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The S&P closed at 2732.22 – So today’s circuit breakers are:

 Level 1.  191.25 pts (7%) or 2540.97

Level 2.  355.18 pts (13% total) or 2377.04

Level 3.  546.44 pts (20% total) or 2185.75


What?  Me worry? Don’t be ridiculous!!!!  Stocks put in their best week for the year last week…as prices surged following that ‘blip’ we had in the mkt – sending the all clear signal to investors/traders/analysts/strategists everywhere!  The S&P and the Dow both closed 4% higher last week – recouping about 6% in total from the 11% decline that we all witnessed just 12 days ago…. – as the game of ‘cat and mouse’ is alive and well….

 Analysts/strategists and even PM’s who were all telling us that valuations and stock prices were ‘too damn high’ during the selloff have suddenly reversed course again and are now all OK with it… and here is what I love about this…Craig Hodges of Hodges Funds tells us that

 “the backdrop is as strong as I’ve ever seen.  I do believe that all selloffs long term will be buying opportunities.”  

 And that about sums it up……..the current backdrop is as strong as he’s ever seen?  Hmmm?  OK…. We are about to enter a period of rising global rates accompanied by higher inflation – which could hurt stocks UNLESS the big price gains continue – fueled by improving earnings… – BUT higher bond yields means that you have to place a bigger discount rate on FUTURE earnings….- and while we are in an environment of low yields (which have supported elevated valuations) any break out – above 3%  – will cause investors to re-assess what that discount should be and that then will force a conversation about the pace at which they are willing to buy stocks.  Will it be buying stocks just to buy stocks or will the risk management software finally recognize valuations vs. the economy? (more on this below)  

 Now improving global economic growth and low rates have been the story for the last yr…. (prior to that it was just low to negative rates along with unlimited Kool Aid – thank you every major central bank around the world that stroked the mkts).  Strong 1Qtr earnings growth (14%), a massive change in US tax policy coupled with strong global growth has set the stage for recent stock action…. but is that what we will continue to see in the months ahead?  Has the mkt priced all that in? Remember – the mkt is a discounting mechanism…it looks out 4 – 6 months….so today’s action is driven by what the mkt perceives to be the status in June/July…So my guess is that mkt thinks that rates won’t be significantly higher than they are now….  

 We have spoken about ‘good rising rates and bad rising rates’…….but in either case – Rising global rates will cause risk management algo’s to reconsider the risks – especially if higher rates begin to slow the economy – which by the way, is exactly what rising rates are supposed to do…the question now is what is that tipping point?  Is it 3%, 4%, 5%?

 For so long the ‘boogeyman’ was 3% yields on the 10 yr….but after US tax reform and the continued positive outlook for the global economy  – analysts are now touting 4% as the tipping point (note that my good friend Nancy Tengler – PM at Heartland Financial has been screaming about 4% yields long before it was fashionable) ….so investors and the mkts barreled ahead last week – leaving the ‘correction’ that we suffered only a distant memory…..which leaves one to ask – was it really a correction in the old fashioned sense of the word?  Did the mkt really have time to digest the swift slaughter that happened over 4 days?   My answer is NO, it did not -which causes me to continue to think that was just the prelude to more volatility ahead. Yes, it took us down just over 11% from the high (January 26th) to the lows of Feb 9th…but before you could catch your breath – the algo’s took it back up nearly 6% in the last week and half…. leaving us well within ‘normal trading’……. there was nothing NORMAL about it….and the best part of this event is that those analysts are now quick to dismiss it as a ‘flash in the pan’…. –

be careful……

 [Flash in the Pan is defined as a sudden spasmodic event that accomplishes nothing – so think about it…. was that sell off anything to be concerned about or was it nothing?]  

