Just 12 trading sessions ago, the DOW was at a day low of 28,660. By 3 pm on Friday, it was at 32,834. A quick look at my calculator says that this means the DOW gained 4174 points. In 12 trading days.
For months on end, the market did a bunch of herky-jerky up and down chop, with a trend toward lower. But for “some” reason, it decided to run 4K points in just 12 days.
Now the point gain isn’t that impressive to me. For instance earlier this year the DOW ran from 29,653 to 34,281. That run was 4,600 points. But the difference is/was that it took 2 MONTHS to make that sort of move, not 12 days.
So, what’s up with this one? Where’d we get all this fire power from? Several things, so let’s chat about them.
Just 12 trading sessions ago, the DOW was at a day low of 28,660. By 3 pm on Friday, it was at 32,834. A quick look at my calculator says that this means the DOW gained 4174 points. In 12 trading days.
For months on end, the market did a bunch of herky-jerky up and down chop, with a trend toward lower. But for “some” reason, it decided to run 4K points in just 12 days.
Now the point gain isn’t that impressive to me. For instance earlier this year the DOW ran from 29,653 to 34,281. That run was 4,600 points. But the difference is/was that it took 2 MONTHS to make that sort of move, not 12 days.
So, what’s up with this one? Where’d we get all this fire power from? Several things, so let’s chat about them.
The debt market was ( still is) in big trouble. Yields on the 10 year were making moves in days that should take months. There was palpable panic in bond trading rooms across the globe. The stock market decline from the August high was in large part due to action in the bond market.
But of course it wasn’t just the bond market. Inflation was ( still is) roaring out of control, and the Feds were hell bent on hiking rates “bigly” at each meeting. Well history shows us that the stock market doesn’t much like it when the feds are hiking rates and each hike punched Mr. Market in the gut.
Then of course we’ve got not only a full blown shooting war raging in Ukraine, which is being amped up, escalated up “bigly” but there’s also the trench warfare here in the states concerning the left/right and the mid terms.
For sure, the market had every reason in the book to trade lower and lower. And then like a switch had been thrown, it all changed. Most of you all realize how terribly manipulated the markets are. You’ll see no grander evidence of that, than what they pulled in the past couple weeks.
First off they sent out “Nick” the supposed fed whisperer. This guy is who the feds use to drop hints about what they might be thinking about doing. So, he comes out and says that he’s hearing that the feds aren’t ready to stop hiking, but will probably go from 75 basis point hikes, to something more gentle like 50 and 25 basis points. All the economic media picked up on that and started running with it.
That started to get some traction and then sure enough on the very same day, Fed head Daly comes out and literally says the EXACTT same thing to the media. Word for word. Almost like the fed “told” Nick what to say? Nah, couldn’t be, that would be collusion and manipulation and such right? ( snide snicker)
That combo got the ball rolling. That gave us that 1,378 point DAY on October 13th. But that wasn’t all our little schemers were going to do. They still had to contend with the bond market that was creaking and groaning like my knees after a day in the garden. I’ve told you all before that the bond market rules everything. Credit and debt is what makes this world go around and if either one of them blows up, or locks up, stocks go limit down for days until trading is halted or they’d go to zero.
The central banks of the world know this. They’re not stupid, just evil. So everyone from the Bank of Japan, to the Bank of England, to the IMF all got busy literally bailing out the bond market. There simply wasn’t’ any liquidity in the system.
So now we had the Nick and Daly tag team AND intervention in the bond market which cooled off the rapidly rising yields. The market totally loved this and continued pushing stocks higher. But wait there’s more.
After the initial surge higher, the market drifted listless for a couple days. So who came to the rescue? Blackrock! Yes, they had their analysts suggest that “pivot” speech would be included at the next fed meeting. That raised the market’s hopes even more that the Fed would be slowing the rate of increases.
Then there’s the “thing” we’re not supposed to say or think. With the stock market literally on the verge of throwing up and heaving for a new leg down, the Democrats were in a tough situation. Mid terms were just a few weeks away and going into those elections with the market making new LOWS would have been very damaging. Something had to be done and “presto” it certainly was.
