Posts by The Trend Letter

Market Notes

Market Action Amid Global Tensions

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We labeled Friday’s update as ‘Today’s Market Activity: A Critical Factor for Potential BUY Signals.’ However, over the weekend, a conflict erupted in the Middle East. On Monday, the financial markets opened predictably to the Hamas attack on Israel, producing a near-term decline, but then surprisingly, the markets rallied, with the S&P500 closing up 27 points.

So far, here on Tuesday morning, that rally has continued, with the S&P 500 up ~40 points at time of this writing.

Whenever global conflicts arise, the US bond market often emerges as a ‘safe haven’ investment option. This trend was evident on Monday as the sharp decline in bond prices began to reverse, resulting in higher bond values and lower yields.

In Friday’s update, we highlighted the S&P 500 was testing its critical support level, and when it held, we issued a BUY Stop signal, which was triggered on Monday.

We also issued a BUY Stop signal for a gold trade, which hasn’t yet triggered.

Subscribers can anticipate receiving more signals from us, potentially in the next day or two, as we keep a close eye on the energy sector, cannabis, and even the homebuilders for potential opportunities.

Upcoming this week are the PPI and CPI inflation data in the US, so any upside surprise in either of those could send bond yields spiking again, so we need to tread carefully.

Lastly, our exclusive Special Offer, offering discounts ranging from 40% to 65% off regular prices closes at the end of the day TODAY.  It’s your money, take control!

Stay tuned!

Market Notes

New BUY Stops Sent To Subscribers

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In Friday’s update titled ‘Today’s Market Activity Holds Key to Potential BUY Signals,’ we made note of the fact that “we have a few sectors that are displaying oversold conditions and are getting ripe for some BUY signals. We will observe how today closes and will provide our subscribers a brief update Saturday morning.” Following through on this commitment, this morning we took action and issued two new BUY Stop signals to our subscribers.

October carries substantial significance in the financial markets, as it historically marks a period when the stock market often reaches its bottom. Major indexes and leading stocks have, on many occasions, experienced significant losses in October, often exacerbating the sharp declines from prior months. However, it is during these periods of significant losses that the market tends to pivot and establish an upward trajectory that extends through the end of the year.

Within our analytical framework, our models monitor an array of indicators, including but not limited to the Relative Strength Index (RSI), Moving Averages, Moving Average Convergence Divergence (MACD), Commodity Channel Index (CCI), Bollinger Bands, Put/Call Ratio, Fibonacci Retracement, and many others.

When our models detect the convergence of several of these indicators, it triggers either BUY or SELL Stops. Initially, our models provide warning signs indicative of a potential shift in the market trend. As this trend becomes more discernible and substantiated, the models then issue strong BUY or SELL Signals. Over the course of this week, we have received several BUY warnings, signifying that our models are sensing a shift in market conditions.

For those who haven’t yet taken advantage of our exclusive Special Offer, offering discounts ranging from 40% to 65% off regular prices, will remain available until the end of the day today. It’s your money, take control!

Stay tuned!

Happy Thanksgiving Canada!

No BUY Signal just yet

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As an investment newsletter, we strive to bring the best information to assist those who want to become better, more successful investors.

Bond yields:

Investing in bonds. The recent market turmoil is predominantly driven by concerns over long-term bonds and their elevated yields, as investors brace for the prospect of enduring high borrowing costs. The underlying issue for the long bond market stems from the ongoing accumulation of substantial deficits and debt by the US government, compounded by the fact that China and Japan, historically the largest purchasers of US bonds, are now sellers of them.

Currently, the US is making interest payments of $909 billion on its debt, as reported by the Federal Reserve. With the primary buyers of US debt transitioning into sellers, a pressing question emerges: who will step in to purchase this debt? As potential buyers remain on the sidelines, market dynamics are pushing yields higher in an attempt to attract new investors.

Remember, the Fed only controls the short-term rates, the market controls long-term rates.

Equities:

Investing in stocks. Although the recent selloff in equities showed some signs of slowing down on Wednesday, investors remain vigilant for any potential resurgence in volatility, particularly if the upcoming US non-farm payrolls data on Friday exceeds expectations. On Wednesday, the S&P 500 made a noteworthy rebound, surging by 34.30 points to reach 4,263.70, thanks to early buyers stepping in. However, as of this moment, it has started the day with a lower opening and has retraced much of those gains, currently down by 25.39 points.

