Hey There Income Hunters,
I sensed a bit of complacency in the markets last week …
And I think we will see a mild correction in the near term based on the following:
- The supply of new money is slowing down just as higher inflation is being confirmed.
- Interest rates are breaking down, with 10-year rates below 1.5%, after reaching 1.75% only last month.
- Last week’s new high price was met with a negative price to relative strength (RSI) divergence on the weekly chart.
- China continues to be restrictive with credit, as it purposely triggers bond defaults to create greater competition among healthier corporations.
Now, the Fed needs a correction to ease the pressure brought on by whispers about quantitative easing tapering …
And in today’s letter I’ll share charts supporting my points above. I’ll even reveal a major worry ahead for the Fed on even higher inflation …
Weekly SPDR S&P 500 ETF (Ticker: SPY) Divergence
The chart below illustrates a most reliable reversal signal — the price-relative strength index (RSI divergence).
When SPY made an all-time-high on Friday, RSI did not …
That showed weakness in this latest rally.
The last three days of the week also closed higher on light volume:
Money Supply Is Signalling Lower Stock Prices
I have been following money supply for months, as consistently greater growth in money supported higher stock prices …
This has changed in the past couple of weeks.
The year-on-year changes have rolled over for M2 money supply and I expect SPY prices to do the same in the weeks ahead:
Warning: Relief Rollback
We can’t forget that the stimulus that has been assisting unemployed Americans is ending.
Five states came off last week, and another 25 will wrap up on July 19. The rest will be done by Labor Day
On top of the withdrawal of unemployment benefits, the moratorium on foreclosures and rental evictions will end this month …
Once the moratorium ends, we will see a spike in core CPI, which is the Fed’s measure of inflation.
That will be a shock to the markets and poses a threat to the consensus that inflation will likely drop in the months ahead.
Live and Trade With Passion My Friends,