Is that all you got?  2 day rally? – Try Fantasia’s Shrimp Scampi

Kenny PolcariUncategorized

Free illustrations of Fossil energy

Things you need to know  

  • Day 2 of a monster rally – (this can’t go on)
  • OPEC + to meet in Vienna, Austria today – Production cuts on the table
  • Energy up more than 7% in two days
  • Earnings are now only one week away…. financials first to report – rumor has it that they won’t disappoint
  • Futures pointing to some profit taking today….
  • Try Fantasia’s Shrimp Scampi

 
BOOM! BOOM, BANG!  Stocks continued their run higher…..as the shorts ran for cover –  because the idea that the FED may pivot (not an idea I support at all) caused the algo’s to go into overdrive…and the overdrive caused those same algo’s to cancel sell side interest – leaving a void in prices that forced the buyers to pay  up and pay up they did….the indexes are up more than 6% in 2 days….and some stocks up even more……and we aren’t even talking about the ‘sexy’ names. We’re talking about the stalwarts – JPM +8%, JNJ +6%, AMZN +9%, BTU +15%, CRK +22%, XOM +8.5%, GS +8%, BA +9%, MSFT +7.5%, HD +7%, NVDA +9% and AAPL +6%….

By the time the bell rang – we saw even more gains…. the Dow up 825 pts or 2.8%, the S&P up 113 pts or 3%, the Nasdaq up 360 pts or 3.3%, The Russell up 67 pts or 4% and the Transports up 455 pts or 3.6%. Ok – so now we’ve had 2 days of significant moves up and everyone is celebrating…. ok…. but not so fast….

The reality is that there are a number of factors at play…..first we were in a well oversold position – the month of September weakening as the days passed and when it became obvious that it wasn’t going to get any better before the month ended – PM’s and investors chose to bail – losses creating more losses, margin calls forcing investors to sell stocks (or any other asset) in order to meet the call, ….professional traders building bigger and bigger short positions to take advantage of the weakness only meant that at some point – that trade would have to be reversed…..so in a way – big short positions translate into a bullish signal – Why?  Because all of those ‘short sellers’ become ‘buyers’ when they have to cover that position – I’ll prove that point in a minute….

Then we had NOT 1 or 2 Fed heads being aggressive, we had everyone of them singing the same tune….Inflation, Inflation, Inflation……and the need for the FED to tackle and tame it before it becomes truly entrenched in the economy….75  bps was the chorus and you could hear every one of them singing it……after JJ promised as much in the September FOMC meeting.  (Remember – there were more than 20 FED speeches last week – all very aggressive)

Third was the economic data that has been mixed at best – with some data points suggesting a weakening economy, while other data points not responding to the heat of rising rates – causing JJ and the FED to raise the ‘terminal rate’ or what is known as the ‘neutral rate’ – which had been somewhere between 4% – 4.25% to 4.6% +.  Jimmy Bullard – St Louis Fed President even hinting that the terminal rate could have a 5-handle attached to it during the final week of the month and that sent the place into a tailspin……causing PMs to dump the losers (of which there are many) as they prepped for the start of the final qtr. of the year.  The thinking being that ‘clean it up, take the hit to qtr. end statements and then move on’….

Next up was the chaos and havoc created in the UK on Tuesday Sept 27th  – when PM Truss and her Chancellor of the Exchequer proposed big tax cuts (which were unpaid for) on the wealthy – and that sent credit and currency markets down the drain….UK bonds surged in value, the IMF (Int’l Monetary Fund) warning the UK NOT to do it, Moody’s and S&P threatening to cut the country’s credit rating – and this caused the BoE (Bank of England) to pivot and announce that they would be buying longer term bonds to try and calm the markets – but that only created more unrest…..as global investors tried to figure it out…in what some called another ‘financial crisis’.

And to add fuel to the fire – it was rumored that CS (Credit Suisse) was about to circle the drain, which caused all kinds of speculation around a host of other European banks in what was being described as a ‘Lehman moment’…and then the bell rang and the month and qtr. were officially over……bruised and battered.

Enter stage left – the new qtr.….

On Monday – after a anxiety filled weekend – we learned that CS promised the world that they had a big enough capital base to weather the storm as they launched a restructuring that is set to be announced at month end…and then we had the UK gov’t pivot on the tax thing….as PM Truss’s own party appeared to turn on her – after only 3 weeks in the job….word is that she is already a ‘lame duck’…..but that’s another story…Then

We had the RBA (Reserve Bank of Australia) raise rates by ONLY 25 bps…after it was expected to raise rates by 50 bps…and that caused all kinds of speculation that the FED would pivot – I mean if the RBA was softening, surely the FED must as well….and that then caused all of those ‘shorts’ (remember them?) to run for cover and reverse the bet….going from seller to buyer….and don’t discount how the algo’s reacted…..suddenly all of the indiscriminate selling that they did during the month of September turned into indiscriminate buying during the first two days of October  – and that helped to send markets higher – rising more than 6% in two days…and this caused many of the talking heads to ‘call the bottom’ telling us that this is the start of something big…..to which I say – Hold onto your hats, boyz….not so fast.

The speculation that the FED will pivot in November is just that – speculation…..it is the street trying to force (bully) that decision on the FED – which I am betting won’t work…..Inflation is still running at 40 yr. highs……with little signs of abating…..so no, I don’t see how they can change course right now.  Then we have the coming earnings season – which is expected to be a bit of a disappointment – just how big is yet to be determined…. FactSet has taken 3rd qtr. S&P earnings growth down to 2% y/y from the 9% they called for in July…. (Which added to the pressure stocks felt in September).  Some now saying that investors have already discounted this revision, so a weak qtr. is already priced in….