Oil:

Investing in oil. In our previous Trend Letter last week, we anticipated a retracement in oil prices from their peak at 94.00, prompted by an elevated Relative Strength Index (RSI) reading of 78.00, with any reading above 70 indicating an extreme overbought condition. Subsequent to reaching that high, oil has experienced a decline of approximately 10.00, settling around our initial support marker at $86.00, concluding Wednesday’s session at 84.22. This morning, there has been a slight uptick, but at the time of this writing, the market remains relatively flat. Our next anticipated support level for oil stands at 79.70, and we expect it to test that level in the near future.

Gold:

Investing in gold. Gold continued its struggles Wednesday, down ~7.00 to 1834.80. Over the past few months our projected lower target for gold has been 1825. At the time of this writing gold is trading at 1828 and is exhibiting oversold conditions. We are on the verge of our models issuing a BUY Signal, but it hasn’t triggered it yet.

It’s essential to emphasize that we are trend traders, requiring more than just an oversold market condition. The market must exhibit a convincing rally potential. While we believe we are approaching that point, confirmation is still pending.

As soon as we receive that confirmation, we will promptly notify our subscribers. If you haven’t subscribed yet, our exclusive Special Offer, providing discounts ranging from 40% to 65% off regular prices, remains accessible until this Saturday. It’s your money, take control!

Stay tuned!

Market Notes

Extreme fear translates to opportunities

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We are an investment newsletter and we strive to bring the best information to assist those who want to become better, more successful investors.

The mainstream media is freaking out as US long bonds are selling off and yields skyrocketing. The 10-year bond yield has climbed to 4.81%, the highest level since 2007. This surge has triggered alarmist predictions of 12% to 13% yields, fueling even more panic among the masses.

The VIX Volatility Index just popped to very close to the 20.00 level, which is a key resistance level.

The CNN Fear & Greed Index is now firmly into the Extreme Fear level at just 17. Fear and greed swing like a pendulum, from one extreme to the other.

We are contrarian investors and when we witness widespread fear and negativity engulfing the markets, it’s like a flashing beacon that we’re nearing a potentially lucrative entry point. Much like when a crowded boat tilts dangerously when everyone piles to one side, markets often exhibit similar tendencies.

We know that August, September and the first week or two of October is the poorest performing period for equities, and this year has adhered to that pattern seamlessly.

Now we wait for the indicators that confirm we have reached at least a temporary bottom, with the potential for a strong rally extending into year-end. While we continue to anticipate a recession in 2024, it doesn’t preclude the possibility of a strong rally preceding that impending economic downturn.

However, it’s crucial to recognize that we’re trend traders, and we need more than just an oversold market. The market must demonstrate a compelling ability to rally convincingly. We believe we are close, but still need confirmation.

Once we receive that confirmation, we’ll promptly notify our subscribers. If you haven’t subscribed yet, our exclusive Special Offer, offering discounts of between 40% to 65% off regular prices, remains available until this Saturday.

Stay tuned!

Market Notes

Seasonality suggests BUYING time is almost here

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As an investment newsletter our role is to identify and present investment opportunities for our subscribers. We warned our subscribers to be very cautious as we approached August and September because based on seasonality, these months represent the weakest period for stocks. That weakness often extends into the first half of October, at which point we frequently see significant lows, which present some great buying opportunities.

We are looking for a final capitulation selloff in the markets, one extreme enough to flush out the last of the sellers and give us a look at the whites of their eyes. This selloff at ~8% has been relatively orderly, which is typical for a bull market. However, we are looking for one final blast to the 200-DMA at 4200 for the S&P 500. That level also aligns with the year-long uptrend line, serving as a critical support test. Should that level be breached, then we could see one final intense market low.

Either way, we have our powder dry, ready to release a sequence of BUY Signals to our subscribers in the coming week or two. Our focus will be on specific sectors including energy, uranium, cannabis, home construction, and technology stocks, provided that each sector experiences a decline to our predefined target levels.

Subscribers, please make sure to regularly check your inbox to ensure that you don’t miss our forthcoming BUY Signals. If you are not currently a subscriber, you can still take advantage of the Special Offers that we presented to listeners of Martin’s recent interview on This Week in Money.

Stay tuned!

