SOTU’s Not-so-Subtle Implications for the Market
This is not meant to be political. As we have written many times, politics and investing should not be in the same sentence.
With that said, during this past week's State of the Union Address, we were keenly listening for comments on our macro themes (as reported in the 2023 Outlook) we believe could spike inflation again and keep the market in a trading range. Please consider this an addendum to the E-Book "How to Grow Your Wealth in 2023".
One such theme in the book is the inflationary impact of "anti-globalism." The more the country (and countries) talk or enforce independence from global trade, the more strain it puts on natural resources. And the higher prices for real goods could rise. When countries reduce global trade, they prevent themselves from sourcing the lowest-priced goods. Let's not forget the shortages already reported in copper, lumber, oil, steel, aluminum, and food, to name a few. Foreign Policy — Send money in perpetuity to Ukraine and any other ally, and continue to have a trade war with China. We hear about more government spending and rising costs of American goods. Not to mention the risk to the dollar should other nations decide to buy cheaper goods elsewhere. Build in America — Yes, having USA made semiconductor chips could save us money and create jobs. So will turning our attention to infrastructure—the President pointed out that the U.S. is ranked 13th in the world. BUT there are already 11 million jobs unfilled. And many tech companies are trimming jobs. The mindset for US growth feels very 60 years ago. No mention of automation (replacing jobs). No mention of the metaverse removing the need for brick and mortar. No mention of the aging population and declining birth rate. No mention of the efficacy of technology such as 3D printing to replace materials that grow from the earth for building houses. In fact, NO mention of the digital world at all or how we must prepare for the inevitability of it. AI and technical efficacy can become dystopian if only the wealthy enjoy the benefits. Healthcare—Big Pharma is reputedly known for fixing symptoms rather than finding cures. Putting that aside, we were struck by the great news on the cost of insulin coming down. "One out of twelve Americans has diabetes." We fact checked: 37.3 million Americans—about 1 in 10—have diabetes. About 1 in 5 people with diabetes don't know they have it. So yay, insulin is cheaper. But no mention of preventative care or nutrition awareness. And if you read our Outlook, sugar consumption is one of the underlying harbingers of inflation and social unrest. Sugar prices have quadrupled since 2020. Another macro theme is Mother Nature. As we are witnessing, she has her own plans to create havoc. No mention of agri-tech to combat scarcity and high prices. No mention that China owns hundreds of thousands of acres of US farmland. USDA reports that China accounted for 383,935 acres, or 0.9% of total foreign-owned U.S. agricultural land as of year-end 2021. The US aggressively sends money and resources to places devastated by weather events. Until we are more efficient in growing, cultivating, and distributing food, in spite of what Mother Nature has in store, with the increase of these natural disasters, food costs should continue to rise.The purpose of this addendum is to inform and prepare you for how to invest should the trends already in place continue to spiral.
For an actionable trade idea, please read on.
We at MarketGauge have lots of tools and scanners, as well as trading models and blends, that help you find stocks setup to trade.
This screenshot is from our Complete Trader product after the close on February 9th. We focus on "bullish compression" or stocks in bullish phases that are consolidating and potentially ready to go higher. For our part of the research and to narrow down the picks on the scan, we added a discretionary filter based on our research and bias of more inflation coming.
The top columns show the scans for inside days (when the trading range is withing the range of the day prior). Narrow range day makes sense given its inside day—it also means the trading range is much smaller than what is typical. MR is mean reversion as evidenced by our Real Motion Indicator. Then comes Triple Play (indicator), which tells us how the instrument is performing compared to the benchmark. It also includes a volume trend indicator that compares relative daily volume levels against the price movement in a stock.
The Stock phase is the phase it is in according to our 6 phases, all of which are fully described with examples in Mish's book Plant Your Money Tree.
On Friday, Mish did a segment for the StockCharts TV series Your Daily Five. One stock on the list, and covered in that segment if you click the link, is NOV. It is in the energy sector—a macro theme and an area covered during SOTU. NOV had a narrow range day coming into Friday. The Real Motion or Momentum Phase is bullish. NOV underperformed the benchmark and showed bearish volume compared to its price. Its stock's phase is bullish.
On Friday, the stock climbed nearly 4% compared to the SPY, which closed flat.
The E-Book refers to the oil market as the X-factor for how high and how long inflation could run. This research and our tools are designed to give you a focus list for what to invest in during what should turn out to be, quite an interesting and volatile year.
For more detailed trading information about our blended models, tools and trader education courses, contact Rob Quinn, our Chief Strategy Consultant, to learn more.
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Mish in the Media
Mish gives you some ideas of what might outperform in this new wave of inflation on the Friday, February 10 edition of StockCharts TV's Your Daily Five. She has picks from energy, construction, gold, defense, and raw materials.
Read about Mish's interview with Neils Christensen in this article from Kitco!
In this appearance on Making Money with Charles Payne, Charles and Mish discuss whether Powell can say mission accomplished.
Mish shares her views on how to approach the earnings announcements of Apple, Amazon, and Alphabet, and gives her technical outlook on how the earnings results could impact the S&P 500 and Nasdaq 100 in this appearance on CMC Markets.
Listen to Mish on Chuck Jaffe's Money Life, beginning around the 27-minute mark.
Kristin and Mish discuss whether or not the market has run out of good news in this appearance on Cheddar TV.
Harry Melandri and Mish discuss inflation, the Federal Reserve, and all the sparkplugs that could ignite on Real Vision.
Jon and Mish discuss how the market (still rangebound) is counting on a dovish Fed in this appearance on BNN Bloomberg.
Mish discusses price and what indices must do now in this appearance on Making Money with Charles Payne.
In this appearance on TheStreet.com, Mish and JD Durkin discuss the latest market earnings, data, inflation, the Fed and where to put your money.
In this appearance on CMC Markets, Mish digs into her favourite commodity trades for the week and gives her technical take on where the trading opportunities for Gold, oil, copper, silver and sugar are.
ETF Summary
S&P 500 (SPY): 420 resistance with 390-400 support. Russell 2000 (IWM): 190 pivotal support and 202 major resistance. Dow (DIA): 343.50 resistance, 338 support. Nasdaq (QQQ): 300 the pivotal area, 290 major support. Regional banks (KRE): 65.00 resistance, 61 support. Semiconductors (SMH): 248 resistance, 237 then 229 support. Transportation (IYT): The 23-month MA is 244—now resistance, 228 support. Biotechnology (IBB): Sideways action 130-139 range. Retail (XRT): 78.00 the 23-month MA resistance and nearest support 68.00.
