Thoughts For Thursday: Arrows Up, Down And All-Around

By David Marshall

Thursday, May 11, 2023 7:12 AM EST

The CPI arrow is pointing down, interest rate arrows are up, the Nasdaq arrow is arcing up, the S&P 500 is sideways and growth is quivering pending a debt ceiling resolution.

Pixabay

The CPI in April measured 4.9% in April, down from 9.1% in June 2022 but still far above the Fed target rate of 2% and still considered "sticky" by many.

The Bank of England is expected to raise its funds rate by 25 bps today, putting it in line with recent rate increases by the Fed, the ECB, the RBA and other central banks. It remains to be seen if there will now be a global rate hike pause going forward, in the near term.

The bottom line is that interest rates and government securities yields are much higher than a year ago and are bringing some inflation relief.

The stock market, especially tech issues, is reacting positively, though lack of resolution to (raising) the US debt ceiling is still hanging like a Damoclean sword over the economy as a whole.

Chart: The New York Times

Yesterday the S&P 500 closed at 4,138, up 19 points, the Dow closed at 33,531, down 30 points and the Nasdaq Composite closed at 12,306, up 127 points. Most actives were led by Tesla (TSLA), down 0.4%, Advanced Micro Devices (AMD), up 2.1% and Amazon (AMZN), up 3.3%.

Chart: The New York Times

Currently, in morning futures trading S&P 500 market futures are up 7 points, Dow market futures are down 16 points and Nasdaq 100 market futures are up 25 points.

Contributor Declan Fallon has been on the lookout for a breakout in the market and writes So, This Is The Breakout... with regards to yesterday's action, at least on a technical level.

"Hardly inspiring, but a price breakout it was. The Nasdaq edged itself above resistance, but it will need to do more to confirm. There was a MACD trigger 'buy' to go with generally improved technicals - although On-Balance-Volume remains bearish. Today's candlestick was not exactly blowing it out of the water, but it did qualify as a breakout."

"Where things get a little sketchy is when we dig into some of the other indices. The S&P didn't get to challenge resistance but did finish with a dragonfly doji, typically, this is important during a swing low, but it has less relevance when it appears as part of a trading range."

"We need to be careful here. There was a breakout, but it remains vulnerable to a 'bull trap'. It will only take a close below resistance to confirm (for the Nasdaq). But, a decent gain tomorrow (in the Nasdaq) would firm up the move and help drive demand for the S&P and Russell 2000."

See the full article for the Dow and Russell 2000, charts.

TM contributor Don Kaufman asks Are Markets Completely Reliant On Tech?

"In my 25-year career, I can not recall a time when we have to watch so few stocks that are going to move the market. The monsters of tech are the only stocks holding the market up and it looks like the mother of the monsters of tech, AAPL, is poised to continue to go higher. The S&P continues to stay range bound. Now is the time to keep the powder dry and wait for the big move to happen. The S&P will explode either higher or lower and you best be ready when it does."

See Kaufman's full take in the short video below:

Contributor Chaim Siegel writes Did I Mention I'm Bullish?

"This is very bullish....

The debt ceiling battle finally had a thaw, sounds like from both sides. This is the first time we heard anything about progress since we first started hearing again about the debt ceiling.

Bonds were up on another stubbornly high CPI number which is my formula:

Bad News + Good Action = Bullish.

That means bonds, which had been a drag on market performance can now flip to help market performance if it starts to catch a bid."

However,

"What matters more to CME is that a mini-banking crisis will slow inflation and force (count em) three rate cuts by year-end."

"The market saw Powell's pause and raised him a pivot. The market's been ahead of the Fed. The Fed complained a lot that the market's got it all wrong. But guess what? It's looking very much like the market and this mini-banking crisis out of nowhere can bring inflation back down and force, yes, rate cuts by year-end. Powell and Co are moving to the market and the market has the ability to get excited."

"I see a strong economy, GDP tracking 2.7% in Q2 is NOT a recession. Sorry folks. Fed on hold. Inflation is not an issue for now. Banks that fail, depositors get bailed out anyway by the Fed and the government. And the risk-biggie, debt ceiling just made headway for the first time today to get a raise."

"I'm very bulled up."

TalkMarkets contributor Ironman informs readers that the Rebound In Trade Between U.S. And China Hides Troubling Developments. Below are the main highlights.

"March 2023 saw an expected rebound in the value of goods traded between the U.S. and China.

After falling to the lowest level seen since the Coronavirus Pandemic in the previous month, the combined value of goods increased from $42.2 billion to $45.0 billion.

But that change wasn't enough to break an overall downtrend in the trade between China and the United States."

"By contrast, U.S. exports to China increased during March 2023. Their level is 15% higher than what was recorded back in March 2022...How does that compare with the United States trade with the rest of the world during this period?"

"Since October 2022, we find total U.S. imports and exports are growing more slowly than U.S. imports and exports to the rest of the world without China...That difference indicates the U.S. economy has only partially offset the effects of the decline in China's export of goods to the U.S. that has taken place since October 2022.

A country's imports provide a means of determining its relative economic health. In March 2023, the goods exchanged between the U.S. and China suggest slowing in the U.S. economy while China's economy experienced stronger growth. Even though the combined vale of trade between the U.S. and China improved over February 2022's level, what's hiding in March 2023's underlying trade data gives cause for concern."

In the "Where To Invest Department" today, TalkMarkets contributor Anna Coulling looks at SPY & QQQ – A Tale Of Two EFTs.

"Some interesting divergence between the SPY & QQQ, with the former developing some strong resistance levels on the weekly chart (see chart below) while the latter only facing some very minor resistance at 324. This is unusual as both ETFs have a 0.86 correlation which is high and indicates a strong positive relationship."