About To Get Wild

Hold on to your hats things are about to get wild.

Did you see that price action in New York on Friday, and in the AUS200 it looks like a classic one day reversal.

OK, so lets be a little cautious and allow the Monday trading NY time a chance to just hold on here by its finger nails and pull back from the awaiting abyss? But, really, think maybe we are going to begin to see some significant falls. You see, rates are still going up and as the US dollar falls, so too will inflation rise.

US import prices declined 0.2% last month, but how long will that last in a falling Greenback environment. Not long at all.

The last thing the Fed needs right nigh now is a fresh inflation impetus from a weaker currency.

It takes time to flow through the economy of course and the Fed cannot be reacting to every adverse FX move, but this is a trend it would look. Over the next several months inflation remains a potential high hazard area.

Meanwhile, stocks have enjoyed a very strong run and are clearly over-bought and vulnerable to downside risks at this stage. I mean, who isn’t bullish?

The whole world is bullish stocks here, and yet the Friday price action more than just gave up steam. The Dow Jones bulls maintain an argument while significant immediate support at 34,200 holds. This level though, could come under attack as soon as within a day or two. Just from profit takers alone. Let alone if some money managers continue to see the same dire economic matrix I do.

The US economy is weakening. Yes, Consumer Sentiment hit a two year high on Friday, but it is still below Covid-lockdown levels. Confidence had been at or near the most depressed levels in the series history. So some natural bounce was only to be expected.

If Consumer Sentiment was near record highs and made a two year high, now that would be something to celebrate. Here, at all time crisis depression type levels, and a mere two year high at below how confident people were feeling in the middle of Covid? Well, that is not much to crow about at all now is it.

The US economy is in a parlous, fragile state, and all the Administration wants to say is how strong the economy is? While the central bank plots to wind it even lower?

Hence, price structures of exhaustion bare some taking notice of at the current time. If you like the ‘just buy because markets always go up’ argument, yeah it took stocks 25 years to get bak to their 1929 peak, then even in the immediate picture, you still have a very strong bullish argument while 34,200 holds.

My suggestion is simple.

Keep an eye on that level this week.

Clifford BennettACY Securities Chief Economist

The view expressed within this document are solely that of Clifford Bennett’s and do not represent the views of ACY Securities.

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