Moving Day
Posted on Sunday, February 26th, 2023
It’s been a busy couple of weeks. For us, not the market. We received word that we needed to move our son into his room at college – again. If you have been following along, we moved him into his room in August. In December a pipe broke in his dorm, and we had to move him out of his room and into a hotel room. While Diane and I were worried about him living in a hotel room by himself he made out okay. His other roommate never moved in, and he enjoyed the 2-bedroom suite with fireplace all to himself. Not bad. Last week it was time to move him back into the dorms. His new room has the size and all the warmth of a prison cell. It was nice while it lasted.
We last wrote to you two weeks ago and our attention was focused on the divergence between the bond market and the stock market. We told you that when this happens, we ALWAYS favor the bond market. We also told you that due to CTA and systematic positioning the pain trade was lower. The S&P 500 is down 2.9% since. It’s not rocket science or black magic. Always follow the bond market. The bond market has been signaling that rates are headed higher. Since late 2022 the stock market pundits have been obsessed with a “Soft Landing”. The Fed is looking at the inflation figures coming in and they will need to keep interest rates higher for longer. The stock market is beginning to see that there is a “No Landing” scenario in play with rates higher for longer. Oh well, the rally was nice while it lasted.
The reality was that the 2023 stock market bounce was due to relief from tax selling and, in addition, speculator behavior. That drove the computer strategies to pile on, forcing the market higher. The bond market has figured it out. When will stocks? They may have this week. The S&P 500 closed Friday at 3970. It is now below its 50-day moving average (DMA). The all-important 200 DMA is at 3940. The market is in negative gamma and the systematic driven programs are long and looking to sell stock. The market is probably going to stay under pressure until at least the next options expiration in March.
At the end of 2022 everyone thought that the first half of 2023 would be negative for stocks with the second half higher. When everyone thinks something is going to happen – something else will. The market bounce from tax loss selling and FOMO has the stock market up. Inflation and growth are showing persistently higher. The Fed may get more restrictive here as the data refuses to budge.
It appears that the yield curve is starting to un-invert. That means we expect the technical recession to begin within 5 months. That brings us to June/July at the earliest. Bear markets tend to not end until the recession begins. That would mean that the bear market lows could be coming this summer. The recession hits in the second half of the year. They say never predict time AND price but suffice to say I will not be going anywhere without my computer this summer.
“Short term volatility is greatest at turning points and diminishes as a trend becomes established.”– George Soros
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.