recently hit an all-time
    record. That coincides with news that U.S. home inventory is surging on the
    market. We’ve seen a 128% increase in home inventory since March 2022 and a
    30.3% increase year-over-year. This tells me that the housing market peaked
    in Q1 2022, and likely won’t find itself back on firm ground until interest
    rates can decline sharply. That could be quite a while based on inflationary
    trends.
 3. Debt Warning: I’ve warned about rising rates and the desperation that some
    companies might face if they need to roll over debt. Today, Royal Caribbean
    Group (RCL) announced it would offer $1 billion in senior unsecured notes
    payable for 2027. The company needs the money to pay off the debt that
    matures next year. This stock is already off 31% in the last three months,
    and new debt doesn’t help. It already has a B rating on its debt, which is
    five notches under investment grade quality.

Hot Long Shot

The SPY trade on Friday was profitable, but the market has paused today.
Squeezing has slowed down, but meme stocks continue to show profits. One stock
to watch is Siga Technologies (SIGA), a producer of the Monkeypox vaccine. This
stock continues to show a trajectory that feels like any other breakout linked
to government spending. However, there is a very limited options chain around
the stock.

So, what should we focus on? I think the energy sector. China’s numbers were
bad… U.S. manufacturing is signaling a recession… and a move down further to $80
per barrel is the next support.

The SPDR Select Sector Fund (XLE) $70 put for September 16, 2022, is $1.00. So
lets Buy to Open the Sept 16, 2022 $70 put for $1.00 or better. This is a one
directional long shot so please be conservative.

WHAT YOU MISSED

Last week I highlighted a chart that is critical when taking into consideration
what actually causes economic expansion in this country. This is quite possibly
the most important chart of 2022, showing the cyclical demand component of GDP.



Last Thursday on Midday Momentum, I showed how housing, durable goods, and
energy have been the driving force of our economy as of late.

Consumers are becoming tapped out, leading to demand destruction, and all signs
are currently screaming recession. And on the back side of this scenario, it
looks like we may see the mother of all shorts.

In this clip, I explain in greater detail what might be coming down the pipe.

 



If you want to be in the best position for when momentum does make its turn,
become a member of the World’s Biggest Trade. There is no way to have my market
momentum analysis any sooner than being an insider. That’s because I notify my
members immediately when we have a significant momentum switch.

We are gearing up for a serious money-making opportunity with this next leg
down. Will you be with us for the move?

We have a great show lined up today, so join me at 12:30 pm EST for Midday
Momentum.


See you there,


Garrett Baldwin



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Published
August 15 2022
by Garrett Baldwin
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