Trade The Journey

Trade The Journey

Confusing Times

Top of the Morning! I hope all is well. The NCAA tournaments continue as we edge close to the final four for both the men and women. My favorite part of the tournament is the first couple of days where teams play on four different channels back to back.

I enjoy flipping through the channels and watching teams compete. Big and small schools alike have an equal chance to advance.

Economy

Home affordability is decreasing with housing prices and mortgages set to continue rising. MBA Purchase Application Payment Index measures how new monthly mortgage payments vary across time relative to income. An increase means borrower affordability is decreasing and the opposite for a decrease. The numbers on the site show that mortgage payments are an increasing portion of a persons’ income.

“The national median mortgage payment for conventional loan applicants was $1,749 in February. In January it was $1,582 and a year ago It was $1,391.”

Mortgage applications decreased close to ten percent from the previous week. The refinance index also decreased. As the Fed scales back its purchasing of mortgage-backed securities and raises rates to combat inflation, mortgage rates are expected to continue increasing. Mortgage rate across the board rose from the previous week.

The average sales price in February was $511,000. The number of sales during the period decreased from the previous month. Pending home sales also declined.

EIA inventory report

Refineries operated at 91.1% capacity. US crude oil inventories are around 13% below the five-year average at the same time. Crude oil inventories fell from the previous week indicating demand increasing and it’s down relative to the previous year. Below is a snapshot of gas prices a year ago compared to now:

Retail Gas Prices:       3/21/22 3/14/22 3/22/21

Motor Gasoline – Regular 4.239 4.315 2.865
Motor Gasoline – Midgrade 4.71 4.765 3.265
Motor Gasoline – Premium 4.992 5.038 3.516 Unemployment
Initial claims decreased from the previous month, as did the continuing claims providing further evidence to the Fed of a tight job market and a signal to continue increasing rates. The initial claims came in at the lowest number since September 1969. Look at the four-week moving average for a better indication of the trend.

Durable goods report
New orders decreased a little over two percent breaking four months of consecutive increases. Transportation equipment led the decrease. Shipments continue to trend lower. Unfilled orders increased as did inventories of manufactured durable goods. Capital goods decreased close to seven percent.

Primary metals, defense capital goods, and nondefense aircraft and parts also decreased. Computers and related products increased. Unfilled orders and total inventories remained even across sectors for this previous month.

Consumer Sentiment
Sentiment continues to decline, decreasing to a level not seen in a decade. Consumer expectations declined along with other consumer measures citing inflation, rising rates, and incomes no longer rising to meet the current level of inflation. 32% of the respondents expected their financial position to worsen over time, according to the report. Consumers expect the level of inflation to continue rising.

Bonds

Bonds are selling off across maturities. As mentioned in last week’s post, the shorter part of the curve is inverting. While the stock market staged a rebound, bonds have been selling off. For the ten-year yield, 2.62% is the next reference level above. Yields moved up decisively indicating the bond market is not at all convinced that the rebound in the market will continue.

For the five and ten-year bonds, the weekly charts show how dramatic the price changes have been dating back to March 2020. With a peak set in January, both bonds descended almost vertically to the lows we are at now.

Sectors

This past week the utility sector made new highs and the materials sector is close to testing its high. The energy sector is also near its high. The consumer discretionary and staple sectors broke above the 50 sma but don’t look strong at all. With prices continuing to rise, the consumer has taken a big hit, as they become acutely aware of the lack of growth in their income to match inflation.

Although the healthcare, technology, industrials, and finance sectors broke above their respective 50 sma’s, the trends don’t look decisive in either direction.

Indices

Dow Jones

The Dow made a nice recovery, making its way towards its Feburary high. The 200 sma looks like immediate resistance. A nice test for the dow would be 34354.88, which is below, to see if the short-term bullish trend is still strong.

Reference levels above:

34,881.85: 34,975.04 (200 sma)

Reference levels below:

34,519.51: 34,975.04

Nasdaq

The Nasdaq also recovered nicely and still looks like it has some legs for a continuation in its bullish trend. After a brief pause, the bulls continued to buy the dip.

Reference levels above:

14,712.94 (200 sma) : 14,513.15

Reference levels below:

13,899,62 : 13,848.34

S&P 500

The S&P ended the week strong after emerging out of a brief sideways trend. The S&P crossed above its 200 sma this past week. I’d like to see how the S&P reacts to its immediate test of 4589.

Reference levels above:

4,589 : 4,662

Reference levels below:

4481 : 4467

Russell 2000

The Russell also recovered but still remained in a sideways trend. Its been drifting sideways since January, and it doesn’t look like that will change anytime soon.

Reference level above:

2087

Reference level below:

1931-33


Commentary

Looking at the charts of the major indices, it doesn’t look like they will return to near their all-time highs. As the Fed escalates the pace and size of its increases to rates to help slow inflation, traders and investors should remain alert. Earlier in the week, an analyst on Bloomberg remarked that the Fed tapering will affect markets more so than increases in the Fed rate.

That remains to be seen. To me, it looks like the markets have a false sense of security. Even though, I’ve been off in forecasting how strong the “BUY THE DIP” strategy would remain, I don’t think the strategy will work forever. The more I read the economic reports and watch market action, the more I think we’ll be in a violent turn to the downside at some point.

That’s the thing about forecasting market action, you can be completely wrong or right, just make sure you manage your risks, either way, the market turns.

As the war continues in Ukraine, the question on the mind of governments around the world is, “How far will Putin go?” With Biden calling for a regime change, how will Putin take this threat?  The war in Ukraine isn’t playing out he planned and as the days go on and their resources dwindle, I ask again, “How far will Putin go?”


This past week’s cash flow report

Gas expenses continue to eat a chunk out of my disposable income. I don’t foresee gas prices retreating anytime soon. Besides the increase in gas expenses, I did quite well managing my income. I did have a couple of emergencies, but I was able to weather the storm. This upcoming week, I plan on implementing the same spending plan as in the previous week.

  • No unnecessary driving
  • Eat out once a week
  • Keep my fixed expenses low

Grade: C

Reason: Adhered to spending plan.

Leave a Comment

Your email address will not be published. Required fields are marked *