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  • RLT Newsletter Team

Never Never Land

This Monday, the SPY, QQQ, and DIA all made new all-time highs on sizable RSI divergence. On Tuesday morning, a sizzling hot CPI report burned the bulls and sent markets lower. On Wednesday, those bulls were bandaged up, feeling better and pushing slightly higher once again. On Thursday, the bulls were back, stampeding higher and nearing all-time high levels once again, as if to say, "What inflation? All we hear is A.I. & soft landing." This market isn't even watching for a soft landing at this point. They are looking for no landing at all. This plane is apparently going to keep on flying, never run out of gas, and sail into Neverland. Okay, fine, it’s not Neverland. It’s OneLand, which doesn’t have quite the same ring to it, but that’s the number of times the Fed has achieved a soft landing in the past. So, yes, I’m saying there’s a chance.

 

Many articles were published on Thursday about the news of a Japanese recession. Recession here is defined as two consecutive quarters of GDP contraction. A vast majority of the articles used the term ‘unexpectedly slips into a recession’ as if a recession was lurking in the shadows, sneaking around completely undetectable, only to pounce on the economy when they least expected it. Interestingly enough, Japan’s Nikkei is going straight up right now, similar to ours, and is only 92 points away from an all-time high. The Nikkei’s previous all-time high was made 34 years ago on December 29th, 1989. It would seem that a recession has not been priced in. I expect to see similar shocked and flabbergasted verbiage if the US economy enters a recession this year. As if to say, "Wow, where did that come from? We used the term soft landing constantly, and the recession still snuck up and got us."

 

This means that China, the second-largest economy, is struggling, and has been for a while now. Germany, the third-largest economy, is facing difficulties and is likely to enter a recession this year. And Japan, the fourth-largest economy, is currently in a recession. Can the worlds largest economy, avoid this economic calamity? Time will tell, but inflation will be key.

 

A large amount of the recent drop in inflation over the past several months has come from energy. However, both the crude oil (CL) and gasoline (RB) charts look like they could be bottoming. CL made a key low on December 13th and has been steadily grinding higher ever since. If CL is able to break out above $80.00, it will be confirming a bullish price structure and possibly setting up a larger wave higher. If that happens, it will greatly jeopardize the soft-landing narrative, as inflation is going to not only remain sticky, but may come roaring back. Buffett has been adding to OXY and CHV, both of which have a bit of a bullish look to them and could be ready for another leg higher.

 


Another area we can watch for clues on inflation would be bonds. If inflation is coming back, we should see bonds drop as bond yields trend higher. TLT is the 20+ Year Treasury Bond ETF which tracks long dated bonds and is a chart to use to track the bond market. If TLT starts ripping higher, making higher highs and higher lows, that tells us that the bond market does not see inflation as a big problem ahead. However, if TLT breaks down, and continues to make new lower lows and lower highs, that will be a signal that inflation is going to be stickier than most people are thinking right now. They say the smart money is in the bond market, so it’s worth paying attention to.



Speaking of smart money, have you seen Bitcoin lately! The Peter Schiff’s of the world just had their eyes roll so hard they fell out the back of their head. Anyway, all it took was the president to post some laser eyes on Twitter, and next thing you know BTC has hit 1 Trillion dollar market cap and $50,000 per coin. If BTC can break through the resistance at $52,000 and push strongly higher, my primary count would be that BTC is in a 3rd wave higher with targets for this wave around the previous all-time high. The amount of money flowing into the new BTC ETF’s has been historic, and that money will be fighting over half the supply in just 61 days. Stay laser focused on this one team, it’s going to get fun!



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