Market Notes

Market Notes – September 30/23

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Martin Straith of the Trend Letter was on This Week in Money with Jim Goddard in Friday. Below are some of the charts Martin was referring to in the interview. Martin’s interview starts at 11:05, click here to listen to interview.  In an effort to help raise money for Special Olympics, at the end of this blog are Special Offers, up to 65% off our services. For every new subscription this week, we will donate $100 to Special Olympics.

Stock Market:

Following is a heatmap of the S&P 500. As we can see, it was a mixed bag last week with Nvidia, Tesla and Google all ending the week positive while there was also plenty of red displayed.

August and September are the weakest months for equities and the last week of September is the worst week. That seasonal trend has played out perfectly where we have seen S&P 500 down ~7% in that timeframe. The key here is that the S&P 500 has dropped below both its 50-DMA (red wavy line) and 100-DMA (blue wavy line) and closed the week at 4288.  

The 200-DMA (green wavy line) is just below 4200, which happens to coincide with its year-long uptrend line (green diagonal line). A break below that 4200 level would suggest things could get a little more dicey. But right now, the Relative Strength Index was at ~26 the other day and  any reading under 30 is considered extremely oversold, so we should see at least a rally soon.

In the bigger picture, the S&P 500 has been in a strong uptrend channel since the 2008 Financial Crisis. The middle rung of that uptrend channel sits at just under the 4000 level. If we saw the S&P 500 drop below that level, then we would likely be headed for a much deeper  correction.

While August and September are weakest months based on seasonality, that weakness typically runs into the first half of October.  But, from mid-October to year-end, that is typically the strongest period for equities.

Oil:

Oil continued its strong rally, hitting just under our initial target of 94.00. That’s up almost 40% from the 66.00 range in June.

One of the main reasons for  oil rise has been very low inventories. Inventories at the key Cushing oil hub are at the lowest level since June 2022.  There are 21.9 million barrels of inventory at the Cushing hub, down from the peak of over 70 million in 2017. Back then oil was trading at over 120.00 versus the 91.00 level today

Other bullish drivers for oil are the production cuts of 1.4 mb/day from the Saudis and Russia which they have extended  to year-end. Strong demand has also contributed to higher prices

At this point oil is technically overbought, with Relative Strength Index recently at 78.00 with anything over 70 being considered overbought. Short-term we could see a retreat to the mid 80’s level

On the bearish side we have the weak economy in China, plus recession in Germany, Sweden, much of the eurozone and potentially Japan.

Near-term support sits at 86.00, 79.70, & then 74.00.

Near-term resistance is at 96.00, then 100.00.

Longer-term we expect to see 100.00 and then 150.00 in the next one to three years.

Gold:

Gold has been hit by a strong $US and ever since the first of August gold has trended lower, falling, to 1,866 on Friday. Since making a double top at 2,070 in April-May, gold has been unable to break through and close above the 2,000 resistance.

Based on RSI, gold is oversold here,  so we should see at least a bounce soon.

Near-term resistance is 1,900, 1,925, 1,975, then 2,000

Next key support level is 1,860, then & really strong support at 1,825

If it does drop to 1,825, that would likely trigger several new BUY alerts from our models.

Credit Debt:

After the massive $5 trillion stimulus packages sent out during Covid, the US personal savings rate skyrocketed from 8% to almost 34%. But now all that money have been spent and  the savings rate has plummeted to 3.8%, the lowest since the 2009 Financial Crisis.

Now with food, shelter and energy prices still very high, many consumers are tapped out and are using their credit cards to pay for necessities. Credit card debt in the US is now over $1 trillion, that is a rise of $250 billion in just the last 2.5 years.

Recession:

Historically, an inverted yield curve is a leading indicator of a recession. A yield curve is inverted when the short-term yield is higher than the long-term. Today the US 1-year is paying 5.45%, the 10-year is paying 4.57%. Since 1955 (68 years), there has been only one time where the yield curve inverted without there being a recession. This is a leading indicator, meaning the inversion of the yield curve happens before the recession, typically 12-24 months. The current yield curve has been fully inverted since June 2022, so we are now more than 15 months into this inversion, suggesting if we are going to  get a recession, it will likely be in the first half of 2024.

The good news is, if we do get a recession, at the end of the recession is a great buying opportunity. During a recession, stocks get crushed,  the markets crash. But once everyone is out, that is when you want to have cash ready to scoop up the bargains.