 This morning – global mkts are waffling…. while US futures are pointing decidedly lower…. S&P futures were down 22 pts in early trading, Dow Futures are pointing towards a 225 pt drop – but they have since rallied just a bit – they remain weak and IF nothing changes we can expect the mkt to trend a bit lower today….…. – as traders/investors take advantage of the swift move higher last week to ‘trade around a core position’ and ring the register.  Tomorrow bring us the FOMC mins from the Jan meeting and this shifts the focus directly back to bond yields as the catalyst for stock prices today…..Short term support for the S&P is 2725 – a break there will test 2700 fairly quickly…in the event that the tone turns positive – watch 2750 on the upside as decent resistance.

There were no real US economic reports that you could point to that ignited this weaker tone this morning, but you could (if you need to) point to Robert Muellers indictment of 13 Russian nationals for alleged illegal interference in the 2016 Presidential election…..I am not supporting this argument at all, but IF you need to point at something to explain this morning’s weakness – it’s as good as any….You could also point to the stronger German PPI report that came in at +0.5% vs the expected +0.3% – this as you know by now suggests some inflation concerns which are driving yields higher…

 Remember – political events do NOT price the mkts in the long term….they can (and do) cause short term volatility – so if you think the mkt is weak because of Trump, Kushner, Mueller, the Russians – then go ahead and take advantage of the dislocations….but if you think we are once again pricing in future rate hikes and building inflation etc….issues that do price mkts – then sit back a bit and be patient….or put in lower bids to take advantage of what could be another swift algorithmic move lower –

 The dollar index (DXY) is rallying a bit off the lows seen last week. Currently up 0.49 cts at 89.66 – still closer the lows –  Mounting concerns about a growing US budget deficit and a spending ‘splurge’ have been the main reasons for the dollar weakness – causing many traders to go short the dollar hoping to buy it back a lower price….…But beware – there are a slew of FED speakers this week – .so is today’s action being driven by short covering ahead of the chorus of FED speakers this week.  Will they mimic Treasury Sec Stevie Mnuchin in calling for a weaker dollar or will they support a stronger dollar?   Short covering suggests the latter….

 Gold is down $14 at $1,342 after its spectacular run from $1309 to $1362 last week…. Real support is down at $1314 – but I suspect that it will find buyers in the $1330 range first.

 OIL which had come under pressure last week has now once again pierced resistance at $61.42 as it attempts to move higher – setting it up for a challenge of $65/barrel.   I suspect that if the dollar continues to move higher – oil will eventually stall out – and back off to the high $50’s once again.  Venezuela is due to launch the “Petro Token” – it is digital currency that is designed to help that oil dependendt state bypass western sanctions…so let’s see how that goes……

 European mkts are mixed.  Higher German PPI numbers and weaker corp earnings causing the confusion….FTSE -0.12%, CAC 40 +0.11%, DAX +0.02%, EUROSTOXX +0.11%, SPAIN +0.51% and ITALY -0.04%.

Take good care –  


 Linguine w/ Artichokes And Pancetta

 For this you need: 8 Small Artichokes (use frozen but thaw first) cut Into Pieces, Olive Oil,  1 diced yellow Onion, 2 Cloves Garlic – minced, Pancetta Diced, Dry White Wine, s&p, Chopped Fresh Parsley,  1 Pound of Linguine (or spaghetti even a buccatini), splash of lemon juice and fresh grated Parmegiana.  

 Bring a pot of salted water to a rolling boil.  

 In a sauté pan, heat the oil and add the onion and pancetta.   Cook over medium heat until the onion is soft and the pancetta is cooked maybe 10 minutes. Now add the garlic and cook another minute or two.

 Next add the artichokes, some white wine and a squeeze of fresh lemon juice – bring to a boil.

Reduce the heat to low and cook until the artichokes are tender – maybe 10 minutes. Season with s&p.  Toss in the chopped parsley and mix.

Now cook the linguine until al dente – like 8 mins or so…..drain – always reserving a mugful of the pasta water.  Toss the linguine into the lg sauté pan and mix well.  Keeping the heat on low.  If the pasta absorbs all of the liquid – add in some of the reserved water to remoisten. Toss – add in a handful of cheese – toss again and serve immediately in warmed bowls.  Have extra cheese on the table for your guests.  Serve with your favorite chilled white wine.

 Buon Appetito

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