The stock market and traders are hostages to economic data. And that’s just how our friend Jay Powell wants it…
Every new data point that hits the wire moves sentiment from euphoria to dread and despair.
This week was loaded with news, and not all of it was bad. Factory orders were solid and jobless claims were in line with expectations.
But the Purchasing Managers Index (PMI) data released this week showed that manufacturing productivity in the United States is still weak, with a reading of 46. A PMI above 50 means the manufacturing sector is growing… and below 50 means it’s shrinking, which is a big red flag for the economy.
We also had the Producer Price Index (PPI) come in hotter than expected at 7.4% Friday, signaling that inflation has yet to go away. The core PPI, which strips out volatile food and energy prices, came in at 6.2%, indicating that inflation is baked into the economic cake.
But the most interesting thing this week is a change in how stocks behave relative to bonds.
Up until now, just about every time rates came down, growth names would rally. But we saw a shift this week — rates moved lower and growth stocks, as measured by the Nasdaq, sold off.
That’s another red flag.
And then there’s one stock, my canary in the coal mine, signaling that the market is focusing on the economy more than before. And this canary is starting to look shaky, indicating that a recession is very likely, if not already, here.
The chart above shows the Nasdaq, and the blue line it’s been dancing on is its 50-day moving average. It’s not going to hold, in my opinion, and once it breaks, watch out below!
Of course, this is bad news for those only trading the long side or are “all-in” on buy-and-hold. But, for traders like me… this is an exciting time — mainly because I’m playing both sides of the market.
And you can see me do that LIVE on Monday, Dec, 12. My pal Lance Ippolito and I look at potential opportunities developing premarket. It’s a fun time where we cover a little bit of everything.
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*This is for informational and educational purposes only. There is an inherent risk in trading, so trade at your own risk.
P.S. Chuck Hughes and Roger Scott just wrapped up the first-ever reveal of the Champion Indicator Summit.
If you missed the LIVE event, click here to catch the broadcast now.
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