Daily Report, October 25th, 2022 [ENG]
Let the battle begin
Both the S&P 500 and the NASDAQ 100 are close or fast approaching key resistances and their respective 50-day SMA’s.
If the bears fail to slow upward momentum at these levels, we could see more capital inflows into equity markets, capital that is now on the edge of these key resistance levels.
Except for the QQQ: SPY report, which recorded a relative low, all other RISK ON ratios remain well above their June 2022 lows.
Area 3900 is very important for S&P500, so all eyes are there to see if this upside is just a will-o'-the-wisp or something more.
We always invite you to read the old analyzes to maintain the technical narrative thread. Take advantage of it as long as everything remains free!
US macro situation, part 2
Let us now continue with the discussion on the macro situation and the American financial system. You can find the first part in the Market Recap, Week 17 Oct-21 Oct 2022.
Where will this debt take us?
Liquidity within the US Treasury market has been shrinking for more than a year as interest rates have risen relentlessly and with an astonishing speed, the fastest in history.
As investors sell government bonds, we are faced with the real possibility that the Fed will have to step in again to act as a buyer while it is trying to keep inflation in check.
Read Market Recap, Week 3 Oct-7 Oct 2022, one of the many where we talked about this concept. We also talked about it here, Daily Report, September 13th 2022.
The “end of the world” scenario is a complete collapse of the financial system and is the most bullish scenario for the markets.
To be even clearer, let's borrow the words of Tom McClellan, the developer of the McClellan oscillator.
If the financial system were to break down, investments and the dollar itself could end up being useless. Ours, yours, and everyone's investments would have little or no value.
But the government won't allow that to happen, right? He will have to intervene before that happens to try to plug the flaw.
From the point of view of the very long-term lazy investor, it may not be THE long-term solution, but it is probably the short to the medium-term solution that will lead to a considerable asset appreciation.
We only saw this a couple of years ago during the COVID-19 recession. The shares fell more than 30% in just one month. Then the government intervened with a multi-billion dollar incentive package. Five months later, stocks were once again at an all-time high.
Sound familiar? Judgment day scenario. Government intervention. New historical highs. We might as well get ready.
People seemingly fail to understand that the fastest interest rate increase cycle in history could also become the fastest interest rate decrease in history.
Generational opportunity in bonds?
Let's talk a bit about the graphs of the bond world in support.
This paragraph is added to the analysis made in the Market Recap, Week 3 Oct-7 Oct 2022.
The 10-2 year yield curve continues to deepen to its lowest level prior to the dot com crash of 2000.
Sooner or later, and we think soon, many will want to have long positions on bonds.