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The Fed and the QQQ/AI Rally are Due for Dueling Pauses that Refresh | High Advisors Nook


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First issues first. Final week, the headlines blared the S&P 500 (SPX) is in a bull market after a 20% achieve from the October 2022 backside. That is good, however the true winner has been the tech sector, as measured by the Nasdaq 100 index (NDX), which is up some 38% over the identical interval.

The truth is, because the chart for the Invesco QQQ Belief ETF (NSDQ: QQQ) exhibits, the rally began in January 2023, because the tech shares accomplished a nifty triple backside. I identified that this probably marked the start of a brand new uptrend on this video on January 27, 2023.

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What’s much more fascinating is that the stealth bull market in NDX, which has now spilled over into SPX, is now six months previous and has unfolded even because the Fed has been elevating rates of interest. All of which means that because the Fed’s subsequent assembly approaches, it is a nice time to take stock of 1’s portfolio holdings and to take some income, because the AI/Tech fueled rally, together with the Fed, are each due for a pause.

The Fed’s Date with Future

The Federal Reserve has so much to ponder at its June 13-14 assembly. The inventory market is booming, whereas the worldwide financial system is displaying indicators of decelerating quickly – assume China and Europe. The latter has formally slipped into recession based mostly on not too long ago revised knowledge. Within the U.S., there may be loads of “smooth knowledge” that confirms the softening story. As I famous final week:

  • The Dallas Fed Survey crashed, falling for thirteenth consecutive month; one respondent famous: “There may be nothing encouraging on the horizon.” Different notable quotes: “orders canceled,” “order quantity has stalled not too long ago,” and “seeing a large slowdown;”
  • The Dallas Fed providers survey fell for twelfth straight month. Feedback value noting: “Companies are making ready for a recession by in search of methods to chop again, which in some methods, works to create a self-fulfilling prophecy;”
  • Chicago PMI Collapsed;
  • China manufacturing PMI fell beneath 50, signaling contraction; and
  • U.S. PMI and ISM surveys fell once more.
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Elsewhere, evidently OPEC’s “maintain the road”, mixed with lowering oil manufacturing within the U.S., are beginning to squeeze oil provides for the summer time driving season. Rising gasoline costs on the pump are prone to cut back client spending in different areas.

All of this means there’s a 50-50 case for an official pause announcement from the Fed previous to the subsequent FOMC assembly, until the Could CPI and PPI studies, due out on June 13 and 14 because the Fed meets, throw a wrench into issues. And remember, Mr. Powell’s press convention will comply with.

My guess is we’ll get a pause. However do not low cost one other 25-basis-point price improve only for “insurance coverage.”

OPEC Places Flooring Below Oil Costs for Now

Of late, I’ve advised that shorting a uninteresting market is just not a good suggestion, which means that, given the ultra-bearish sentiment within the oil market, the percentages have been higher than even {that a} backside within the worth of crude, and sure oil shares, was probably.

Because it occurs, after a lot speak, OPEC+ determined to maintain its present manufacturing cuts in place (as a lot as 1.6 million barrels per day) whereas OPEC kingpin Saudi Arabia promised a “voluntary” 1 million barrel lower per day.

When coping with OPEC buyers needs to be conscious that manufacturing cuts are simply numbers. In different phrases, there’s a honest quantity of dishonest that goes on. Thus, the bottom line is to regulate expectations based mostly on what they are saying, and watch what they do.

If OPEC+ is to be believed, then as much as 2.6 million barrels of oil per day can be faraway from the market by some level in 2023-2024 till confirmed in any other case.

From a market standpoint, the assertion appears to have been ok to place a backside in West Texas Intermediate (WTIC) and Brent Crude (BRENT) round $70 per barrel.

Furthermore, the oil (XOI) and oil service shares (OSX) appear to have put in a backside, which is bullish since, historically, the shares backside out earlier than the commodity. Already, out within the area, I’ve observed gasoline costs firming in my neck of the woods.

So, this is a assessment of what we all know as we head into the fullness of driving season:

  • OPEC+ is promising to chop manufacturing;
  • The usactive rig depend is falling, which implies the shale belt is following swimsuit;
  • Oil and gasoline costs appear to be firming.

All of it add as much as one factor: oil costs appear to have bottomed till confirmed in any other case.

I’ve not too long ago beneficial a number of power sector picks. You may take a look at them with a free trial to my service. As well as, I’ve posted a Particular Report on the oil market, which you’ll be able to achieve entry to right here.

