Posts by The Trend Letter

Trump’s Victory Fuels Market Frenzy: Today’s Charts

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The S&P 500 soars: The stock market skyrocketed with Trump’s victory and the Republicans securing the Senate and poised to claim the House.

Bitcoin soars to new high: Bitcoin surged past $75,000, driven by Trump’s pledge to establish the US as a leading crypto hub. This rally reflects heightened investor optimism around a potential crypto-friendly regulatory environment under the new administration.

US Dollar blasts higher: The dollar marked its strongest day since 2022 on a strong stock market and rising yields.

Bank stocks rally: Bank stocks soared as investors anticipated deregulation and economic growth under the new administration. Major institutions saw substantial gains, with JPMorgan Chase leading the way, up 13% today.

Gold falls: With a huge rally in the US dollar, gold got clobbered, down 73.00 for the day.

Bond market turmoil: While Trump’s policies are welcomed by the stock market, the bond market is reacting less favorably. Expectations of lower tax revenues and higher government spending point to rising deficits and ballooning debt. As inflation expectations climb, the value of fixed-income investments erodes, pushing investors to demand higher yields, which drives bond prices down. This dynamic reflects concerns over inflation and fiscal imbalances under the new administration.

Green stocks get hammered: Companies in the green energy sector saw sharp declines, with solar stocks such as Sunnova Energy plummeting—Sunnova dropped a staggering 51% today. This sell-off underscores investor concerns about reduced environmental policy support under Trump’s administration, casting uncertainty over the future of renewable energy initiatives.

Market insights: This political landscape gives Trump significant leeway to implement his pro-business agenda—lower taxes and reduced regulations—which investors see as fuel for market growth and economic expansion. The rally reflects Wall Street’s optimism about a policy environment favoring corporate earnings and business-friendly reforms.

 

 

Week ending November 1, 2024: Key Market Highlights

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The S&P 500 drop: Key points on the chart are the breaking of the ‘rising wedge’ pattern (red & green dashed lines), and the testing of the 50-DMA (blue line). The 100-DMA (red wavy line) at 5592  would be the next key technical support level.

Volatility Risk: The past 12 months have delivered some of the strongest risk-adjusted returns in market history. However, volatility is now on the rise, driven by the increasing likelihood of a fiercely contested presidential election. In today’s polarized political landscape, this is far from a remote possibility.

Election Showdown: One way to gauge market sentiment on the US election outcome is by tracking the action on Trump’s media stock. From May to late September, investors were unloading the stock. Then, momentum shifted dramatically as buying surged—only to taper off about a week ago. This pattern suggests a razor-thin race, with Harris picking up momentum as election day approaches.

Investor optimism hits record high: The Conference Board surveys respondents on whether they believe stocks will rise or fall, and the current bullish sentiment has reached its highest level since the survey’s inception in 1986. What could go wrong?

Oil prices spike with escalating tensions: Oil prices climbed at the week’s end, fueled by rising tensions in the Middle East. Reports suggesting that Iran might be preparing a major attack on Israel have sparked concerns over potential disruptions to the region’s oil supply.

Market insights: The biggest relief about the US election may simply be that it will eventually conclude. Yet, the process could stretch for weeks, with disputes over vote counts and tactics adding to potential chaos. While we don’t anticipate a lasting impact on the market, the uncertainty is likely to drive short-term volatility and speculative losses. The best ‘election trade’ might be patience: staying focused on long-term fundamentals rather than getting swept up in the noise. In time, the distraction will fade, and attention will shift back to what truly matters.

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This Week’s Key Market Highlights:

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October 25, 2024:

The S&P 500 dip:  The first weekly decline after six gains suggests a potential bounce next week, though election volatility could bring market jitters, especially if results are delayed.

US Election Countdown: With just 10 days until the election, markets leaning toward a Trump victory due to his pro-deregulation stance, seen as favorable for business.

Rising Bond Yields: Concerns about persistent inflation are pushing bond yields higher, limiting room for Fed rate cuts. The Bank of Canada cut rates by 50 bps to 3.75%, and the ECB by 25 bps to 3.4%, contrasting with the Fed’s 5%.

Rising Mortgage Rates: Contrary to expectations, mortgage rates are rising, tracking higher bond yields despite the Fed’s September rate cut.

US Dollar Surge: Up 4% since late September, the dollar’s strength reflects robust US economic data, solidifying it as the “least ugly” currency in uncertain times.

Canadian Dollar Weakness: As the Bank of Canada cuts more aggressively, the loonie falters amid Canada’s weaker economic outlook.

Homebuilder Setbacks: Rising mortgage rates weigh on homebuilder stocks.

Gold Near Highs: Gold is nearing new highs with its RSI around 70 (bottom of chart), signaling potential overbought conditions and a possible pullback.

Market Insights: Bullish trends continue, but election uncertainty looms. A clear election outcome may trigger a ‘sell the fact’ reaction.

