The countdown to year-end has begun. There are only 25 trading days of widely ignored criminality left in 2022. Bears have put our credibility on the line, calling for meltdown. Bulls have put their everything on the line, calling for meltup...
This past week's Fed minutes changed nothing - another 1% rate hikes are expected between now and March. However, low volume algo manipulation is very easy around the holidays. Which begs the key question asked by bulls and bears alike - is this the beginning of the annual year-end meltup?
First off, it should be noted that as I showed on Twitter, the past two months has been the largest two month Dow rally since 1975, despite record risk. Still, Zerohedge aka. Wall Street expect this year-end meltup to continue:
"While fundamentals remain bearish and will likely drag stocks to the low 3000s in early 2023 as recession fears overtake inflation concerns, the market technicals are extremely bullish, and growing even more so with every passing day"
Where to begin.
First off, FYI to Zerohedge, BofA already bailed on this year-end rally last week when global stock inflows hit an eight month high. Because they view the technicals as now having become bearish.
Case in point, the Dow's biggest two month rally in almost 50 years brings the market back to the August high and ironically back to last year's low, circa Dec. 1st, 2021 which is where the year-end rally began. So you have to be hitting the crack pipe hard to believe that this year's Santa rally is just getting started.
Meanwhile, the retail sector is drowning in inventory this year. I did some personal shopping this past Monday, and I bought $150 of clothing which was marked down to $100 at the register. For once it was me who could brag about how much money "we" saved by going shopping. The wife was not amused.
Nevertheless, investors were informed this past week that retail earnings were "better than expected". Now compare this November to last November and you can see why I am a tad skeptical:
CNBC: Best Buy Shares Surge On Raised Outlook
"It raised its full-year forecast, saying it expects comparable sales to decline about 10%"
"Major retailers are under intense pressure to deliver on Black Friday after several of them reported a slowdown in sales heading into the do-or-die holiday shopping season"
Retail deflation is a widely ignored warning sign of what's coming. For now however, just the middle class is imploding, while the casino class keeps buying every dip. They are oblivious to the fact that stock multiples keep getting more expensive as earnings reality very slowly reaches the market. FOMO (Fear of Missing Out) is the ultimate inflationary mindset. Panic buying before prices go higher. Clearly, bulls are still well entrenched in the inflationary mindset for now, but the technical warning signs are piling up. Whereas the Dow has round-tripped back to the August high, the Nasdaq is lagging badly. Here we see the Nasdaq 100 is well below the 200 dma while the % of stocks above the 200 dma is the SAME as late March earlier this year. That is a major bearish technical divergence. It's visual confirmation that Tech lost a staggering $7.4 trillion in market cap during the past year:
"It seems like an eternity ago, but it’s just been a year. At this time in 2021, the Nasdaq Composite had just peaked, doubling since the early days of the pandemic"
"For the first time in nearly two decades, the Nasdaq is on the cusp of losing to the S&P 500 in consecutive years"
The Global Dow has also round-tripped back to the August high, and the RSI pattern (top pane) is very similar to the one last December. In other words, Santa Claus came two months early this year and has handily exceeded last year's fourth quarter return, but now we are to believe that this year's melt-up rally will BEGIN where last year's ended.
Sure.
In summary, the theme of 2023 will be deflation, as frugality is already coming back into style with a vengeance for the middle class. Meanwhile, investor FOMO is about to explode with extreme dislocation.
This past week's Fed minutes confirm that a December rate hike is a lock, which means 2022 will see the EXACT same level of Fed rate hikes that took place between 2003-2006. The last time the Fed imploded the middle class.
In other words, +4.25% (Equivalent to 17 1/4 pt rate hikes).
And yet, the majority of today's pundits are assuming this time will work out better than last time. Given the lags in monetary policy, they have literally no basis to reach that asinine conclusion.
They are exploiting the vacuum of lagged data which has become a con man's paradise.
Lastly, the World ex-U.S. has already rallied off the lows as much as it did in 2019 AFTER December rate hike AND after Fed pivot.
FOMC: Fear Of Missing Crash.
