SPX: A Big-Picture Market Perspective...Still Room For More Rate Hikes and Market Weakness

Check out the following two long-range monthly charts of the S&P 500 Index (SPX).

With the current Federal Reserve Interest Rate still only at 3-3.25%, and the SPX still 395% above its 2009 low, it seems to me that there is still a lot of room for more rate hikes to tame inflation, which may bring price down to around 3200 -- its first major support level -- or even lower.

That would blow off the excess parabolic froth that was created in this market from mid-2020 and bring equities more in line with actual economic and global supply-chain conditions.

Until we see the SPX:VIX ratio fall to somewhere around 80.00 or, more likely, 60.00, I don't think we're close to an equity capitulation yet.

So, look for more rate hikes ahead and more SPX weakness...which is in line with my conclusions in my post of September 24.

P.S. The SPX closed the day, month, Q3 and YTD much lower and just a breath above its low of the day, month, Q3, and YTD...at 3585.62.

British Pound's Breaking Point

* See UPDATES below...

The British Pound (GBP/USD) is taking a beating in overnight trading as it crashed to a new all-time low of 1.0384, so far...below the record low set in early 1985.

Its long-term major support (breaking point) of 1.4000 was broken in April of 2016, and it never recovered.

As I mentioned in my post of September 24, the US Dollar has strengthened this year against all other foreign currencies, including GBP/USD.

Unless GBP/USD retakes and holds above 1.4000, expect more volatile swings and, possibly, a break below parity.

Source: ZeroHedge

* UPDATE Sept. 26...

Will the Bank of England raise rates aggressively before their next scheduled meeting on Thursday, November 3 to stem the rout in the Pound Sterling?...

Source: ZeroHedge

* UPDATE Oct. 18...

Notwithstanding the recent bounce in the GBP/USD, there is still much trouble ahead in the UK...for PM Liz Truss...the Pound Sterling...and UK Gilts.

No doubt, volatility will continue to play havoc in their bond, currency and stock markets for some time.

Source: ZeroHedge

* UPDATE Oct. 19...

UK's inflation is still rising...now at a new 40-year high of 10.10%.

Source: ZeroHedge

And, GBP/USD has dropped on today's inflation report.

The Balance of Power has shifted, once again, back to the Sellers on the daily timeframe.

Inasmuch as, no 'quick fix' is being provided at this time by new PM Liz Truss, expect volatility to continue in the Pound Sterling, UK Gilts, and UK FTSE 100 Index.

Historically, the FTSE 100 Index has had difficulty holding and increasing gains above 5000, as shown on the following monthly chart...which forms a major support level. 

A drop and hold below 6000 could see a retest of 5000, or lower.

So, yeah...more trouble for PM Liz Truss. 😮

Who's in charge?

What a mess! 😕

Source: ZeroHedge

ZeroHedge excerpt

ZeroHedge excerpt

* UPDATE Oct. 20 & 21...

Well, that didn't take long...she's gone...who's next?

UK markets are still stuck in limbo (range bound).

Overall, it's still a mess...as theories emerge about what happened and/or what's going on, politically.

Source: ZeroHedge

* UPDATE Oct. 25...

What could possibly go wrong?...🤔

* UPDATE Oct. 26...

Well...that didn't take long! 😯

Here's a prime example...Sunak's following the WEF doctrine, unlike Liz Truss, who reversed the ban during her short stint as PM.

So, which PM was/is looking after the best interests of the UK, rather than those of the WEF? 🤔

What/who else will be banned next?

* UPDATE Oct. 31...

If the following is true, keep an eye on GBP/USD (for signs of increased weakness).

It lost ground in today's trading, as the Balance of Power flipped to the Sellers, as shown on the following weekly chart.

Link to tweet

* UPDATE Nov. 3...

This is devastating news for the UK...coming from the Bank of England.

Perhaps that explains one of the the reasons that the GBP/USD has struggled to gain sustained traction on direction, since it hit its record low of 1.0384 on September 26...as it has experienced wild daily whipsaw swings on its attempted rally, since then.

N.B. Watch for signs of a contagion of weakness spreading to other countries and currencies.

Link to tweets & article

ITALY: Time For A Political Change...But Will That Prop Up Their Major Indices?

Since the financial crisis of 2008/09, Italy's Major Indices have had difficulty gaining sustained traction to accumulate and build on meaningful gains above their respective long-term major support levels (16,000 for the FTSE Italia All Share Index and 1,600 for the Investing.com Italy 40 Index). They've been, essentially, trading in a large and whippy sideways consolidation zone, since then.