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Why the Bond Market Fears Inflation Despite Fed Rate Cut?

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Why Retail Investors Should Pay Attention to the Bond Market

Many retail investors overlook the bond market, dismissing it as too complex or less exciting than stocks. However, bonds hold the key to understanding broader economic trends, especially interest rate movements. Ignoring them means missing out on critical insights that could enhance your investment decisions

The Unexpected Rise in Long-Term Rates

On September 18, 2024, the US Federal Reserve announced a significant 50-basis-point rate cut, the first since July 2023. Typically, rate cuts are designed to lower borrowing costs, leading to a drop in bond yields. However, this time, the opposite happened—interest rates on 10-year bonds went up, not down. So, why are these longer-term rates rising?

The impact was also felt in the real estate sector. The 30-year US mortgage rate jumped back to 6.69%, a surprise to many who expected lower mortgage rates following the Fed’s rate cut. This spike has left homeowners and real estate professionals rethinking their expectations.

Why Inflation Expectations Are Rising

To understand why bond yields and mortgage rates are rising, we need to look at the underlying factors driving these movements. One major reason is long-term inflation expectations. While the Fed may believe inflation is under control, the bond market seems to think otherwise. One of the key reasons why is related to soaring government deficits:

  1. Reckless Government Spending: The US government’s increasing debt levels mean more bonds are issued, leading to a flood of new supply.
  2. Replacing Maturing Bonds: New bonds must be issued to replace those that are maturing, adding more supply.
  3. Funding New Debt: Continued high levels of government spending require new bonds to finance the debt, driving yields higher as investors demand more to take on increased risk.

Since the debt ceiling was suspended on June 2, 2023, the US has added a whopping $4.3 trillion to its debt total, with national debt fast approaching $36 trillion. To put it into perspective, the $600 billion increase over the last two months is nearly three times the annual budget of NASA.

Navigating the Current Investment Landscape

Clearly, the bond market is sending a warning signal: inflation is not as controlled as we might like to believe, and expectations are that it will continue to rise. As inflation erodes the purchasing power of the dollar, many investors are turning to alternative assets like gold and Bitcoin.  Gold closed at a new all-time high today.

These assets offer a limited supply, making them less susceptible to devaluation. Unlike paper dollars, governments cannot print new gold or bitcoins out of thin air, which is why they remain popular as inflation hedges.

 Why You Should Stay Informed

Our team at the Trend Letter has been monitoring these developments closely. We’ve been publishing insights for over 22 years, helping our subscribers stay ahead of market shifts with timely alerts and data-driven analysis. Our models have consistently alerted us to key changes in the market, and our current portfolio is up 39% this year.

We provide our subscribers with weekly reports every Sunday evening, covering all major sectors, key events and trends to watch, including:

  • The effects on the markets of the upcoming US election
  • Central bank actions
  • Inflation trends
  • Potential recession risks
  • Seasonal market movements

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Stay tuned!

This Week’s Trends & Market Highlights

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October 18, 2024 Key Market Highlights This Week:

Gold reaches a new all-time high despite rising interest rates and a stronger U.S. dollar, driven by surging national debt.

The S&P 500 breaks through to a new record high, signaling strong market momentum.

Uranium stocks ratchet higher, fueled by increasing demand for energy, especially from AI data centers.

Semiconductors roaring  back, with Nvidia testing new all-time highs.

Market Insights: We’re witnessing a broad-based bull market across multiple sectors, even as bond yields rise and economic indicators fluctuate. Look out for a comprehensive update in this Sunday’s issue of the Trend Letter.

Special Offer: As a free subscriber, you can now upgrade to the full Trend Letter subscription at a 33% discount this weekend. Don’t miss out—click below to take advantage of this special offer.

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This Week in Money Interview

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Martin did his monthly interview with Jim Goddard on the This Week in Money show. Topics discussed were:

  • Stock market trends
  • Gold coming into seasonal strength
  • Have geopolitical events been priced into oil?
  • Why has the $US been rising, especially given the Fed just made a deep rate cut?
  • The Fed says its not worried about inflation anymore, should they be?
  • There is a lot of mainstream media talk about a Soft vs Hard landing. What does it mean and how should investors prepare for either scenario?
  • The Fed cut rate 50-bps, and now the long bond yields are rising, which seems counterintuitive. Why is that happening?
  • The Shanghai stock exchange had wild swings in the past week, what is happening there?
The other guests on the show—Ross Clark, Victor Adair, and Josef Schachter also offer sharp perspectives on the current market landscape. Tune in!

Click here to listen.

Chart Alert: Double Top Resistance Signals Potential for Sharp Decline

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This is an important chart!

The S&P chart reveals two critical outside reversal weeks down from the 5,700 level—the first ending July 19th and the second just last week, on September 6th. These consecutive reversals in such a short time frame have created a powerful double top resistance.

