End Of Week Update
This is a brief end of week update, as I am currently at 35,000 feet on a flight home ahead of the weekend...
It was a wild and volatile week in markets ending with this morning's key PCE report which was mostly inline with expectations. For the past two trading sessions the S&P 500 has been battling the 50 day moving average, led by banks and cyclicals and weighed down by Tech stocks. In particular, semiconductor stocks were monkey hammered this week almost into bear market. Nevertheless, shorts are covering ahead of next week's FOMC meeting, giving the market an end of week bid which has been the case every week since the Tech top three weeks ago.
Suffice to say, this latest stock rally effectively nullifies any chance of a rate cut next week. The Fed is not going to cut rates when stocks are bid, GDP is stronger than expected, and PCE inflation is inline with expectations.
Turning to the charts, start with the good news:
Below we see that S&P banks have round-tripped back to the 2022 all time highs. I predict that this pre-FOMC melt-up is the last stage of the Trump rally that started at the beginning of July with the first presidential debate. Recall that we were told at the 2022 all time high that rate hikes are good for bank stocks. Now we are told that rate cuts are good for bank stocks.
The obvious outcome is that these Madoff acolytes are wrong BOTH times.
Turning to Tech Wreck, I asserted on Twitter that the AI super bubble is officially over. What makes me say that? This chart of semiconductors shows that the sector has now collapsed back to the March high and traded below it briefly on Thursday. For those who follow technical analysis, that is a violation of key support, which implies that the new trend is down. As we see via the Elliott Wave numbering, the two previous pullbacks did not violate the prior highs. Needless to say that there are a lot of trapped bulls who bought the breakout above wave 3. As I write on Friday afternoon the index is camped at critical support. Bulls are still pretending it's an uptrend.
This coming week features earnings from Microsoft (Tuesday), Meta/Facebook (Wednesday), and Apple (Thursday). As we saw this past week, both Tesla and Google got monkey hammered after earnings. Tesla got the most attention because it got annihilated. However, the stock of the week has to be Google because we just learned yesterday that the ChatGPT (OpenAI) developers now have a new search engine that is intended to replace Google search.
Since that news came out, Google has been bidless.
In summary, the waterfall crash is on track, but bulls just blew their last chance for a rate cut before September. Which means that if the wheels come off the bus in August, they have to wait seven more weeks for a bailout.
Therefore I just moved the rate cut price target much lower. Why? Because what everyone seems to forget is that the Fed RAISED rates in 2022 in a bear market. So they are not going to panic lower rates just because over-leveraged gamblers are getting margined out.
And when the market unwinds ALL of the front-running rate pause rally, what will today's pundits tell you to do? They will say it's time to buy stocks (again). Somehow not remembering that most people already did.
