Dear Reader,
The S&P 500 quickly surged toward 4,200 on Tuesday morning after Bank of America Corp. (BAC) reported better-than-expected earnings. In addition, Johnson & Johnson (JNJ) topped earnings and hiked its forward guidance.
This week, leveraged funds had their largest short position against the S&P 500 since August 2022, when markets were pushed into overbought territory and hit their 200-day moving average. Most funds anticipate earnings will be weaker this season, and forward guidance will come in sluggish. Such expectations have most commentators bearish and suggest that the market could drop at any moment.
However, options are set to expire this Friday, and Goldman Sachs notes commodity trading advisors (CTAs) must buy roughly $29 billion in the SPX this week. That forced buying can take us higher into Friday - and send us barreling toward overbought territory.
Momentum is positive right now, so further upside appears imminent. However, it's very important you learn the key technical "lines" that could signal stocks are overbought. Today on Midday Momentum, I'll break down the critical indicators in the Relative Strength Index (RSI) and Money Flow Index (MFI) to help you identify when this market is ready to run out of steam so you can move your wealth and apply your hard-won capital correctly.
Here's What I'm Watching Today (April 18, 2023)
China Boom: We just received further confirmation on the impact of magical money printing. At the end of 2022, China pumped a significant amount of liquidity through its central bank. Now, months later, the nation's first-quarter GDP reading came in at 4.5%. That figure easily topped expectations. China's economy experienced a massive boost from e-commerce and the end to its "Zero Covid" policies.
Inflation Nation: Need evidence that America is desperate for "supply side" policies? Consider the news that U.S. Silica Holdings Inc. (SCLA) - a producer of the silica needed for glass, paints, and industrial applications - plans to increase its prices by 20% in the year ahead. This company is critical in the production of fracking sand, a critical input in the drilling of oil and gas in shale formations as well. If you think inflation is going away, you're going to be very surprised in a few years. This is a reminder that investing in commodity companies is essential to your portfolio.
Commercial Real Estate Problems: In San Francisco, roughly 29.4% of all commercial properties are vacant, according to Coldwell Banker. This trend continues to worsen across the nation. Bloomberg reports Brookfield Asset Management funds have now defaulted on $161.4 million in mortgages on a dozen properties in the Washington, D.C. area. Overall, office properties have declined by more than 25% this year, according to Green Street. Commercial real estate (CRE) exposure will continue to rattle the regional banking space throughout the year.
The Chart of the Day
Don't lose your focus on the U.S. debt ceiling crisis, which continues to build. Yesterday, Rep. Kevin McCarthy said that the House of Representatives would vote to hike the debt ceiling for one year, but that it must include spending cuts.
While this is happening, U.S. sovereign risk, or the risk that the government could default on its debt obligations, is now at its highest level in 15 years, surpassing previous events as the Lehman Brothers collapse, the U.S. debt downgrade in 2011, and the 2013 debt ceiling crisis.
Stay Liquid,
Garrett
The post Morning Update: This "Hated" Rally Could Send the S&P 500 to 4,300 appeared first on Midday Momentum.
About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.