A short-term trading opportunity

The economic stars now appear to be aligned for a
possible short-term summer rally. At a minimum, the risk has shifted more to the
short than the long side. The reason: the economy is slowing down but not yet
enough to affect corporate profits in the short run while inflation is
downshifting as well, which argues for an end to the Fed’s current rate hike

The Fed saw this rather clearly last Thursday when it decided to go just for
another 25 basis points — refusing to hop on to the “one big one and done” 50
basis point bandwagon. This puts another rate hike on hold for at least two
months because the next FOMC meeting isn’t until August. The stock market
correctly interpreted the Fed’s action as appropriately measured and had one of
its best days in years.

What exists now is at least a glimmer of hope for the proverbial “soft landing”
in which the economy will settle in to a slower, more sustainable rate of growth
of around 3%, with inflation moderating. I personally would not place any longer
term bets that this hope will become reality. With the ECRI weekly leading index
now projecting quasi-recessionary growth of only 1.5% annually in the GDP and
the housing market continuing to slide into the tank, darker days for the market
are likely ahead — if for no other reason than at some point earnings are going
to disappoint mightily in a sluggish economy.

Still, in the short run, traders may well be able to make a few bucks now on the
long side. That forecast will hold until there is any new and credible evidence
of over-exuberant inflationary pressures.

This Week’s Market Movers: A Busy Un-busy Week

With the markets closed on Tuesday and a long weekend wiping out Monday, this
will be an un-busy market in the face of a very busy report week. Chip billings,
auto sales, construction spending, and my favorite supply side indicator the ISM
index fly on Monday. Wednesday it’s factory orders and Friday, it’s the all
important jobs report. That’s the likely big market mover — the jobs report.
I’m looking for a continued weakening, which the both the stock and bond markets
will likely like as another sign of moderating inflation.

Portfolio Picks and Pans: Epix and VIta

Both of my biotech holdings,
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, had very nice weeks.
What I have liked about the technical action has been a pattern of a steady fall
in their share prices on low volume. Then, a nice thrust upwards on high volume.
I’ll nurse these two holdings while I continue to hunt now for a few more long

Peter Navarro is a business professor
at the University of California and the author of the best-selling investment

“If It’s Raining in Brazil, Buy Starbucks
.” His latest book is

The Well-Timed Strategy