Mish’s Daily: Fresh Macro Economic Look After CPI

2 years ago 597 views 6 min read

Michele “Mish” Schneider

Director of Trading and Education

MarketGauge.com

Mish’s Daily: Fresh Macro Economic Look After CPI

Written by Michele ‘Mish’ Schneider

I was honored to spend time on Making Money with Charles Payne, Fox Business, and give a brief glimpse into why I am not as bearish right now based on the macro. (link below)

My macro take based on business cycles and zooming out on the charts:

The economic contraction based on longer business cycle timeframe or 6-8 years, might be done.

The 80-month moving average (green line) held in small caps (IWM) retail (XRT) and transportation (IYT).

That doesn’t mean we start expanding though.

It just means the market looking forward, might trade to the upper regions of the trading range.

That is the Stagnate part of stagflation.

On the other hand, the business cycle within the longer cycle or 2 years as measured by the 23-month moving average (blue-line) has yet to pierce to the upside except in a couple of sectors like semiconductors (SMH).

So, growth stocks could expand further while the “inside” parts of the US economy remain sideways for longer.

Hence, we have bad news and good news.

The bad news is the indices, and many sectors, are range bound and may remain so for a long time.

The good news is the indices, and many sectors, are range bound and may remain so for a long time.

We still believe that the SPY could clear over the 23-month moving average.

Ultimately though, the small caps (IWM) must follow.

Two scenarios can spoil the party.

1. If IWM fails the 80-month moving average going into more of a recessionary cycle-worst influence are the Regional Banks. That would force SPY to reconsider the rally.

2. IWM holds yet cannot get above 190-200. In that case the SPY could be at 240 and still reverse course.

Clearly, you can see the difference between the small caps and the S&P 500 on the daily timeframe as well.

A first step would be for IWM to rally above the 50-DMA or blue line. Then, maybe we are on the way to more upside. Shorter-time frame of course, but a good start if it can happen.

Real Motion Momentum is meh in the SPY and about to enter a bear phase in the IWM. Momentum needs to clear back over both moving averages in IWM to get even more interesting.

More macro:

High grade corporate bonds (LQD) and high yield high debt junk bonds are both in trading ranges.

However, seasonally, and historically, yields tend to peak in May. Considering the CPI numbers, that is possible.

The US Dollar is holding major support, testing the lows of its 2 year business cycle expansion. That is a good line in the sand.

Furthermore, gold and silver are also now range bound- albeit at higher levels. Copper and Platinum are strong. Soft commodities, especially sugar and cocoa, are strong. Food prices remain the stickiest part of inflation.

That is the Flation part of stagflation.

The CPI numbers exclude food and energy. Plus, global inflation still high.

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