The strong dollar is also an issue for the big multinationals that have not come clean yet on how that will impact earnings….so that is a headwind…and then we have the next FOMC meeting in 3 weeks…. followed by the mid-term elections…which are expected to be anything but smooth.  So I suspect that this month will have its share of uncertainty and volatility…..which goes back to my August commentary that we are entering the ‘danger zone’ – September and October tend to be seasonally weak times of the year….besides – I tend to be a bit suspicious of October anyway…..think 1929, 1987,  1999, 2000, 2005, 2008, 2018, 2019, 2021 and now 2022…..

Once again every sector was green……Energy once again in the lead – up 4.3% as the world waits for the OPEC decision today….(production cuts of 1 mil bpd) – yesterday WTI kissed $87/barrel before backing off – this morning it is trading down 55 cts at $85.97/barrel – the WH working overtime to try and convince them to maintain production – threatening that a cut will hurt US/Saudi relations….….Industrials, Consumer Discretionary, Basic Materials, Financials, all up more than 3.5%….the other 6 sectors up between 1.5% – 3%.  Disruptive Tech – ARKK up 7.6%…leaving that group still down over 55% ytd…. The value trade – SPYV up 3% while the growth trade – SPYG was up 3.1%, Semi-conductors up 4.7%, Artificial Intelligence up 4.8% – and as you would expect – the contra trades are all a bit lower….
The Dollar index – is trading at 110.79 this morning and is now down 4% since last week….and that is also helping the overall mood…. further declines could see it test support at 108.89….

Gold which has rallied nicely in the past week – is taking some of it back as trader types take profits after we kissed resistance at $1736 – a level I told you to watch on Tuesday…. This morning it is down $10 trading at $1720.

This morning – US futures are pointing lower…. Dow futures down 275 pts, the S&P – 36, the Nasdaq down 125 pts and the Russell is down 23 pts.  Eco data today includes Mortgage Apps, S&P Global Services PMI, and ISM Services PMI – both measuring the same data point and both with different results. – S&P is expected to report a reading of 49.2 (contractionary) while ISM is expected to report a reading of 56 (expansionary) and then we have the ADP employment report…and that is expected to show an increase of 200k jobs….but the real data point will be Friday’s NFP (Non-Farm Payroll) and that too is expected to show an increase of 260k jobs…so the issue is – will those reports be stronger or weaker than the expectation…..the market WANTS weaker numbers – because that would support the idea of a FED pivot (Which I still don’t think is happening in November)..while stronger numbers would support the idea of continued aggressive hikes….

European stocks are lower across the board…. down between 0.8% – 1.5%.  Eurozone PMIs dropped to a 20-month low of 48.1 (contraction territory) and that is now sealing the likelihood of a recession across the 19-member common currency bloc….and that is taking the shine off of the recent rally….

The S&P closed at 3790 up 112 pts after trading as low as 3726 and as high as 3791.  If futures back off as indicated in early trading I suspect that we might try to go back and fill the gap at 3700 that we created yesterday….right now – it appears that we are in a 3585/3960 trading range….It is important that the S&P hold that low created at the end of September as we move into earnings season….If it does – that would be positive signal….if it fails to hold onto that low – then brace yourself for even lower lows….in that lower high/lower low pattern I described yesterday..

Look – we are now in the final months of 2022…. PMs are certainly going to be going shopping for names that have been completely dislocated (as you should as well) and while I think this rally will stall once earnings start, the mid-terms will only add another level of uncertainty…. Remember – the Fed has the next meeting on November 1st and 2nd….  In any event – I do expect a Christmas rally post the election – yr. end target around 4k ish….…. 2023 expectations will be modified post the election when it is clear what the outcome is.

In the end – it is always best to stick to the plan…. There is no need to think you are missing out…. if you are invested in a strong well diversified portfolio you are participating and getting paid to be invested (think Divvy’s).  Be strategic when allocating new money to your long-term portfolio…. Overweight big, boring names that are good divvy payers, while we are in the storm….
Take Good Care

Chief Market Strategist
kpolcari@slatestone.com

Fantasia’s Shrimp Scampi

Fantasia’s was a local Italian restaurant located in Cambridge, MA – (around the corner from where I grew up in Belmont, MA) – that my family use to frequent quite often. It was one of those places that you could always count on – they knew you and they knew what you liked,

For this you need: 10 shrimp, jumbo, 1 small can evaporated milk, 1 egg. lightly beaten, butter, 2 cloves garlic, minced, 4 tablespoons lemon juice, s&p to taste, ¼ cup flour, for dredging, 3 tablespoons chopped parsley, for garnish.

Clean and wash the shrimp, then dredge in flour. Set aside.

Make an egg wash by beating together the evaporated milk and the egg. Dip the flour coated shrimp in the egg wash, let the excess drip off, then dredge them once again in the flour.
Heat the butter in a large sauté pan over medium high heat. add the garlic and then the shrimp. Sauté the shrimp on both sides until golden brown.

When the shrimp are cooked, squeeze the lemon juice over the top and add salt and pepper. Remove the shrimp from the sauté pan and place on a platter. Pour a little of the melted garlic butter (from the sauté pan) over the shrimp. Garnish with chopped parsley and serve.
 

Buon Appetito.