Tuesday, December 14, 2021
Published irregularly, as conditions dictate.
Today’s Producer Price Index coming in hot at +9.62 YoY (red line in chart).
Actual Producer Inflation (Producer Price Index All Commodities - blue line), however, +22.85% YoY, more in line with Shadow Stats CPI for Nov showing +14.9% YoY:
If we go back and adjust the current reading for real (inflation-adjusted) earnings on the SP500 to the Shadow Stats number of 14.9% (representing what YoY CPI would be if we back out the tinkering to this metric the BLS imposed in the 80s & 90s), a very dire picture emerges, despite very strong earnings:
We are really getting “off the chart” with inflation now, and it is at a pace where earnings, even if they were to improve from here, cannot overcome. Any story that includes a rosy 2022 based on earnings is missing what’s really happening.
FINRA Margin numbers for November just published. YoY Margin balances appear as follows (not ewith respect to previous major market tops):
Here is total, net free credit balances (i.e., are there credit balances in margin accounts, is there buying power left in these accounts?) :
This is a very unhealthy picture.
Most importantly, on the short term, technical standpoint, weekly volume for the heavy down week ended 3 December, we witnessed very heavy volume from atop, where the weekly is not oversold (by other proprietary measures, which will be referenced in futures issues):
This is serious, usually demarcates the beginning of a major selloff. The recovery back to challenging the all-time-highs just characteristic of this entire run.
More on the short-term. A 13-15 day cycle is emerging in the daily data, which would put an interim bottom coming in around 21 Dec:
These cycles (determined by my method of of half-cycle differencing) are mercurial, fluid, and changing. Ill keep an eye on this and refer to it in future posts.
Further in daily SPY data, the low volume bar on 9 Dec called for an interim top with either the high of 9 Dec or the following bar, given that the market was oversold (according to the middle panel) on that bar:
Couple all of this with the now-fully deteriorated breadth data mentioned in previous issues here, the selloff in the meme stocks (Gamestop, AMC) as well as Tesla (which comprises 6% of the SP500, and looks to be headed to less than 800 in a hurry) and the weakness in crypto of late, especially the past 24 hours or so, and we may be within a few hours now of a major market meltdown. Of course, I’m always feeling this, but I do believe it is very, very close.
The Fed release is tomorrow. Given that the 2-year minus Fed Funds is at 58 bps, and at 50 bps plus a rate hike as been imminent in the past, it’s just a matter of time until we get news of such. Not that I expect news tomorrow, a rate hike tomorrow, but I do expect them to move up the timetable on rate hikes, move up the pace of taper. How much they sugar coat this news will be market-consequential, but it’s all very bad news.