The last 5 recessions provided some great opportunities. So if we get a recession, have your cash ready and wait for our BUY signals!

Stay tuned!

We are offering discounted prices for our three services and with each new subscription this week, we will donate $100 to Special Olympics.  See Special Offers below.

 Trend Letter:
Since start-up in 2002 Trend Letter has provided investors with a great track record, giving exceptionally accurate information about where the markets are going, and it has explained in clear, concise language the reasons why. Using unique and comprehensive tools, Trend Letter gives investors a true edge in understanding current market conditions and shows investors how to generate and retain wealth in today’s climate of extreme market volatility.

A weekly publication covering global bonds, currencies, equities, commodities, & precious metals. Publishes every Sunday evening, covers equites, currencies, precious metals, commodities, and bonds. Each weekly issue is about 50 pages, mostly charts, with key bullet points to make easy to understand. A 10-15 min read

Timer Digest says: “Trend Letter has been a Timer Digest top performer in our Bond and Gold categories, along with competitive performance for the intermediate-term Stock category.”

Technical Trader:
Trend Technical Trader (TTT) is a premier hedging service, designed to profit in both up and down markets.

Our hedging strategy empowered  TTT subscribers to not only protect wealth from serious losses during markets crashes, it allowed them to be positioned to make significant gains as markets crashed.

TTT isn’t just a hedging service.  Its timing strategies have returned fantastic gains on the long side. See examples here

Included is our proprietary Gold Technical Indicator (GTI).

Trend Disruptors:
Disruptive technology trends will propel our future and the reality is that no industry will go untouched by this digital transformation. At the root of this transformation is the blurring of boundaries between the physical and virtual worlds. As digital business integrates these worlds through emerging and strategic technologies, entirely new business models are created.

Trend Disruptors is a service for investors seeking to invest in advanced, often unproven technology stocks on the cheap, with the objective to sell them when masses finally catch on. Covering Artificial Intelligence (AI), Virtual Reality (VR), Augmented Reality (AR), 5G, Quantum Computing & many more.

All subscriptions in $US

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Unpacking the Inflation Dilemma: Government Solutions and Their Consequences

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Inflation has become a significant concern for voters in both Canada and the United States, prompting politicians from all sides to promise solutions. But before we place our trust in their ability to address this problem, let’s review how this inflation problem evolved.

After the financial crisis in 2008, the US Federal Reserve, which manages ‘monetary policy’,  initiated the first round of Quantitative Easing (QE), to inject liquidity into the financial system and lower long-term interest rates.

They continued to add subsequent rounds of QE type policies keeping interest rates low, being concerned about an economic depression or severe recession. As we can see below, from the financial crisis recession in 2008, the Fed kept rates near zero percent until late 2015, before gradually allowing them to rise.  Essentially, the Fed was trying to inflate the economy.

The method they used to keep rates low was to purchase government bonds and mortgage-backed securities (MBS), injecting liquidity into the economy. The result was they increased their balance sheet by $2.86 trillion, from $902 billion to $3.77 trillion between June 2008 and March 2019.

Then, the COVID-19 pandemic struck, leading governments worldwide to impose lockdowns that severely disrupted the global supply chain. To avert an economic crisis, the Fed pledged to engage in ‘unlimited asset purchases.’ In the first half of 2020, the Fed added another $3.4 trillion to its balance sheet, and by April 2022, they had injected an additional $5.18 trillion in slightly over two years.

Simultaneously, the federal government implemented unprecedented fiscal stimulus measures, totaling over $5 trillion, equivalent to nearly 25% of the 2020 GDP. These measures involved sending out checks to both businesses and individuals to mitigate the economic impacts of the lockdowns.

While these actions may have been well-intentioned, they had unintended consequences. The issuance of relief checks led to a significant increase in personal savings. The US had typically seen a personal savings rate below 10% for decades, but with the arrival of stimulus checks, this rate skyrocketed from 8.3% to 33.8%. As people began spending this newfound cash, the savings rate gradually decreased to 13.3%. This pattern persisted until most of the extra funds were spent, and the savings rate returned to more conventional levels.

During this period, with the Fed injecting $5.19 trillion into the economy and the government distributing over $5 trillion in stimulus, a total of $10 trillion was pumped into the economy. This surge in demand for various goods coincided with a heavily constrained supply chain due to the lockdowns. The result was a perfect storm of soaring demand and a clogged supply chain, leading to a sharp rise in inflation.

