Economy Is Already In A Recession | Morning Express 06/21/22

Posted: June 21, 2022, 8:37 a.m.

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- Goldman Sachs “sees recession risk as higher and more front-loaded”. They cut U.S. growth forecast and increased odds of a recession over the next year to 30% from 15%, and 48% over the next two years from 35%. Adding the main cause is the Fed’s “overtightening”, and the recession is “likely to be shallow”. They noted that shallow recessions have seen Unemployment rise by 2.5% on average. Bloomberg

- Goldman Sachs echoes exactly what we have been talking about for weeks and now months; forget the two quarters of contracting GDP, the economy is already in a recession. In our view, there are front-loaded market risks, pricing in weaker growth over the next 9-12-18 months. Furthermore, the stock market should bottom before newspapers, magazines, and pundits admit we are in a recession.

- Watching a battleground in 30-year Bond prices at 134-135; above a tailwind and below a headwind to the risk-on quarter-end rebound trade.

- Yield on U.S. 10-year rises back to 3.30% as Crude Oil rebounds from Friday’s bloodbath.

- Quadruple Witching is an anomaly in and of itself, deviating from the standard.

- Russell 2000 futures had the most weekly volume on record last week. S&P and NQ most weekly volume since March 2020.

- Remember, volume defines capitulation. Was this an anomaly?

- XLE, the SPDR Energy ETF, plunged 17.13% last week. Traded to lowest level since April 25th and back to the first week of March record volume breakout.

- Nearly $1 billion worth of XLE calls that were deep in the money expired worthless on Friday. Greed lost, as always. Mr. Market and Market Makers won.

- Portfolio managers broadly have been extremely underweight in their Energy exposure for this entire run, XLE still +32.4% on the year. With quarter-end next week, this is a great time to window dress. Example: “Your GOOG is -20% on the quarter, but we own some CVX.”

- Lennar beat earnings estimates this morning. Life from the beaten down housing sector.

- Existing Home Sales due at 9:00 am CT.

- Richmond Fed President Barkin speaks at 10:00 am CT, non-voter in 2022.

- Cleveland Fed President Mester speaks at 11:00 am CT, a 2022 voter.

E-mini S&P (September) / NQ (September)

S&P, yesterday’s close: Settled at 3675.75, up 4.50 on Friday and down 224.75 on the week

NQ, yesterday’s close: Settled at 11,296.75, up 139.50 on Friday and down 571.00 on the week

- We have reintroduced a cautiously Bullish Bias given the historic weekly volume numbers on Quad Witching cited above, our expectation that bearish bets have been and will continue to be unwound due to expiration and quarter-end, and the fact beaten down, high multiple, stocks broadly did not make a new low last week (ARKK and the likes).

- Due to higher open, some gyration lower is to be expected within the first hour.

- We want to see the S&P hold decisively out above what was major three-star resistance at 3717-3723.50, now support.

- Our rising momentum indicator aligns with this 3717-3723.50 support.

- Additional significant major three-star supports in each S&P and NQ listed below.

- We expect to chew through the first couple of resistance levels listed if price action can hold above our Pivot and point of balance, which is on the higher-end of today’s range, at 3733.25 in the S&P and 11,424-11,431

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NQ (September)

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Crude Oil (August)

Yesterday’s close: Settled at 107.99, down 7.26 on Friday and 10.13 on the week

- Bloodbath on Friday, but we see opportunity as price action reacted constructively to rare major four-star support and previous lows.

Repeating from above:

- XLE, the SPDR Energy ETF, plunged 17.13% last week. Traded to lowest level since April 25th and back to the first week of March record volume breakout.

- Nearly $1 billion worth of XLE calls that were deep in the money expired worthless on Friday. Greed lost, as always. Mr. Market and Market Makers won.

- Portfolio managers broadly have been extremely underweight in their Energy exposure for this entire run, XLE still +32.4% on the year. With quarter-end next week, this is a great time to window dress. Example: “Your GOOG is -20% on the quarter, but we own some CVX.”

Moving forward:

- For years the metals sector has been swung by Week 3 and month-end option expiration across equities and futures. This type of whipsaw/bludgeoning should be expected now in Energy too.

- Remember, July options expiration was last week and the futures contract rolled off to expire today.

- OPEC Secretary General said over the weekend that 9.7 mbpd will be back by August. He is referring to the 9.7 mbpd in pandemic cuts. Important thing to understand is the original 9.7 was taken from record high production 31+ mbpd and production now is only back to Q4 2019 levels of 28.5 mbpd. They are pulling a bait and switch here. We find it bullish.

- Friday’s settlement held rare major four-star support at 107.86-108.25.

- Price action has tested major three-star support at 110.77-110.91, must see a close above here in order to begin repairing damage.

- Look for strength as long as price action can hold above major three-star support at 108.94-109.25.

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Gold (August) / Silver (July)

Gold, yesterday’s close: Settled at 1840.6, down 9.3 on Friday and 34.9 on the week

Silver, yesterday’s close: Settled at 21.587, down 0.298 on Friday and 0.344 on the week

- Last week was much worse for Gold only because the strength of the prior Friday after CPI.

- Yields are edging higher to start the week and the Dollar Index is buoyant due to the dumpster fire known as the Yen.

- On a positive note, for the metals sector broadly, rally attempts in the USDCNH in recent weeks has stalled into thick resistance between 6.75-6.85. Signs of a strengthening Yuan.

- Look to comments from Cleveland Fed President Mester at 11:00 am CT, a 2022 voter.

- Two waves of major three-star support in Gold have been probed, look for constructive settlements above as a positive, and closes below as a negative.

- Major three-star support in Silver has risen to 21.30-21.43, line in the sand on the week to hold this construction.

- Look for strength on the session while holding out above our momentum indicators, our Pivot and point of balance, at 1840 in Gold and 21.62-21.72 in Silver.

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πŸ”’ You need to be a Premium User to unlock this content. Click here to unlock.


Crude Oil (August)

Yesterday’s close: Settled at 107.99, down 7.26 on Friday and 10.13 on the week

- Bloodbath on Friday, but we see opportunity as price action reacted constructively to rare major four-star support and previous lows.

Repeating from above:

- XLE, the SPDR Energy ETF, plunged 17.13% last week. Traded to lowest level since April 25th and back to the first week of March record volume breakout.

- Nearly $1 billion worth of XLE calls that were deep in the money expired worthless on Friday. Greed lost, as always. Mr. Market and Market Makers won.

- Portfolio managers broadly have been extremely underweight in their Energy exposure for this entire run, XLE still +32.4% on the year. With quarter-end next week, this is a great time to window dress. Example: “Your GOOG is -20% on the quarter, but we own some CVX.”

Moving forward:

- For years the metals sector has been swung by Week 3 and month-end option expiration across equities and futures. This type of whipsaw/bludgeoning should be expected now in Energy too.

- Remember, July options expiration was last week and the futures contract rolled off to expire today.

- OPEC Secretary General said over the weekend that 9.7 mbpd will be back by August. He is referring to the 9.7 mbpd in pandemic cuts. Important thing to understand is the original 9.7 was taken from record high production 31+ mbpd and production now is only back to Q4 2019 levels of 28.5 mbpd. They are pulling a bait and switch here. We find it bullish.

- Friday’s settlement held rare major four-star support at 107.86-108.25.

- Price action has tested major three-star support at 110.77-110.91, must see a close above here in order to begin repairing damage.

- Look for strength as long as price action can hold above major three-star support at 108.94-109.25.

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πŸ”’ You need to be a Premium User to unlock this content. Click here to unlock.



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