Carlsquare weekly market letter: Into thin air

• The stock market is going into thin air. This is not in itself a sell signal, as many traders have learned the hard way. Let the trend be your friend, but stay close to the exit as the market is vulnerable and a small trigger at the moment can create a bigger move
• Interest rates, inflation expectations, the USD and oil prices are all heading in the wrong direction as the market continues to climb a wall of fear. As it now looks, the negative trigger could very well be interest rates moving in the wrong direction as inflation expectations rise again

“Into Thin Air: A Personal Account of the Mt. Everest Disaster” is a bestselling book written by Jon Krakauer. It describes Krakauer’s experience of the 1996 Mount Everest disaster, in which eight climbers died and several others were stranded by a storm.

We strongly recommend that you read it. Even if you are not interested in climbing Mount Everest, it offers reflections on life and devotion at high altitude. It was later made into a film, which we have not seen, but which is used to illustrate the article:

And yes, we are reaching nosebleed levels in the stock market. But we don’t know when the market will reach its peak. As we have said repeatedly in recent months, don’t fight the market – let the trend be your friend!

The S&P 500 is still trading in a rising wedge, but tested lower support yesterday. Today’s trade could be very important if it closes well below this support.

Eventually it will break down, but there are no sell signals yet, so it is best to let the trend be your friend. The dotted red line is a technical measure of how far down the break could go from a purely technical perspective. The 100-day moving average (MA100) would then be a perfect support and can also be a perfect position to re-enter the market. But let us take one day at a time.

Sometimes it is helpful to look at the same chart, but inverted. Above is the short version of the S&P 500, the ETF SPXU. It may have formed a bottom here…

At the top of our list right now is the price of oil.

Oil is trending higher. A major reason for this may be the Ukrainian bombing of Russian oil refineries, which we have discussed in the last two weekly reports.

The price of petrol is also rising, which is not helping President Biden’s re-election bid. The price of petrol at the pump is very important in the US.

As we can see from the chart above, inflation expectations and interest rates go hand in hand. With higher oil prices and a string of better than expected macro data in the US and Europe recently, such as the latest PMIs, interest rates are on the rise again.

The US 10 year yield broke above resistance yesterday. Hopefully the last black candle can be a false breakout. The window above is huge to around 4.6% interest rates. Friday’s monthly employment figures could be more important than ever and give us the trend for the coming weeks.

Joe Biden’s approval rating is shockingly low. Some 55 per cent of Americans disapprove of Joe Biden and only 39 per cent approve of the job he is doing as president. To put this in perspective, this is lower than even President Nixon had after three years in office (in black and Biden in green):

And it’s a lot worse than former President Trump:

Although 52.5 per cent have an unfavourable view of Donald Trump, 42.6 per cent still view him favourably.

Joe Biden really needs to step up his campaign now to regain the initiative. As long as he and his campaign have not given up, we expect the current US administration to be supportive of the US economy.

That said, we are not afraid of Donald Trump as president. Although the political landscape will be more challenging and unpredictable, he cannot do too much damage domestically in the US. The biggest impact will be on international politics, but that usually does not have too much impact on the stock market. The most negative impact from a political point of view will be in Europe and Taiwan, as we still don’t know how Trump will position the US in these two hotspots if he is elected. Internationally, the stakes will be high, as Trump, as president, can in the worst case scenario play in favour of Russia in the war against Ukraine with an escalation against other European countries. And also, of course, by giving China the opportunity to attack Taiwan.

Last time, Trump picked a fight with China and raised tariffs. The result of Trump being elected president was a brief dip in the stock market immediately after the election, but then a four-year winning streak. … We don’t expect the same this time, but don’t listen too much to the chorus of voices talking about Armageddon if Trump is elected. We have more faith in the US Constitution than that.

But it is high time to talk about gold. We have been advocating gold for a long time and it has paid off recently.

Gold is at an all-time high.

It is interesting to see that the central banks still are still accumulating gold.

The Nvda, which has been the main driver of the market in recent months, has finally broken its uptrend. It closed below the EMA5, EMA9 and also the MA20 yesterday. The onus is on the bulls to recover today before the chart gets really ugly. Stay tuned as this could cause a major shift in the overall market.

Happy trading!

Week Ahead

Reports and event on Wednesday, 3 April: –

During the day we will get the services PMIs for March from Japan, China, Sweden and the US. We will also get the Eurozone CPI for March and German VDMA Machinery Orders for February. From the United States, we will get the ADP Nonfarm Employment Change and the weekly oil inventories (DOE).

Reports on Thursday, 4 April: Chr Hansen (operational update)

Thursday will be dominated by the March services PMIs from Spain, Italy, France, Germany, the Eurozone and the UK. We also get February PPI from the eurozone. The Swedish Riksbank publishes the minutes of the 26th March monetary policy meeting and the ECB publishes the minutes of the 7th March policy meeting. From the US, we get March Challenger Job Cuts, February Trade Balance and Weekly Jobless Claims.

Reports on Friday, 5 April:  Norwegian traffic figures for March.

First up on Friday is Japan with its February household consumption at 0.30 CET. Germany will publish its import prices and industrial orders for February at 8.00 CET. Forty-five minutes later, France will release its industrial production figures for February. At 11.00 CET, the Euro-zone Retail Sales for February will be released. At 14.30 CET, Canada and the United States will release their employment figures for March. US non-farm payrolls are expected to have added 200,000 jobs.

Reports on Monday, 8 April:  Industrivärden and March 2024 sales figures for Clas Ohlson.

We start with the German Trade Balance for February at 8.00 CET. This is followed by the Eurozone Sentix Investor Confidence for April at 10.30 CET. From the US we get the NY Fed Household Inflation Expectations for March.

Reports on Tuesday, 9 April: PGS (operational update).

From the United States we get the NFIB Small Business Index for March, the weekly Redbook retail data and the weekly oil inventories (API) statistics.

Disclaimer:

The information in this presentation is based on what the publisher, Carlsquare, believes to be reliable sources. However, we cannot guarantee its content. Nothing in the presentation should be construed as a recommendation or solicitation to invest in any financial instrument, option, or the like. Opinions and conclusions expressed in the presentation are for the recipient’s use only. The contents may not be copied, reproduced, quoted, or distributed to anyone else. Carlsquare shall not be liable for any loss arising from any decision taken based on the information contained in this presentation. Past performance should not be taken as an indication of future results. Changes in foreign exchange rates may affect the value, price or income of an investment made abroad or in a foreign currency.

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