In a recent piece, JFL reminded you that that the market has a historical rally into the 4th of July holiday. It did. No biggie. However, space limited us to other aspects to the month of July.
Forward Looking
The market is a forward-looking mechanism. It would like to project pricing six months in advance. So, if you recall, back in December, the experts gave their market predictions. All the shills were wrong. They called for a higher market. Surprise! Again, they are calling for a higher market in the next six months.
We, at Evolution, stated that we are in a stealth recession. We believe that we are correct. The economy moved along due to do a series of things like ramping up weapons to help Ukraine. The Biden administration passed stimulus bills. A lot of that money has still not entered the economy. Due to machinations, COVID money is used for other purposes. July puts these same aspects into play for the year end estimations.
It is also earnings season and somehow, someway, it is a point in time when credit needs to be established for the remainder of the year and into the coming years. In this vein, April had 54 firms file for bankruptcy. There was a period in mid-May when 7 companies entered into the bankruptcy court in a 48-hour timespan. July will also entertain another Federal Reserve meeting on the 26. As you can see, July is a big month for the future of the market and the economy.
What We See...
CONSOLIDATION in capital letters. When a consolidation pattern appears, many things can unfold. Japan experienced 34-years of the pattern in its market. In the US, we also had a long period before a change took place. From 1929 to WWII, the US market suffered a negative consolidation. Generally, a stock or a sector will make a dramatic move after a drifting in a range. Japanese candlestick charting can reveal a pivotal point to the pattern. It helps. We also use a few other indicators like the Chaikin Money Flow (CMF). Anyway, we took a look at the market indexes, commodities, banking, shipping and chips. Note: Chips led the last market rally and it also led in its decline.
INDU= stocks are the top of the range. The top is 35,000 and bottom is 31,500. Money is moving in. SPX = stocks are also at the top of the range. The top is 4500 to 3800. Money moving in. NASDAQ = stocks climbing to the top of range. The top is 14,500 to 13,100. Money is moving in. IWM = the small caps are in the bottom of their range. The top is 200 to 165. Money is leaving. Tran = at the top of the range. 16,000 to 13,400. Money is moving in.
SMH = The chips are approaching their highs. The top is 155 to 142. Money is moving in. BDI = Products need shipping; however, this index is declining. It hit a new low last February. BKX = companies need credit. Banking is in a downtrend. Like shipping above, things are looking bad. In addition, lending is tightening. Commercial real estate is suffering severe vacancies. This puts a strain on the landlord. Defaults are happening. Car repossessions are also on the rise.
When you do not feel well, you should see a doctor. Dr. Copper is in the middle of his range. The top is $4.35 to $3.50.
Before you leave for your appointment with the doctor, you might need gas. Energy is in a neutral position. Oil is at the bottom of its range. The top is $85 to $62. Some cash is entering.
There are only two other aspects of the market. Gold has not performed well. Having said that, it is actually in the top of its range. The top is $2000 to $1850. We are glad to see that the metal held price at $1900. July is also the month that gold comes alive. The rally extends until the end of October.
$King Dollar = no conversation can be conducted without mentioning the dollar. It is at the low end of its range. The top is 106 to 100. If the dollar declines the market will rally. If it strengthens, the market will take the elevator down.
Finally...
...We mentioned at the beginning of the year that workers will strike for more money due to the effects of inflation. These things take time. One reason is ego. If so and so gets so much, well, we are worth more. The Writer's Guild is on strike. The regional retail union in LA is on strike. UPS may go on strike. The auto makers contract is up in September. We see the big government unions like the police, fire and sanitation coming as well as teachers. Then, this related aspect. With tensions rising between China and the US, tit-for-tat actions follow. China has put limits on rare earth minerals. This will cause prices to rise. Inflation is not going away. Please note, when workers strike for higher and livable wages, this does not directly cause inflation. Consider this point, owners of larger corporations make somewhere between 400x and 100x more than their help. Workers are asking for dollars per hour while the Fed prints billions per hour. The Federal Reserve is the chief cause of inflation with their printing press.
We stand by our call thar our economy is in a stealth recession, even if it is mild up to now. It could turn for the worse. Then, again, maybe not? Peace.
