Down But Not Out

Friday saw one of the ugliest, orderly sell offs since the pandemic. Stocks had a brief pop at the open followed by an all day, systematic, steady, sell off, with very few bounce attempts and ending right near the session lows.

The possible inverse head and shoudlers pattern on both the NASDAQ and S&P500... gone....

Yesterday the markets continued the trend of a quick opening pop followed by steady, relentless selling. And then something strange happened. The market reversed course and closed... gasp.. higher.

I've been saying it for many moons now. Much like just after the pandemic when I said the backdrop was for higher prices, this time around, it's tough to imagine stocks heading higher.

Actually I wonder... how are they still not in a total bear market? We've seen just .25% worth of FED fund rate hikes. The market, and FEED officials are already talking 2.5-3.25% funds rate by years end. We are at .25-.5%.

With another 2.5% or better rate hikes.... that cheap money era of the last 12+ years is gone.

What will this mean for the money supply, which has exploded to the upside? You would think the mo' money mo' money mo' money era is over for now. Tighter FED policy means tighter money supply.. no?

Clearly its no coincidence cheap money, and growing money supply have equaled higher stock prices.

Clearly we are entering a time where money will no longer be cheap and money supply will no longer be growing.

And yet stocks are still hanging in there. Sure many growth stocks have been in a terrible 12 month bear market, but what about the mega caps, value, and blue chip names..... no so much.

Is the market telling us what lies ahead over the next 6-8 months is already priced in? And is the market seeing longer term a return to cheap money as inflation rolls over and dare we say deflation enters the picture.

One of the most glaring side affects of rapid inflation is demand destruction. The paroblic rise of oil ahead of the great recession was followed by an epic collapse.

In a free market economy, when prices rise.. inevitably supply will increase to take advantage of the higher prices. When that supply outstrips demand... prices will fall.

While most are slamming the FED for being late to the rate hike and punch bowl removal party.... secretly I think they are proud of finally meeting and exceeding their inflation goals. Powell stated they don't mind seeing inflation move over their 2% target. The FED knows, despite what most people see now as 'runaway' inflation.. they have far more control over inflation than deflation.

And if that what the market sees looking out? Prices rolling back over.. to the point where the projected rate hike spree will have to be reigned in?

Or is the current price action nothing more than a killer cross over dribble to break the bulls and bears ankles one last time before a significant market repricing takes place?

Higher interest rates are not a positive development for any unprofitable company. The sand in the going concern hour glass is flowing at an accelerated rate. I think the market has correctly sniffed that out many many months in advance. And yet how is the S&P500 not 20-25% lower already?

Down but not out... just yet. The market is smarter than all of us combined. With the FED hell bent on stomping out inflation, with constant hawkish commentary, and a plethora of .5% or better rate hikes in the months ahead... this market is either playing with us, or knows something we don't. I think it's the latter.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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