Mr Market has been obliging my bullish 'script' very nicely! - Thomas Ng 25 Jul 2022
On Monday 25 Jul 2022 4.13pm, I emailed Clients my latest post titled 'Mr Market has been obliging my bullish 'script' very nicely!'.
Below is the full transcript for your perusal:
. Hope you are doing well! I've been very busy with new business initiatives, so I will keep this month's writeup short & sweet via point form. Pls drop me a line if you have other queries on the market or stocks not covered in this post!
On 27 Jun 2022*, I said: 'If you follow me long enough, you will know the playbook is always the same - if the Bulls truly wants to make a difference this time round, we'll need to start seeing some exciting price action from them to reclaim the upper segment of the Bollinger Bands (of the S&P500 Index aka SPX), followed by a successful back-test back to the midpoint line of the Bollinger Bands.'
S&P500 Index Daily, 12-mth
- And boy did the Bulls reclaim the upper segment of the Bollinger bands this past week (18-22 July)!
However, do note that as of Friday (22 July) closing, SPX price action still has not broken above the support-turned-resistance blue zone which I have laid there clearly on my SPX Chart since 3 months back! See attached SPX Chart.
Thus in the shorter term (next 1 to 2 weeks) I would like to see price action doing a successful back-test to the midpoint line of the Bollinger Bands as SPX eases off from its 3-weeks high.
A failure of said back-test will likely see price action morphing into a neutral or flat trading range.
Now for the record, my bias is towards a continual upward rally towards the SPX 4233 - 4366 levels which corresponds to the 50% & 61.8% Fibonacci retracement levels. Textbook stuff, no sweat.
Chart A - Relative Performance Chart SPY vs ARKK, KWEB, XBI, IPO, SPAK, GBTC from 25 May til date
Chart B - Bar chart equivalent of Chart A
- 4 out of the 6 US growth / speculative sectors I monitor continue to maintain their outperformance over SPX since 25 May 2022** but the SPAK & GBTC ETF still has yet to gain any firm footing over SPX.
Pls refer to attached updated Chart A - Relative Performance Chart of SPY vs ARKK, KWEB, XBI, IPO, SPAK, GBTC from 25 May 2022 to date. Note Chart B is the bar chart equivalent of Chart A.
- Some thoughts on current investment outlook narrative
The current global narrative is very skewed to the following: High commodity prices + China supply chain issues + Ukrainian war > high global inflation > FED needs to hike rates aggressively to rein in inflation at the expense of price stability > equities bear market > global recession
However, in case you aren't aware, most commodities prices have fallen off quite a fair bit and supply chain issues in China have also eased (due to China deviating from her original zero-covid policy about 2 months ago).
Commodities prices / ETFs from their 52-week high to Friday (21/7) closing:
Crude Oil (USO ETF -19%)
Palm Oil (-49%)
Steel (SLX ETF -30%)
Copper (CPER ETF -33%)
Base Metals (DBB ETF -31%)
Corn (CORN ETF -24%)
Sugar (CANE ETF -12%)
DBA Agriculture ETF (DBA ETF -16%)
Lithium (LIT ETF -25%)
10 year bond yields (TNX -20%)
USD Dollar Index (DXY -2.5%)
The falling commodities prices are likely to feed down into weaker inflation numbers in the months to come. Coupled with inflation numbers 'base effects' (it's just pure Maths!), it is likely the FED may become less pressured to hike rates at such an aggressive pace. In any case, the 2022 record rate hikes are just giving what the FED truly needs to achieve its dual mandate***, i.e. it now has the 'runway' to CUT rates should inflation numbers turn out to be less threatening.
The FED signalling their less hawkish stance is likely key to effect a sea-change of narrative later & then possibly re-igniting the next intermediate term bull market.
(***Dual mandate of the FED refers to 'maximum employment & stable prices')
Of course, the ongoing Ukrainian war appears to be the main wild card now and a further escalation will likely throw out the above bullish thesis. This is possibly the ultimate 'known unknown'. By the way, the FED is meeting again this week and you should expect some volatility across all asset classes.
Make no mistake, the past 6 months have been difficult for most investments and in case you didn't notice, even the global luxury watch bull market was not spared! Do follow me closely as I continue to track the S&P500 Index blow by blow with precision and so far Mr Market has been obliging my bullish 'script' very nicely!
. Sorry it wasn't so short & sweet after all! Live Long & Trade Well. . Thank you & regards .
Thomas Ng, CMT Principal Trading Representative 首席股票经纪 www.thom-ng.com .
Chart source: stockcharts / tradingview'