So, perhaps a change of political landscape will ameliorate that, in due course.

We'll see how the final votes tally up in today's election -- potentially in favour of Italy's first female Prime Minister -- to swing the left-leaning government to a right-leaning one.

Until party leadership and party direction/agenda become known and more detailed, we may see some volatile trading in these markets (as well as the Euro, as noted in my post of September 24) for awhile.

 

Source: ZeroHedge

CHART OF THE YEAR: We(Didn't)Work 😕

WeWork (WE) is on its way to zero...who bought it at 14.97?🤔

SoftBank (SFTBY) invested $17 Billion in WeWork, according to this October 2021 Bloomberg article...and we know how SoftBank has fared. 

Since my post of August 8, SFTBY closed lower at 17.95 last Friday. As I reported, failure to hold above 16.00 could see it plummet in short order to 10.00, or lower.

GLOBAL MONEY FLOW: Cash & Crash

I've written a number of posts in the last few months regarding the MSCI World Index and the SPX, several of which are here and here, respectively, (together with subsequent updates) warning of further market crashes.

The following Year-to-Date and One-Week Percentages Lost/Gained graphs clearly depict, at a glance, global money flow for 2022 and for the past week (graphs courtesy of StockCharts.com).

MONEY FLOW YEAR-TO-DATE

U.S. Major Indices

U.S. Major Sectors

European Major Indices

Canada, Japan & Australia Major Indices

Emerging Markets ETF, BRIC Major Indices & BRIC ETF

Commodity & Agriculture ETFs & Commodities

Currencies, BITCOIN, XLF, EUFN & GXC

MONEY FLOW SEPT. 19-23

U.S. Major Indices

U.S. Major Sectors

European Major Indices

Canada, Japan & Australia Major Indices

Emerging Markets ETF, BRIC Major Indices & BRIC ETF

Commodity & Agriculture ETFs & Commodities

Currencies, Bitcoin, XLF, EUFN & GXC

SUMMARY

Overall, the biggest winners have been:

• the Oil and Gasoline sectors, 
• as well as the U.S. Dollar.

The biggest losers have been:

• Bitcoin, 
• global equities (especially U.S., China, Russia, Europe and the emerging markets ETF, EEM), 
• global Financial ETFs (U.S., Europe & China), 
• foreign currencies, 
• U.S. Bonds, 
• copper & precious metals, and
• U.S. Discretionary, Technology, Materials and Financial Sectors.

During the past week, there has been:

• continued buying of the U.S. Dollar, 
• continued selling of Bitcoin, 
• some selling in Oil and Gasoline,
• accelerated selling of the British Pound, the Euro, Aussie Dollar and Canadian Dollar,
• accelerated selling of the U.S., European and Chinese Financial ETFs (XLF, EUFN and GXC), and
• accelerated selling of global Major Indices (including U.S.), and U.S. Major Sectors.

CONCLUSIONS

All in all, I see no pivot away from U.S. Dollar strength and global equity and sector (and Bitcoin) weakness...YET.

So, for the moment, U.S. cash is king, as the U.S. Fed has signalled its intent to continue raising interest rates and keep them elevated for some time after inflation has declined to the Fed's 2% maximum inflation target...which could last well into 2025.

*********

P.S. After I published this post, I came across the following article...which, interestingly, confirms my conclusions...

Source: Bloomberg

And, more analysts' opinions...

Source: Barron's

BYND: Don't Mess With Vegetarians! 😕

* See UPDATE below...

After a face-ripping spike to its all time high of 239.71 three months after its IPO in May of 2019, Beyond Meat Inc. (BYND) has done an about-face ever since...falling well below its IPO price of 46.00 to 16.45 (as I write this early Tuesday afternoon), as shown on the following monthly chart...and around a 90% drop from its high.

It looks like people still like real meat...instead of plant-based meat...even during the current period of 40-year high inflation. 

Until that changes, we may see price eventually reach zero.

And, from the following report, it looks like it's not just its price that's been a face-ripper.

I don't imagine this recent incident involving their COO will help their sales very much. 😕

Source: ZeroHedge

* UPDATE Sept. 26...

It turns out that fake meat is too expensive and unappetizing for 95% of the population...the meat-eaters.

Sounds like this fad was a dud...and a liability for its investors.

Source: ZeroHedge