John Mauldin recently concluded the annual Strategic Investment Conference and shared some of the views of his famous speakers. In the world, the information he conveyed in his summary were simply nuggets. I had to go in search of context to bring it all together in my world. As a trader, I live in the world every day. Thus, it is easy to lose the appropriate context to see the main picture and sometimes the macroeconomic picture. Reading the notes from Mauldin’s speakers clearly showed two key points for my trade.
First of all, when the US Federal Reserve announced last May that they had begun to slow down the ongoing Quantitative Relief (QE) program, “everyone was out of the pool.” The Fed would do this for only two reasons. First, the economy seems comfortable to stand on its own two feet. Second, because the economy is strong enough to stand on its own two feet, the economic slowdown will be removed from the system, which is causing inflationary pressures.
Mauldi’s notes show that there are several reasons not to worry, despite declining unemployment. The speaker provided the following statistics, citing Steve Moore:
– The low-wage industry accounted for 22 percent of recession losses and 44 percent of recovery growth.
– The average wage industry accounted for 37 percent of recession losses, but only 26 percent of recovery growth.
– High-wage industry accounted for 41 percent of recession losses and 30 percent of recovery growth.
The decline in the quality of existing jobs helps explain why economic activities such as moderate spending, home buying and lending activities do not respond equally to the decline in unemployment.
I believe this is one of the reasons why the Federal Reserve keeps QE on the table rather than tying itself to an exit trigger. Mauldin’s view that the Fed is weakening the underlying economy is well illustrated in the chart, which shows that the company is outperforming the market. Therefore, the Fed will distort real income ratios and force those who want capital growth into the stock market.
These interest rate policies have caused interest rates to return to near-starting levels after the Fed announced its exit more than a year ago. Interest markets recovered 12.5% decline as traders tried in vain to hold a market rally near resistance levels around 138 in Long Bond, which we all thought would hold on to and which led to the failure of our Long-Term Bond position. a month ago. It is clear that the market is priced by deflation, not inflation.
Moving from the last trade to the next, we turn our attention again to the expensive stock market. We have consistently stated that the best way to make money on stock exchanges, indices, or ETFs is simply to buy breaks, and we subscribe to this theory because we support the “Final Independence of the Stock Index Futures.” That being said, I see two issues that need to be addressed. First of all, most of the basic information I see about the stock exchange is negative. This includes data on all major global markets. It also emphasizes that while investors are trying to protect the livelihoods of their collective pension portfolios, artificially low interest rates have turned normally income-seeking money into stocks.
The second point is to look for a forecast peak in stocks that could allow us to move from taking breaks to selling rallies. I think there may be a link between everyone’s reality and inflated stock market prices. We’ve seen the S&P 500 and the Dow Jones Industrial Average hit an all-time high this month. Meanwhile, the Nasdaq 100 and Russell 2000 indexes peaked in March. The point here is that historically small caps reach the top or go up from the bottom before large caps. In fact, Russell 2000 sold more than 10% after peaking on March 4, and the Nasdaq 100 fell about 9% after peaking on March 7.
The current trading model in these markets shows that I believe that Russell 2000 June futures will not reach a new high before the end of the quarter. This will be a classic example of technical impulse differentiation. Nasdaq, on the other hand, is likely to make up to 3,855 new earnings. This is my call to the top. As for the big caps on the S&P 500 and DJIA, I think this closing rally is a rally to be sold. The failure of Russell 2000 futures to reach new heights should signal the end of a very early summer rally. We did not sell away in May. Sell in June and see you soon?