After the July 19th reversal, we saw a retracement rally to 5,630 before plunging 500 points (~10%) to 5,100 over the next three weeks. We want to caution investors that a similar pattern is very much in play now. Following last week’s reversal, there’s potential for a bounce to around 5,550, but don’t be surprised if that rally falters.

If we reach that 5,500 level, be prepared with your hedging strategies, as the S&P could easily test its 200-day moving average near 5,150. Head on a swivel!

Stay tuned!

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

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In last week’s interview on This Week in Money with Jim Goddard, we explored the likelihood of the Fed beginning to cut rates at their September 18/24 meeting and debated how aggressively they would cut. The current rate is 5.50% and according to Fed fund futures,  by the end of 2024, the rate will be 4.16% or 24% lower than it is today. By the end of 2025, that data expects a rate of 2.82%, slightly more than half the current rate.

The stock market, which just came off of all-time highs two weeks ago,  experienced a decline every trading day last week. This stock market is driven by momentum, rather than value.

During my discussion with Jim, I referenced a short video (9:44) I created in December, demonstrating that typically, markets experience a brief uptick when the Fed pauses after raising rates, which we have seen. However, once the Fed starts aggressively cutting rates, stocks sell off.

And this pattern is logical, as rate cuts are typically triggered by economic difficulties and impending recessions, prompting investors to sell stocks due to their vulnerability in such conditions. In the short video, you will see that markets decline, often dramatically, during aggressive rate-cutting periods. Stocks tend to recover and experience strong rallies, only after the Fed ceases cutting rates.

Consider this:  if the Fed embarks on an aggressive rate cut cycle starting September 18, be cautious of mass media pushing for stock purchases. The video highlights a potential risky scenario, akin to a trap. So, keep your head on a swivel. View video

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On March 8th, we shared a video pondering the significance of Nvidia’s recent reversal: ‘Has Nvidia’s recent reversal signaled a potential shift in its trend?’    • Nvidia Stock Analysis: Rebound Incomi…  

Since then, Nvidia’s movement has remained uncertain, without a clear upward or downward trajectory. It hasn’t surged to establish new highs nor has it declined significantly to breach key support levels. This raises the pertinent question: ‘Could a correction be on the horizon?’ This query remains relevant. Should the stock experience a downturn and begin to establish lower trading ranges instead of reaching new highs, the $800 mark could emerge as a critical support level in the near future. Contemplating buying during a dip? Keep following us for updates as we monitor how these pivotal resistance and support levels fare under testing. See update

 

Market Notes

Market Notes – Tuesday’s Charts

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On Thursday last week, BofA analysts initiated a buy signal for Super Computer.  Then on Friday, the current favorite meme stock, experienced its own parabolic ascent, soaring to a record-breaking pinnacle of $1,077. At that point it was up over 1,000% for the year.

Then it dropped 20% Friday afternoon and another 2% today.

Nvidia, the parabolic champion, is in the spotlight. Following tomorrow’s closing bell, the company will announce its earnings, attracting significant attention akin to a mini bubble. Market expectations hint at a substantial outperformance.

Analysts are setting ambitious targets, with some projecting a rise to $1,040 from its current price of $750. While Nvidia might exceed expectations in its earnings call tomorrow, the market exuberance is palpable. Remarkably, Nvidia’s valuation now surpasses that of the entire S&P Energy Sector.

After reaching a close of $737 last week, Nvidia has experienced a 7% decline, breaking through its recent steep uptrend line and nearing its first support level at $685. If $684 is breached, there’s a gap down to $620, followed by the 50-day moving average at $574.

On a bullish note, should Nvidia surpass $750, it could potentially surge towards $800.00.

What implications does this have for the broader market? As we’ve pointed out to Trend Letter subscribers, numerous indicators are signaling that these markets are excessively overbought.

Today, we observed that the majority of the Mag 7 stocks ended the day in the red, this is a pattern that has been developing over the last few trading days.

Market sentiment often oscillates like a pendulum, swinging from one extreme to another. Currently, market sentiment has reached levels of Extreme Greed.

Earlier, markets surged with the anticipation of the Fed reducing rates by six or more times in 2024, driven by that hopeful outlook. However, just a month ago, there was a 71% probability that the Fed would cut rates in March, which has now dwindled to just 8.5%.

The probability of a rate cut in May has now diminished to just 14%.

We also make note that Jeff Bezos recently offloaded $6 billion worth of stock, coinciding with Amazon reaching a new peak.

While these events don’t necessarily indicate that markets cannot ascend further, it’s worth noting that overly exuberant markets typically require a healthy correction, and this one appears overdue. Exercising caution would be prudent.

Regarding the S&P 500, we anticipate a potential test of the 50-day moving average around the 4800 range, followed by a possible descent to the 100-day moving average at 4584.

Stay tuned!