Hey There Income Hunter,

 

I opened my Twitter feed yesterday and the first thing I saw was Bank of America (Ticker: BAC) Bull/Bear Indicator hitting rock bottom … 

 

 

I’m not sure I’ve ever seen a reading of 0 … which makes me wonder if it can actually go negative.

 

However, as a contrarian, I have been thinking we could see a bounce in the second half of June … and this shortened week may provide the bad-news-is-good-news scenario to trigger it.

 

Today, we’ll look at the critical data and a couple of trade ideas to consider this week.

 

A Parade of Fed Governors 

 

Last week’s FOMC Fed meeting was a mess. On Wednesday, Powell did his best to paint a rosy picture of the economy to justify his surprising .75% rate hike … 

 

However, overnight investors had a chance to reconsider, came in on Thursday and sent the market crashing lower. 

 

So, this week Powell and fellow Fed members will attempt to clarify their message as at least one Fed member will speak each day.

 

As always, economic data will give you a better indication of what is really happening – and for the next couple of months bad economic news will be good for the markets.

 

This is because the Fed is committed to raising interest rates and withdrawing funds from the system via quantitative tightening (QT) until they see weaker economic data.

 

The critical data this week is:

• Existing homes sales today
• Initial jobless claims on Thursday
• University of Michigan consumer sentiment and inflation expectations Friday

 

Current Fed Rate Hike Expectations

 

After the .75% rate hike, the market via short-term futures has another eight rate hikes of .25% built in to the end of the year.

 

That means another 2% will be added to the current rate of 1.5%, for a top rate of 3.5%. 

 

I don’t think the financial system can handle any more rate hikes, but Powell is on a mission … so he will keep hiking until he breaks something in the financial system.

 

I think that something may ultimately be the housing sector.

 

Here are a couple of the latest forward looking numbers …

 

 

The pending home sales data is now in negative territory and well below the pre-covid numbers.

 

Now, housing is usually a lagging indicator, so to see it fall so quickly with more rate hikes and QT coming is a bit concerning, especially as mortgage rates approach 6%.

 

Inventory is turning higher now, as well. By this time next year we could have an inventory glut PLUS even higher rates.

 

Consider Bear Strategies in Real Estate

 

The iShares US Real Estate ETF (IYR) is a well diversified, liquid real estate ETF that also has liquid options.

 

It has tanked in the past couple of weeks but can easily trade another $20 bucks lower before the end of the year. 

 

The good thing is it made a new low last week while the relative strength indicator (RSI) put in a higher low. This is a reliable reversal pattern as the lower price was not confirmed by lower strength.

 

I’m looking for a rally to close the gap to $92.40, which would be a good spot to sell. 

 

 

Get Long Oil on This Correction

 

We are finally getting an oil price correction and the US Brent Oil Fund ETF (BNO) is an excellent proxy to buy to play for a continued rally in the price of oil. 

 

Oil is correcting as Biden attempts to find ways to bring the price down. However, last week only brought more news of energy supply problems.

 

First, we heard of the natural gas fire in Texas that will cause a facility to shut down until the end of the year. Then the UK interconnector pipeline to Europe had technical problems.

 

There is a decent probability that Europe will not be able to fill its energy needs by the end of the summer .. I’m considering a BNO buy on this dip because oil could be heading to the highs by Labor Day. 

 

 

Notice BNO sliding towards the 50-day moving. I am looking to buy around the $31 level and near the uptrend line support, then see if it can close back above the 50 DMA. 

 

I would use a stop loss if it closes below $29 to minimize loss of capital.

 

Bring It Home

 

This is an important week after all the wild swings last week. I can make a case for the market for just a bit of stability this week and a grind higher to 3,850 in the S&P 500.

 

Bad economic numbers will most likely attract buyers of stocks now. Investors will view weaker economic data as a reason for the Fed to pull back rate hikes. 

We are due for a bear market rally and if we do get one I would view it as a great chance to reset bearish strategies. Because high inflation and a weak economy is a recipe for much more than just a 20-25% decline. 

 

Take a look at 2008 for an example.

 

 

The weird thing about those charts above is … they can be GREAT news for traders.

 

Live and Trade With Passion My Friend,

 

Griff