We, at Evolution, told you last week that the timing by calendar along with the debt ceiling issue would lead to a market rally. To be honest, we did not anticipate the upward push would be this strong. We understand why behind the scenes. The market Bulls saw the same thing. In addition, they had ammo from AI with Nvidia. The chip company jumped like Michael Jordan on a dunk layup. It gapped higher. It made a 100-point rally in three trading sessions. This is the second gap higher for the company. It rose 40-points in one day back in February of this year. That gap has not been filled. The firm could get another gap upward. If it does, beware! A triple-gap formation in a stock price ends with the price falling back to where it started. At the moment, the PE ratio is over 200. Would you invest $200 for one dollar in earnings? This is what we mean to focus on the picture.
The Fed is...
...the smudge on the lens. It is connected to the US debt issue. The bill allows the US Treasury to issue bonds for our debt. The revenue is the money the government uses to pay the bills. In that short sentence, the next issue for the market will emerge. The government needs to raise trillions with a "T." They will not be able to sell out all the bonds available. So, you ask, who buys the remainder? The Fed. (Just another reason why we say, End the Fed!)
Here is another tidbit. It is actually the height of hypocrisy. The name of the bill which allows our government to go into debt of over $31 trillion dollars is called Financial Responsibility Law. How can you claim financial responsibility when you allow our nation to fall into a debt cycle that extends from one administration to the next decade after decade? Anyway, this market rally has legs.
SPY will probably test 440. The calendar timing will connect to the next Fed meeting. The bulls are hoping to continue to control the market with a Fed pause. They have support with a rising banking sector. This leads back to the Fed. By pausing, the banking industry will stop their losses due to when they purchased bonds with negative rates like two and three percent. Any rate drop by the Fed will provide more ammo to the banking sector and market rally. However, there is one other important aspect...
King $Dollar
It looks like it wants to test the 106 level. If it continues to climb, this rally will stall at resistance. You can get a clearer picture by watching the NASDAQ and its leading index, the
QQQ
It looks to test 370.
IWM
The small cap index broke above consolidation. This is a bet that the economy will get stronger. We believe this is a head fake.
The action and price of the dollar will focus the picture. We still maintain that our economy is in a "stealth" recession. Any time that you have inflation in your wallet and the overall economic growth is less than that level, you have the worst of all economies, stagflation. This is what we are experiencing. If things were going great, oil would be much higher in price. It is at its lows. Retail is suffering and a clue comes from a leader, Advance Auto Parts (AAP). It opened a downward gap of over 30 points last week. It is cutting its dividend by 80%. It was $156 in February of this year and last Friday, it was $67 and falling. Ouch!
Science tells us that our eyes only see a small fraction of what we are viewing. They also tell us that our mind can play tricks with us in our ability to ascertain info. We, at Evolution, say, focus your lens and take a moment to understand what you think that you are seeing. Peace.
