Morning Roundup

By Mark Masterson on July 16, 2023

Good morning,

Below are the news items moving markets today:

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Executive Summary:

I mentioned that I would only send along a Morning Roundup this week if something notable happened.  Well – in my view – something notable is taking place.

I’ve mentioned that the US dollar is the most important chart in the world.  Last Thursday and Friday – the dollar broke down.  I’ll cover it below….

Before looking at the dollar – earnings season kicked off on Friday with the big banks. By August 7^th, 80% of the S&P 500 will have reported.  Should be a busy three weeks….

Goldman Sachs 7 15 23

Now – about that US dollar break down….

You can see in my chart below that the dollar broke through the bottom channel I highlighted just last Thursday.  It smashed through it.

The weekly chart of the dollar below shows that it is now breaking down.  The breakout last year looks like a false breakout.  That means we are likely seeing a meaningful breakdown of the dollar.

That blue line is the 200 week moving average.  I suspect that will be where the decline pauses as support.  If it does not hold, the dollar could fall quite sharply.

As the dollar moves lower, the Euro will move higher.  This is how it works when the Euro is 60% of the dollar index – they move opposite each other.

Notice in the past how the two have met in the middle when we saw large gaps.

The blue line (the dollar) will move lower and the black line (the Euro) will move higher until the meet at the highlighted area….

Why does it matter?

Well, a lower dollar likely means inflation will stay even higher for longer.

A lower dollar drives up the prices of commodities, energy, metals.

Notice the CRB (Commodities index) that I posted last week is now breaking above the downtrend line….

That could be the start of a commodity rally built on the lower dollar…

Gold finally reached oversold on the weekly charts below as well.   (notice the green at the bottom)

It turned up last week with the lower dollar – and looks like it too may want to move higher…

The below chart showing gold versus the S&P 500 did bounce slightly off of the lower channel.  When it is moving lower, gold is underperforming stocks.  When it is moving higher, gold is outperforming stocks.

Its possible, and even likely, that gold is beginning a move higher versus stocks.  That is more likely if the dollar is breaking down.

So, the breakdown in the dollar is significant.  We’ll be watching it closely in the coming days and weeks to see how much traction it gets.

Below I update stock market sentiment – which is getting very extreme.

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Articles of Interest:

• Markets:
  • Markets increasingly pricing in soft-landing scenarios with outsized strength in stocks and bonds (link)
  • Global hedge funds scrambling to unwind shorts on US equities (Reuters)
  • Rapid decline in inflation a big tailwind for stocks (link)
  • BlackRock expects surge in bond fund investments (funded by money-market fund outflows) after Fed stops raising rates (FT)
  • Investors using 50% rally in ARK Innovation ETF this year to get out (link)
  • No discussion about FX rates at G7 meeting of finance ministers and central bank chiefs (Reuters)
• Economy:
  • Americans increasingly tapping HELOCs to take advantage of equity ramp from higher prices (Bloomberg)
  • Repayment of student loan debt could feel like pay cut of ~4-5%, have outsized impact on apparel and T&E spending (link)
  • IMF managing director says medium-term outlook for global economy remains bleak (link)
• Corporate:
  • ‘Magnificent Seven’ report over next few weeks and market looking for strong results to justify premium valuations (Reuters)
  •  
  • Musk says Twitter’s ad revenue down 50%, company still cash flow negative (Reuters)
• China:
  • China data expected to show reopening recovery quickly fizzling out, highlighting need for more stimulus (Reuters)
  • China home prices declined in June for first time this year (Bloomberg)
• Washington:
  • Showdown over defense spending bill plays into rising fears of government shutdown in October (FT)

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Charts of the day:

The Sentiment trader smart money/dumb money index shows retail traders are the most optimistic they have been in a long, long time.

This is normally not a good sign for the stock rally.

Sentimenttrader.com 7 16 23

Another sentiment reading I don’t follow that closely – but interesting none the less…..

Market timers are more bullish now than at the top of the internet bubble https://marketwatch.com/story/market-timers-are-more-bullish-now-than-at-the-top-of-internet-bubble-777340b5

 by @MktwHulbert

Mark Hulbert 7 15 23

The chart of the S&P 500 marks the relative peaks of both the CNN Fear & Greed Index, and the NAAIM Exposure Index.

Extreme greed and elevated exposure is a combination that has preceded all meaningful declines.

We are at levels not seen since the end of 2022 on these readings….

Tomthetrader1 7 15 23

I highlighted in my video commentary that sentiment for commodities, gold, bonds is much more attractive than sentiment for stocks.

Below chart shows that the stock versus bond sentiment is the most extreme in 24 years….

Sentimenttrader.com 7 16 23

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Quote of the day:

“The most important decision you make is to be in a good mood.” –

Voltaire