Add that to what they’ve done with the SPR. I almost fell over when no less than Forbes magazine blasted the White house for what they’re doing. I quote:
Biden Sacrifices National Security For Midterm Votes With SPR Drawdown
The Biden administration is again looking to the Strategic Petroleum Reserve (SPR) to tame rising oil prices. Unfortunately, tapping further into America's emergency stockpile won't work. In fact, drawing down the SPR will weaken America's energy security and exacerbate an energy crisis already threatening the global economy.
It's easy to see the political motivation behind President Joe Biden's plan. Retail gasoline prices are on the rise again and threaten Democrats' chances in the Nov. 8 midterm elections.
Clearly, things are not great with the economy. Domestic oil production growth from shale has stalled, and the OPEC-plus cartel certainly didn't do the White House any favors with its recent decision to cut supply by 2 million barrels a day.
But Biden's use of the SPR as a market management tool, rather than the emergency reserve it was designed as, is reckless in today's supply-driven energy crisis.
The SPR under Biden has been drained to about 405 million barrels – the lowest volume since 1984. And the White House has made it clear that it is comfortable taking the SPR – which can hold up to 714 million barrels – much lower.
The administration thinks it has a plan to refill the SPR and spur more U.S. oil production by guaranteeing a "fixed contract" with a buyback price of around $70 a barrel for domestic oil companies.
Biden thinks he is setting a floor for U.S. producers as they consider new investments, but in reality, his plan adds risk to the global oil market.
Why?
Because it further antagonizes Saudi Arabia and the OPEC-plus group, which holds the spare production capacity required to manage supply and demand within the oil market.
Before this latest sale, OPEC-plus was already fed up with SPR releases and other market interventions by the United States and European Union, including a G7 "price cap" on Russian oil sales.
So as you can all see, this administration has gone all in to try and save themselves through these midterms. But doesn’t that beg a very serious question? What happens after the mid terms?
First off realize there’s going to be rigging going on. Already in Arizona, Fox put up a screen shot of Katie Hobbs winning the election by a few percent. Then they had to apologize and say it was just a test of the reporting system. It means nothing, should never have happened. Yeah right. We saw that same crap in 2020, Why is it always the Democrats that win in these supposed mistakes.
Kari Lake is polling 11% higher than Hobbs. Yet the Fox widget test gives it to Hobs for the win. Mistake they say. Sorry. If Hobbs wins this, yes it was stolen. Rigged.
Anyway, after the midterms, there will be some Republicans elected. Who knows how many they “allow.” But the point is that Once the mid term elections are behind us, there’s no more reason for them to make the market look good. In fact if a lot of Rep’s win, they’d probably want to crash it and make it look like the Rep’s did it.
My point here is this. I don’t think we’ve seen THE market bottom. I think we’ve seen A market bottom, one fueled by shenanigans. Most of those shenanigans will come to an end in a couple weeks. Then what? The Fed is still hiking rates. They’ll probably stop drawing down the SPR, and energy will rise.
The housing market is in the pits. AMZN is closing warehouses. Facebook/META missed and guided down “bigly” going forward. GOOGL isn’t so hot. The last GDP was Green for a change, up 2+%, but chock full of Government spending. Ghee and just also right ahead of the elections. Coincidence? You tell me. The next one probably won’t be green.
So, maybe we get another week of crazy upside. The Fed meets Tuesday and announces its plans on Wednesday. They’re definitely going to hike 75 basis points, especially since the rising market has given them cover. If they do turn dovish about futures hikes, maybe we soar higher right into election day itself. But after that, I’d start to get really concerned that we roll back down. Maybe a lot.
Enjoy this run for what it is and what it’s given you. I’ll be brutally honest, I didn’t catch the bulk of this move at all. We played the DIA several times intra day, but that means we missed all those points of “gapping up” in the mornings. Rookie mistake on my part.
Good luck out there and pay very close attention to what Powell has to say on Wednesday. If he doesn’t talk about going to 50 or 25 basis point hikes in the future, the market might projectile puke over that. They’ve been led to believe he will. My guess is that he will talk about the committee considering the “pace” of hikes.
Oh and by the way, the hikes are doing nothing about inflation. They know that, but they have to keep the illusion.