Trade The Journey

Trade The Journey

Getting a grasp on things!

Top of the Morning! The final four lived up to its hype for both the men’s and women’s divisions, culminating with two teams advancing to the final round to determine the NCAA championship. Kansas and North Carolina will play against each other Monday, and it should be a great game.

Connecticut and South Carolina will play today for the womens’ championship today.

Biden announced that the US will be releasing close to a million barrels of crude a day from its strategic reserve to help combat high gasoline prices. This announcement wasn’t too pleasing for OPEC, which plans to increase its output gradually.

Russia plans to change the acceptance of payments for its energy resources to rubles. However, foreign currencies will be accepted through a specific bank in Putin’s latest move to strike back against the sanctions levied against Russia.

Europe is heavily dependent on Russia’s energy resources, and disruption could cause an energy crisis in Europe. Although most European countries are planning to remove their reliance on Russias’ energy resources in the future, it isn’t feasible now, even with America’s assistance.

Talks of peace between Russia and Ukraine have not produced anything material, and a cease-fire has yet to be implemented. Instead, Ukraine is voicing its concerns that Russia is moving its troops to Moldova to wage another attack.

This war has affected markets worldwide and has caused the displacement of more than 2 million Ukrainians as they flee their country.

As the war drags on, could things escalate? I surely hope not.

The Economy

Wholesale and retail inventories both increased for February. You can use the level of inventories as a reliable indicator to discern the economy’s health. Below is a quote from Market business news on inventory further explaining the importance of inventory levels:

Wholesalers are intermediaries positioned in the economy between manufacturers, importers, and retailers. The wholesaler sells directly to the retailer, who ideally strives to act in accordance with consumer demand.

If wholesalers have high inventory levels – if stocks are high – it means that unsold goods are accumulating, which suggests that retailers are facing weak consumer demand, i.e., shoppers are buying less.

On the other hand, if wholesalers’ stock levels are low, retailers face strong demand, i.e., shoppers are buying more. –  

Market Business News

International Trade (Feb)

Exports slightly increased as did imports. Exports increased for Food, feed, & Beverages, and Industrial supplies. For imports, Industrial Supplies, Capital goods, and Consumer goods slightly increased. Automotive vehicle imports showed the most significant decrease for February.

Purchasing Managers Index

Twenty-two months of expansion for the PMI report. Prices are increasing faster, inventory is still growing, as is the employment situation in manufacturing. New orders are still growing, albeit slower, and supplier deliveries are also slowing, echoing the supply chain challenges given by the reports’ respondents.

“Five of the six biggest manufacturing industries – Food, Beverage & Tobacco Products; Machinery; Transportation Equipment; Chemical Products; and Computer & Electronic Products – registered moderate-to-strong growth in March.” PMI report

Notable commodities in short supply:

Nickel; packaging material; semiconductors; lumber; labor; wire- copper; aluminum

Respondents’ statements:

Supply chain challenges, raw material availability issues, inflationary pressures, and challenging business conditions domestically and internationally.

Positives:

Backlog and demand continue to be strong. Incoming sales continue to increase.

Negatives:

Inflationary pressures and supply chains are still strained.

PCE (FEB)

The most significant contributor to the increase was spending on food services and accommodations within services. Within goods, spending on motor vehicles and parts was the leading contributor to the decrease. There was an increase in spending on services and a decline in spending on goods. PCE increased as expected and came in at 6.4% from a year ago.

Personal income and Wages & salaries for private, service-producing, and government increased. Personal saving has significantly decreased since July of last year. While disposable income is rising, so are personal outlays/spending. Spending on both durable and nondurable goods fell, but spending on services rose.

Employment Situation Report

Total nonfarm payroll employment rose by 431,000 in March. Employment levels are slowly returning to pre-pandemic levels as many states have lifted mandates. The labor market remains tight, with job openings still at high levels. Nearly 24% of all unemployed people have been unemployed long-term. The unemployment rate trended down to 3.6%.

Hourly earnings on private nonfarm payrolls rose 5.6% in the past twelve months, less than the current PCE rate at 6.4%.

The most significant increase occurred in the following sectors: Leisure, Hospitality, professional and business services, retail, and manufacturing. Construction hiring is trending up. Total construction spending on residential slightly increased for February but decreased for nonresidential in the same month. Public construction fell for education and highway building.

Leisure and Hospitality: Food services and drinking places and accommodation.

Professional and Business Services: Buildings and dwellings, accounting and bookkeeping services, management consultation, computer systems, and scientific research and development

Retail: General Merchandise stores, Food and Beverage stores.

Manufacturing: Transportation and electrical equipment and appliances

Telework decreased from 13% to 10% from the prior month as workers return to the office.

Weekly MBA report

Mortgage applications decreased by nearly 7%, and refinancing also declined as mortgage rates climbed, reflecting a tighter monetary policy. For a thirty-year fixed-rate mortgage, the rate increased to 4.80%, and for the fifteen-year, the rate increased to 4.01%.

GDP

The third estimate for GDP was released on Wednesday. This is the first time I’m covering the GDP estimates for the fourth quarter of 2021. The third estimate stated that Real GDP grew by 6.9%. The report indicated that the increased services spending was in health care, financial services and insurance, and recreation.

Indices

Russell 2000

The Russell tested the 2139.13 resistance level and failed. This resistance/support line has been in effect for a year. Because Russell ended the week with a strong bull bar, I think another test could happen of the resistance level.

S&P 500

The S&P pulled back from its recent trend up. The 50 sma may turn upward this week, but it still has a way to go before testing the 200 sma. The pullback ended the week with a hammer candle, which is one of my favorite signs of a trend reversal.

Dow Jones

The dow tested the 35157 reference level and failed. The dow used the 34519 level as support and ended the week with a hammer candle. The first immediate test will be the 200 sma.

Nasdaq

After ascending nearly vertical for the past few weeks, the Nasdaq ended the week with almost the same pattern as the Dow and S&P. It bounced off the 14177 level with the following test being the 200 sma above.

Bonds

The shorter part of the curve has inverted. The five-year yield came close to inverting with the thirty-year yield. Some analysts are warning that the yield curve is flashing signs of an impending recession. I’m still learning about Bonds and how they work, so I’ll keep this review short.

Sectors

Utilities ended the week making a new high. Materials and healthcare both paused on their bullish trends, and on both charts, the 50 sma is close to crossing the 200 sma. The Industrials, Technology, Finance, and Consumer Discretionary sectors crossed their 50 sma to the downside. Consumer staples and energy ended the week on a solid note.


Short Commentary

The economy still seems to be solid. It’s hard to get excited about the bounce in the indices these past weeks. It doesn’t seem like this bullish trend is strong enough to continue long-term. I think the economy will slow this year as the Fed increases rates and consumers continue to lose their purchasing power.

The war in Ukraine adds another variable to global markets that very few of us anticipated. My outlook on markets is increasing volatility and reversal of this bullish trend. My opinion is that you should remain cautious and position your portfolio defensively. If my forecast proves incorrect, then the bull market may be stronger than I think.


Cash Flow Review:

It was a rough week. I kept my spending within my budget for the most part, but there were a few expenses I wasn’t prepared for. I’m still reeling from the last emergency. Luckily, I have a few dollars saved, but that might not be enough.

Everywhere I go, prices have increased. Gas continues to bite a chunk out of my disposable income. I may have to make even more drastic cuts to my expenses in the coming weeks.

Grade: D+

Reason: I tried, but I didn’t manage my cash flow well.

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