Hey There Income Hunter,
The first bubble has burst …
And it's Cathy Wood’s ARK Innovation ETF (ARKK).
Check out the chart below showing the 1998-2003 (dot-com bubble period), when the Nasdaq-100 (NDX) price trended lower for two years. The chart includes the ARKK price trend which is down more than 50% from its high and down almost 20% YTD …
Notice how tight ARKK has traded to the price trend of NDX during the dot-com meltdown.
There is plenty of downside left, but we may get a nice correction this week if Jerome Powell throws the market a bone.
>> We’ll break that down when I go LIVE on Wednesday following the FOMC meeting starting at 3 p.m. Don’t miss this key moment. <<
Today, we’ll take a look at the market indicators and economic data that suggests Powell should walk back the hawkishness a bit.
Let’s get ready for a big week.
Big Inflation, Big Problem
High inflation works against the ARKK ETF because higher inflation attracts higher interest rates, which are kryptonite to the mega-cap, high-growth names.
Large-cap growth stocks suffer when interest rates rise because a major variable affecting their valuation is the level of interest rates.
Cathie Wood has been bold with her predictions, which haven’t panned out so far.
Many of her holdings are still trading at rich valuations and other than a short-term bounce it doesn’t seem likely that things will turn around.
ARKK Needs a Break From the Fed This Week
I do think there is a 50/50 chance Powell lets the dove out of the cage on Wednesday …
He has to be watching the December economic numbers and thinking back to 2018 when he last made the mistake of tightening into a slowing economy.
Check out a few critical numbers that are indicative of an economy that is rolling over:
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- Institute for Supply Management (ISM): Manufacturing 58.7 vs 60.0 expected (manufacturing slowdown)
- ISM Services: 62.0 vs 67.0 expected (service sector slowdown)
- Jobs Report: 199k vs 450k expected (lower job growth)
- Retail Sales: -1.9% vs -0.1% MoM expected (big drop in retail sales)
- Industrial Production: -0.1% vs +0.2% MoM (production slowdown)
- Consumer Sentiment: 68.8 vs 70.0 expected (consumer confidence trending lower)
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SPX Front Running the Fed
With the net Fed balance sheet – which includes gross balance sheet minus the Treasury account – you can see the overall balance sheet has already turned down.
When you combine the shrinking BS with the aggressive Fed tightening forecast, the correction last week makes sense.
However, my 4400 target on the S&P 500 was reached on Friday and I am now flat equities and looking to get long going into the Fed meeting on Wednesday.
Bring It Home
I think the markets have corrected enough based on the initial hawkishness of the Fed. We may see follow through selling on Monday based on the volume and volatility we saw on Friday, but I think that presents an opportunity to buy.
We are at a critical point in the broad indexes and plenty of quality stocks are on sale at discounted prices.
The Fed is once again offside and these are times that present tremendous low risk/high reward opportunities.
I have many great trade ideas to share, plus access to a system that will help you stay ahead of the Fed and consistently profit from the most powerful money flow in the world …
And you can access it when you register for my Power Income Trader live presentation this Wednesday. It begins at 3 p.m. immediately following the Fed’s FOMC meeting.
I will go into details on any tweaks Powell makes to current policy and positions I am putting to catch the next wave of money flows.
As always …
Live and Trade With Passion My Friend,
Griff