[Chart courtesy of MarketWatch.com]

1. Moving the markets

If you think recent market behavior was downright nutty, nonsensical, and non-directional, you are not only correct, but you are also not alone.

After Tuesday’s relief bounce, and yesterday’s comeback, traders were disappointed today that there was no follow-through buying, but also that the bears emerged full force and slammed the major indexes back to a level last seen the end of January.

The alleged conflict between Russia and Ukraine was pushed hard by MSM, with no evidence provided, as tension at their border impacted market sentiment and pushed our main directional indicator (TTI-section 3 below) back into the red—though by only a fraction of a percent.  

I think that other geopolitical issues like Canada’s freezing of bank accounts, the US economy slowing (higher jobless claims and tumbling housing starts) and the potential of hyperinflation contributed considerably to today’s market spanking.

It turned out to be the worst day of the year for equities with all sectors puking evenly, however, SmallCaps took the lead and dumped -3.27%. Bond yields were down again, with the 10-year dropping back below its 2% level.

The shining star of the day was gold, which added a solid +1.54% to reclaim its $1,900 level by a tad and reached a point last seen in June 2021.

The market behavior of the recent past, pushing our Trend Tracking Index (TTI) in and out of bullish territory, is a sign to me that we are nearing an inflection point, meaning a major change in direction (bearish) has become a distinct possibility. Even ZH pointed to this bon mot, which seems to support my thoughts:

As Bloomberg’s Ven Ram noted, the Warren Buffett indicator – Total stock market capitalization divided by GDP – suggests that the recent frenzy that drove stock valuations to astronomical highs is yet to deflate fully.

Exactly.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The major indexes took another opening dive and hovered at their low points for most of the day. Traders were anxiously waiting for the release of the latest FOMC minutes (January), which showed the Fed’s plan to accelerate interest rate hikes but without providing details about its Quantitative Tightening (QT) intentions. This lack of clarity was quickly interpreted as a positive and equities jumped and erased almost all early losses.

Endless articles appeared dissecting the Fed’s motives and reasoning, but suffice it to say that the released minutes did not show any information the markets were not aware of, which stoked the bullish crowd. Even the lack of explanation as to whether the rate liftoff would be via 0.25% or 0.5% did not affect the afternoon rebound.

On the economic front, we learned that “US Retail Sales exploded higher in January,” as ZH put it, which is its biggest MoM surge since March 2021. However, reading this data should be done with a word of caution:

All the retail sales data is nominal, and thus with CPI and PPI soaring near record highs, disseminating the real demand pull from the inflation push is all but impossible in deciding whether the consumer is ‘healthy’ and spending again.

Bond yields pulled back slightly, but the 10-remainded above its 2% level. The US Dollar continued yesterday’s slide, and gold recovered from Tuesday’s pullback and gained 0.84%.  

In the end, it was breakeven day with not much gained and not much lost.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After three days of pain for the markets, the major indexes finally found some reason to dig themselves out of a deep hole, as the MSM fearmongering about the alleged Russia-Ukraine conflict lost some credibility.

From my viewpoint, this was nothing but a constructed crisis, which ran out of steam today, when the Russian Defense Ministry started returning some troops to their bases after finishing their training exercises.

The ensuing relief rally, with an assist by the usual short squeeze, pushed the major indexes up solidly with the Nasdaq leading the recovery via a 2.53% advance. Even the beaten-down SmallCap sector found some life and rallied 1.9%.

Also helping the bullish mood was news that US Covid cases were down 80% from their January peak, which could be an encouraging signal that the reopening of the economy will pick up speed.

With the focus being on Russia-Ukraine theater, today’s horrific US Producer Price Index (PPI) showed that inflation “unexpectedly remained near record highs in January,” as ZH described it.

The PPI came in twice as bad as expected and printed a 1% MoM gain, which represents its 21^st straight month of MoM rises. That translates to a 9.7% YoY figure, more than the expected 9.1% YoY.

While bonds were mixed, it’s noteworthy that that 10-year yield finally exploded above its psychologically important 2% level and settled at 2.055%. However, thanks to the focus on Russia, the markets were not influenced by the spike in yields.

The US Dollar chopped around but dipped into the close losing 0.38%. Gold gave back some of its recent gains as the “invasion premium” became less important, so the precious metal dropped 0.86%.

After our Trend Tracking Index (section 3 below) dropped into bearish territory yesterday, today’s action reversed that process, and we’re back on the bullish side of the trend line—at least for the time being.