Hard or soft landing
Kevin Haggerty is a full-time professional trader who was
head of trading for Fidelity Capital Markets for seven years. Would you like
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The SPX finished the best
week in 20 months at 1278.55, +2.7%. The index closed the previous
Friday at 1240.29 vs. 2005 close of 1248.49. Last week’s markup to 1278.55 took
the SPX from a small negative to a +2.4% YTD 2006. Today is the last day of the
month so the index will most likely hold its gains and break out of the 1280.38
– 1219.29 range the first few days of August. The key price levels if that
occurs are 1285.67, 1290, 1295 and 1303.71. The Generals got a big assist Friday
from a batch of negative economic news which accelerated the "pause" hype once
again, but not for the normal 200-point $INDU gain. The SPX was +1.2% on Friday,
with the $INDU +1.1% (+120 points) with the most oversold QQQQ +2.1% and $COMPX
+1.9%. NYSE volume declined to 1.68 billion shares vs.the 1.8 billion shares
Thursday on a -0.4% day. The VR was 80 and breadth +2007. Over 35% of NYSE
stocks are interest rate sensitive, so that hyped the breadth number as the TLT
finished at +0.6%. The Fed has turned into a bit of a joke as they vacillate
with each economic report. I can understand the TV empty suits and brokerage
firm economists that are just shills to rationalize and keep investors in the
market, but the seeds for a recession or slowdown have been obvious for quite
some time, as I have mentioned in this commentary on previous occasions. Most
people only want to hear what they want to hear, while few will act on what they
see.
The short story is that the leading economic indicators have been declining for
over 6 months and there is a current yield curve inversion. When this happens in
concert, the odds are almost 80% that a recession will follow and 95% there will
be a slowdown. The Fed missed in 1990 and 2000, and from listening to the double
talk so far it seems they missed or are very late on this this one. A pause is
not going to stop what is already in motion and will inevitably play out.
Cumulative impact of increased rates, rising energy costs, much lower real job
growth than what the bag man at the Bureau of Labor Statistics reports, in
addition to the extremely overleveraged consumer who is getting hit on all sides
will make us pay the price. The question is not if there will be a slowdown, it
is simply will it or won’t it be a soft landing. The Fed’s track record is not
good in that regard. The Generals made a slowdown bet quite some time ago based
on the out-performance of the defensive sectors previously outlined in this
commentary.
The market is in month 46 of the four-year cycle and the average time between
four year-cycle lows fro the past 50-60 years has averaged 48 months, with 11 of
the 22 cycles 49-53 months. It was 6.2 years to the 5/8/06 1327 high from the
3/24/00 bull cycle top which is the second longest to the 6.7 years to the 1987
peak. Time is obviously not on the market’s side and the SPX 1219.29 low (-8.1%)
is not the four-year cycle low. There are over 7000 hedge funds out there
competing for performance to raise more funds; in a nervous market like this
they must have fast trigger fingers, and long term is after lunch in order to
keep their heads above water. It sure as hell doesn’t mean buy and hold. The
market moves will be sharp both ways but of much shorter duration.
Have a good trading day,
Kevin Haggerty