Momentum Monday – Oil up, interest rates up and us dollar up…You Do Not Want To Know …

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Good morning…

I will get right to it this morning.

Ivanhoff and I toured the markets and do not like what we see.

You can watch/listen right here. I have embedded the YouTube below on my blog:

Here are Ivanhoff’s thoughts:

The past few weeks’ bear market bounce was based on the premise that maybe inflation has peaked or is close to doing so. The most recent CPI numbers from Europe and the US are showing that this line of thinking might be a bit premature.

Most stocks had their usual pre-FOMC selloff last week. Now it remains to be seen if they have their usual post-FOMC bounce. A lot will depend on how the Fed interprets the latest record inflation readings. If they panic and talk about an acceleration in interest rate increases and balance sheet reduction, we might see a further selloff. If everything remains on the current trajectory, there’s a good chance of a short-term bounce in the second part of the week. Overall the trend remains lower. Downtrends typically end in one of the following ways – either panic selling that scares you out or a prolonged sideways choppiness that wears you out.

The best-performing stocks during the latest bear market rally were the ones that held the best year-to-date (oil & gas) and the ones that were hit the worst year-to-date (mostly cloud, Internet, retailers with very high short interest). It seems that move has now ended and the market is working on new trends. One that stood out last week was the weakness in financials. The Treasuries Yield curve has become flat as a pancake and banks don’t make a lot of money in that environment. The market is clearly discounting a recession and inflation due to supply constraints in the energy space. This is also known as stagflation and it is one of the worst things that can happen to an economy.

I remain focused on short-term trade on both the long and short sides. Buying breakouts don’t work more than one day in most case in this environment. Buying pullbacks in strong stocks and shorting rips in weak stocks have a better probability of working out but these are rarely great risk-to-reward setups.

On the blog yesterday I shared the Stanley Druckenmiller interview and I wanted to make sure to share another link here.

With my own high cash position, I am trying to find good long term risk reward ideas and any new ideas I am keeping a much tighter stop. Interest rates are not high enough and stock valuations not low enough in the growth sector for me to do much.

Have a great week.

Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. For full disclosures, click here.