Boomerang Inflation… [Dirty Dozen]
“Poker isn’t just about calibrating the strength of your beliefs. It’s also about becoming comfortable with the fact that there’s no such thing as a sure thing—ever. You will never have all the information you want, and you will have to act all the same. Leave your certainty at the door.” ~ from the book The Biggest Bluff by Maria Konnikova
In this week’s Dirty Dozen [CHART PACK] we talk about the breakout in small-caps, a big breadth thrust supporting the risk-on, Trump’s odds and BTCUSD’s key reversal, plus more…
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1. The Russell 2000 saw a weekly breakout from its 6-month compression compression regime, making it the highest weekly close since Jan 22’.
With the Fed set to finally begin cutting rates in September it’s likely this breakout sticks.
2. @Mark_ungewitter pointed out that we saw an “impressive 3-day thrust” last week, with the NYSE ADT ratio > 74% for three consecutive days. Past instances tended to precede strong forward returns.
3. We got the reversal off the lower weekly Bollinger Band in BTCUSD and ETHUSD that we noted last week. We are long and will be adding to this one.
4. BTCUSD is seen as a Trump trade since the former President is a vocal backer of the cryptocurrency. And with Trump now the strong favorite to win November’s elections, BTCUSD has an additional tailwind.
5. BofA also notes that Trump has an increasing likelihood of sweeping Congress as well.
6. The BofA Bull & Bear indicator continues its creep up. It’s still mostly in neutral territory but as this move in markets turns increasingly parabolic, which we expect it will, we should see this start to turn more into the red zone.
7. We’re also moving into a seasonality period where we tend to see rising volatility as this chart from BofA shows (h/t Danny Dayan for the chart).
8. We’re waiting for a breakout in the FTSE 100 to get long. The UK market is incredibly under-owned. The recent elections give the UK government a centrist majority, which is a rare thing amongst major economies at the moment. And we’re likely to see some looser fiscal policy as a result.
9. The Fed is going to start cutting rates in September. And this chart below shows why… The unemployment rate (white line) is rising while job growth is declining.
10. And the rate of inflation is falling fast…
11. But while we’ve been calling for lower inflation since the start of the year, we at MO are now starting to expect a more volatile inflation picture starting around the Fall.
There are a few reasons for this but one of them is rising PPI in China, which serves as a proxy for global CPI. BBG’s Simon White writes “Supply constraints persist with containerized freight prices in Shanghai now rising at almost 300% year-on-year. They lead PPI in China by about three months, which has already begun to climb off its lows. And it’s not just China shipping rates that are rising; the Hong Kong to LA container rate — which also leads PPI — is up well over 500% over the last year”.
12. Viking Therapeutics (VKTX) has pulled back and reversed at its lower weekly Bollinger Band. Viking is one of the contenders in the weight loss drug space. Stifel shared a slide deck on the market and Viking's position in the race (link here). Smarter people than I believe there’s a good chance VKTX gets bought out by one of the bigs. The current technicals give us a good spot to try and get in with a tight stop.
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Thanks for reading.
