I hope everyone is having a good President’s Day and I think many families are using this school holiday to travel and begin the process of putting omicron behind us as we look forward to the Spring months. Hopefully, the throes of the pandemic will not come back to haunt us next winter. There is one more week to February’s trading and the S&P remains in a range since the low created on January 24th.
The S&P 500
The S&P remains in a wide 400 point range for four weeks and it needs to break one side of this range to provide more clarity on the technicals. Many analysts call this a “whipsaw” market where large moves happen within a matter of hours sending many false signals. The Relative Strength Index on the bottom of the chart below shows an oversold condition so that may provide some support to open the week’s trading. However, a re-test of the previous low is sometimes needed to bring in buyers and there is good support in the 4000 to 4200 area so this zone should hold. If there is a move below 4000, then a larger downtrend may be underway.

The Fed meeting in mid-March will be the focal point of the market in the coming weeks as the path of policy is to tighten to combat inflation. But the Fed has not guided on how aggressive they will be as supply chains and the labor market could normalize in the coming months as omicron dissipates. At this point, any certainty in the path of policy should give the market higher confidence when it comes to liquidity and valuations and perhaps lay the groundwork for the next uptrend.
The Bond Market
The yield curve is surprising many as you would think runaway inflation would dramatically shift the long end up into the 3% range. However, bonds are in oversold territory and there were buyers last week which steepened the curve in the 2-10s – a slight positive as we don’t want to see an inversion which could signal a recession within 18 months.

Sentiment
I thought the chart below was interesting as it shows just how low sentiment has been these past few months. Typically, sentiment is at its lowest after a correction and the stock market nears a bottom. Below, the green line shows today’s reading is as low as the 2009 bottom and is also lower than the tech bust of 2000. Despite the reading, the price damage to the S&P has been relatively minimal.

Chart of the Week!
Not a bad idea to ask, “Who makes money from that?” In the case of the Ukraine crisis, that would be Russia.

Economic & Central Banking Snippets
- Existing home sales in January totaled 6.5mm annualized, 400k more than expected and up from 6.09mm in December. The National Association of Realtors mentioned there are more listings above $500k but inventory is dry for those priced below.
- The Fed’s balance sheet rose $33B this week to a fresh record high of $8.911T so the stimulus train continues to roll along.
- Producer prices were up 9.7% verses last year. The step before the production chain, unprocessed core prices, did fall for the second time since December but they are still up 30% compared to last year.
- The Cass-Freight Index showed January shipments fell 2.9% verses last year and the company said, “This was not a demand driven decline, as inventories are still lean and consumer balance sheets strong.” While we see headlines of less containerships at the California ports, down to 78 as of February from a high of 109 in January, “per our friends at MX SoCal, backlogs have been growing at several other ports, particularly Houston, Charleston and Virginia.”
That is all for now and thank you for being a subscriber!
Regards,
President – Kisco Capital