Here is an image map depicting the congestion of ships in Shanghai’s port during the COVID lockdown, as they await their turn for loading/unloading.

It’s evident in the chart below that the rise in inflation in the US was closely correlated with the distribution of stimulus checks. Inflation had already exceeded 8% before Russia’s invasion of Ukraine, which pushed it past 9%. Only then did the Fed begin to raise interest rates.

The current challenge is that while central banks in Canada and the US are striving to combat inflation, the federal governments in both countries continue to spend at a record pace. It’s important to recognize that government spending has an inflationary impact.

In Canada, the federal debt has reached $1.2 trillion and is increasing by nearly $110 million per day, or $4.5 million per hour. This translates to roughly $30,000 per person.

In the US, the numbers are even more staggering, with a total debt exceeding $33 trillion, equivalent to over $98,000 per person and $255,000 per taxpayer.

With a US election next year and a Canadian one in about two years, it seems clear that these politicians are going to continue this trend of spending and that will keep inflation higher for longer.  Although it’s important to note that inflation has multiple contributing factors, politicians and bureaucrats play a significant role in exacerbating this issue as prominent contributors.

Stay tuned!

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Market Notes – September 1/23

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Some investment news for those looking to invest in gold, invest in stocks, or currencies, and commodities.

Each week the Trend Letter, displays weekly heat map of the S&P 500. It is a great visual of the equity market that holds stocks many North Americans own. Each of the 500 stocks is shown in a box, & the size of the box represents its market valuation, and the colour of each box tells you how that stock did, GREENS being gains & REDS being losses.

As we can see, for the week, big tech stocks led the way higher. There was also a lot of green throughout most other  sectors, with utilities and healthcare being the main exceptions.

On the daily heatmap a bit of a different story, with some big tech in red.

Looking at the BIG picture, the S&P 500 is still solidly in a long-term uptrend channel, since 2009. If we were to test the initial support level  of that long-term uptrend channel, we would see a correction to the 4000 level, which would be a ~11% decline  from the current 4500 range

Based on seasonality, September is the weakest month for the S&P 500.

If we do get a decent correction in September, it could provide a good buying opportunity. Sectors that have looked good are oil, uranium, tech, gold, base materials and even cannibals cannabis, what with US health dept urging the DEA to relax restrictions. We will see if these will remain strong after Labour Day, or if the negative September seasonals take over.

What we do at Trend Letter is track those key support & resistance levels, looking for changes in trend, and then and alert subscribers when trends change.

In Martin’s interview with Jim Goddard on This Week in Money on Friday (interview start at 44:39), he promised to show the chart below. If we look at the last number of times the Fed CUT rates recently, so 2000, 2007 and 2020…each time was driven by the economy falling into a recession (grey shaded bars). And when they CUT rates (red arrows) the S&P 500 had sharp declines. In each of those CUTTING phases it was not until the Fed STOPPED cutting rates that the S&P 500 started to recover (green arrows).

For those investing in gold, the key numbers are::

  • Near-term resistance is 2000, 2040, then 2070, which was that double top in April-May
  • Next key support level is 1915, 1900, 1880, then & really strong support at 1825
  • If it does drop to 1825, that would likely trigger several new BUY alerts

In Martin’s interview with Jim Goddard, he explained why he still feels a recession is very possible. He outlined the two key leading indicators, the inverted yield curve and the Conference Board’s Leading Economic Index (LEI).  Both of these have an almost perfect record in forecasting recessions. Both are forecasting a recession coming soon.

A yield curve is inverted when short-term yields are higher than long-term yields. An inverted yield curve is a leading indicator of a recession and since 1955 (68 years), there has been only one time where the yield curve inverted without there being a recession.Recently, the yield curve is the most inverted it has been in over 40 years. Recessions don’t start when the yield curve inverts, but rather when it starts to ‘uninvert’ (red arrows).

This chart clearly shows that for each of the last 6 recessions, they all started after the yield started to rise. Today, the yield curve is starting to ’uninvert’ (circle).

The other indicator with a near perfect record of forecasting a recession is the Conference Board’s Leading Economic Index, which looks at 10 components across the US economy. That index, again in its latest report last week, is firmly saying a recession is coming.