Bond Yields Stay Beneath Essential Yield Degree

The bond market is reaching a call level, because it kinds out the state of the financial system and inflation. An essential knowledge level into consideration is the steadily rising jobless claims numbers launched on 6/9/23. The truth is, jobless claims have been quietly edging up over the previous couple of weeks as employers cut back new hiring, suggesting a continuation of the financial system’s slowing.

Consequently, the connection between bond yields, mortgage charges, and the homebuilder shares stays operational. Observe the reversal in mortgage charges (MORTGAGE) resulting in a rally within the homebuilders index (SPHB)

The essential yield level on the U.S. Ten Yr Observe is 3.85%. If yields stay beneath this degree, the percentages favor a continuation of the regular efficiency of the homebuilder sector.

I’ve not too long ago written an intensive report on the outlook for the homebuilder sector, which is accessible at my Purchase me A Espresso web page. To assessment it, click on right here.  

NYAD Stays Above Assist. SPX and NDX Look to Consolidate

As I famous above, the headline of the week was that the S&P 500 (SPX) rose over 20% since its 10/22 market backside. This places in a bull market, by definition. I’ve no drawback with that idea, apart from to say that I am anticipating the market to consolidate within the quick time period, which isn’t a foul factor.

The New York Inventory Alternate Advance Decline line (NYAD) remained above its 50-day shifting common, signaling shares are again in an uptrend.

The Nasdaq 100 Index (NDX) remained above 14,500 and is beginning to transfer sideways because it consolidates its AI-related good points. ADI and OBV stay in bullish postures.

The S&P 500 (SPX) moved above 4300 and appears set to take a breather. Each ADI and OBV look to be in good condition.

VIX Seems Set to Backside Out within the Brief Time period

The CBOE Volatility Index (VIX) broke to a brand new low final week as name possibility patrons overwhelmed the market. That is in all probability just a little an excessive amount of bullishness , so I anticipate a little bit of a bounce in VIX, which is able to probably result in some backing and filling out there.

When the VIX rises, shares are inclined to fall, as rising put quantity is an indication that market makers are promoting inventory index futures to hedge their put gross sales to the general public. A fall in VIX is bullish, because it means much less put possibility shopping for, and it will definitely results in name shopping for, which causes market makers to hedge by shopping for inventory index futures. This raises the percentages of upper inventory costs.

Liquidity is Nonetheless Restricted however Steady

The market’s liquidity could have bottomed out, however it’s not notably bullish or bearish. Nevertheless, so long as it stays within the present posture, it can pose little hazard. With the Eurodollar Index (XED), a transfer beneath 94 can be very bearish, whereas a transfer above 95 can be a bullish improvement. Often, a secure or rising XED could be very bullish for shares.

To get the most recent up-to-date info on choices buying and selling, try Choices Buying and selling for Dummies, now in its 4th Version—Get Your Copy Now! Now additionally out there in Audible audiobook format!

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Excellent news! I’ve made my NYAD-Complexity – Chaos chart (featured on my YD5 movies) and some different favorites public. You’ll find them right here.

Joe Duarte

In The Cash Choices

Joe Duarte is a former cash supervisor, an lively dealer, and a well known unbiased inventory market analyst since 1987. He’s writer of eight funding books, together with the best-selling Buying and selling Choices for Dummies, rated a TOP Choices E-book for 2018 by and now in its third version, plus The Every little thing Investing in Your 20s and 30s E-book and 6 different buying and selling books.

The Every little thing Investing in Your 20s and 30s E-book is out there at Amazon and Barnes and Noble. It has additionally been beneficial as a Washington Put up Colour of Cash E-book of the Month.

To obtain Joe’s unique inventory, possibility and ETF suggestions, in your mailbox each week go to

Joe Duarte

In regards to the writer:
Joe Duarte is a former cash supervisor, an lively dealer and a well known unbiased inventory market analyst going again to 1987. His books embrace the perfect promoting Buying and selling Choices for Dummies, a TOP Choices E-book for 2018, 2019, and 2020 by, Buying and selling Assessment.Web 2020 and Market Timing for Dummies. His newest best-selling guide, The Every little thing Investing Information in your 20’s & 30’s, is a Washington Put up Colour of Cash E-book of the Month. To obtain Joe’s unique inventory, possibility and ETF suggestions in your mailbox each week, go to the Joe Duarte In The Cash Choices web site.
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