 

Oil has had a great week after dropping down to the 80.00 level, it has rallied big time this week, and closed Friday at 85.55.  The big bump this week came after a massive 11.5 million barrel drawdown in US crude inventories. Also, we have the Saudi Arabia production falling and they, plus potentially Russia, are expected to extend the production cuts into the end of October.

Stay tuned!

We are offering discounted prices for our three services and with each new subscription this week, we will donate $100 to Special Olympics.  See Special Offers below.

 Trend Letter:
Since start-up in 2002 Trend Letter has provided investors with a great track record, giving exceptionally accurate information about where the markets are going, and it has explained in clear, concise language the reasons why. Using unique and comprehensive tools, Trend Letter gives investors a true edge in understanding current market conditions and shows investors how to generate and retain wealth in today’s climate of extreme market volatility.

A weekly publication covering global bonds, currencies, equities, commodities, & precious metals. Publishes every Sunday evening, covers equites, currencies, precious metals, commodities, and bonds. Each weekly issue is about 50 pages, mostly charts, with key bullet points to make easy to understand. A 10-15 min read

Timer Digest says: “Trend Letter has been a Timer Digest top performer in our Bond and Gold categories, along with competitive performance for the intermediate-term Stock category.”

Technical Trader:
Trend Technical Trader (TTT) is a premier hedging service, designed to profit in both up and down markets.

Our hedging strategy empowered  TTT subscribers to not only protect wealth from serious losses during markets crashes, it allowed them to be positioned to make significant gains as markets crashed.

TTT isn’t just a hedging service.  Its timing strategies have returned fantastic gains on the long side. See examples here

Included is our proprietary Gold Technical Indicator (GTI).

Trend Disruptors:
Disruptive technology trends will propel our future and the reality is that no industry will go untouched by this digital transformation. At the root of this transformation is the blurring of boundaries between the physical and virtual worlds. As digital business integrates these worlds through emerging and strategic technologies, entirely new business models are created.

Trend Disruptors is a service for investors seeking to invest in advanced, often unproven technology stocks on the cheap, with the objective to sell them when masses finally catch on. Covering Artificial Intelligence (AI), Virtual Reality (VR), Augmented Reality (AR), 5G, Quantum Computing & many more.

All subscriptions in $US

Special Offers

ServiceRegular PriceSpecial PriceSavingSubscribe
Trend Letter$599.95$349.95$250Trend Letter $349.95
Technical Trader$649.95$349.95$300 Trend Technical Trader $349.95
Trend Disruptors$599.95$349.95$250 Trend Disruptors $349.95
Better Deals
Trend Letter + Technical Trader$1,249.90$549.95$699.95 Trend Letter & Technical Trader $549.95
Trend Letter + Trend Disruptors$1,199.90$549.95$649.95 Trend Letter & Trend Disruptors $549.95
Technical Trader + Trend Disruptors$1,249.90$549.95$699.95 Technical Trader & Trend Disruptors $549.95
Best Deal
Trend Suite: Trend Letter + Technical Trader + Trend Disruptors$1,849.85$649.95$1,199.90 Trend Suite: TL + TTT + TD $649.95
Market Notes

Navigating the Currents of Rising Interest Rates and Market Uncertainties

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Rising yields

The significant surge in interest rates throughout 2022 has been extensively documented and has deeply impacted investors, leading to diminished performance in both the stock and bond (debt) markets over the past year. Coming into 2023, the common theory was that the pronounced and continuous escalation of rates would ease, as the primary focus would shift from combating high inflation to addressing slower growth. Although this scenario did play out during much of the current year, longer-term rates has seen a marked increase in recent weeks. Notably, the 10-year Treasury yield reached its highest point since 2007 this week.

As highlighted in recent Trend Letter updates, the notable increase in interest rates can be attributed primarily to a shift in perceptions surrounding the Federal Reserve’s policy. The previously optimistic view held by the market, anticipating swift changes in the Fed’s stance including potential rate cutbacks, has encountered a dose of reality. The persistent strength in economic growth is leading the markets to now acknowledge that the Fed intends to do as it has been saying it intended to do, keep its policy rate ‘higher for longer.’ This adjustment is now manifesting in higher longer-term yields.

As we look at the bottom of the chart, we can see that based on RSI, this rise in yields is getting technically overdone. Fed Chair Powell speaks from Jackson Hole on Friday, and should he be overly hawkish, these yields will move even higher. Conversely, a dovish tone in his communication could potentially prompt a moderation in rates.

Mortgage rates

Naturally, with the increase in the 10-year yield, there is a corresponding uptick in mortgage rates. Presently, 30-year mortgage rates in the US have surpassed 7%, marking their highest point since April 2002.

Massive government debts

In their efforts to rein in inflation, the Bank of Canada and the US Federal Reserve are confronted with a significant adversary: the substantial fiscal outlays by their respective federal governments. In the case of the US, within the initial 52 business days after the debt ceiling accord was reached in early June, government expenditure has reached an astounding $1.72 trillion. This equates to an average daily expenditure exceeding $33 billion.

As these governments intensify their spending and subsequently accumulate more debt, they must then secure additional funds to support these financial outlays. Consequently, they find themselves compelled to repeatedly access the bond market to issue more bonds. This sequence of events contributes to the elevation of interest rates, thus heightening inflationary pressures.

The following visual underscores the level of unsustainability of the US debt. While Canada’s situation may not be as dire as that of the US, the trend is similar.

Debt servicing costs

Rising interest rates impact consumers, leading to increased mortgage and loan payments. Governments also face growing financial responsibilities, especially regarding interest on their mounting debt. According to the St. Louis Federal Reserve, the US is currently spending around $970 billion solely on interest payments—a significant allocation for debt servicing, nearing the trillion-dollar mark.

Food and energy inflation

Two other significant contributors to inflation are energy and food. Following its dismal performance in 2022, the oil sector has shown a notable recovery, breaking out of its downward trend. In recent weeks, oil has stood out as a positive performer. The subsequent chart illustrates that oil experienced an overbought condition last week and has since undergone a modest retracement. A potential buying opportunity might present itself if a pullback occurs to the 76.00 level.

Those who have been recently purchasing beef are well aware of the significant increase in cattle prices that has taken place since October.

Nvidia leads the markets

Later today, we have the eagerly anticipated Nvidia earnings report, and later this week, Jerome Powell is scheduled to speak at the Jackson Hole event, both of which represent significant uncertainties for the market. Nvidia is set to release its earnings after Wednesday’s market close, and the prevailing sentiment is that there will be another massive earnings beat and an optimistic projection concerning the demand for artificial intelligence. Analysts from various financial institutions are currently revising their price targets in anticipation of these earnings. It’s worth noting that the stock is currently trading at a valuation of 233 times its earnings, necessitating an extraordinary positive surprise to maintain the remarkable upward trajectory. While there’s always a possibility that Nvidia pulls off the massive earnings beat, we will be watching the 405.00  support level. If that level is breached, we could see much lower levels and it will likely drag the rest of the market down with it.

Fed speak

Federal Reserve Chair Jerome Powell is slated to deliver a speech at 10 AM during the Jackson Hole event on Friday. This presentation has captured the undivided attention of the global financial community. Powell has remained resolute in his mission to combat inflation, all the while suggesting that yields will continue to climb as part of this effort. Up to now, the markets did not believe the Fed, leading to a scenario often described as ‘fighting the Fed.’ The pivotal question now arises: Will the market accept Powell suggesting that stronger growth will require even higher rates?

We keep tabs on all sectors in the Trend Letter and issue a full report each Sunday evening. If you are not a subscriber but would like to get a deeper insight into the driving forces behind these markets, visit us at www.thetrendletter.com or email us at info@thetrendletter.com.

Stay tuned!

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Market Notes

If the Fed cuts rates will that be the time to buy?

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Following benign inflation data last week, Fed Fund futures highlight that traders fully expect a quarter point rate cut by Q1 of 2024.

So, the pivotal question is: would the markets truly rebound if the Fed initiates rate cuts in Q1 2024? Though widely held, history contradicts this belief. Typically, markets experience a brief uptick when the Fed pauses after raising rates. However, the chart’s red arrows distinctly indicate that major losses tend to occur when the Fed starts cutting rates.

Certainly, rate cuts are often prompted by economic troubles and impending recessions, prompting investors to sell stocks due to their vulnerability in such conditions. The chart consistently shows market declines during rate-cutting periods, with stock upticks only occurring after the Fed ceases cutting rates (indicated by green arrows).

Keep this in mind if the Fed embarks on rate cuts in early 2024 and the media advocates for stock purchases. The chart highlights a potential risky scenario, akin to a trap.

Stay tuned!