Betrayed by the Dip!

Is the Market Losing its Mojo? [Morning Reckoning] August 13, 2024 [WEBSITE]( | [UNSUBSCRIBE]( Betrayed by the Dip! Baltimore, Maryland August 13, 2024 [Greg Guenthner] GREG GUENTHNER Good Morning Reader, If you’re reading this, you managed to survive last week’s brief but hair-raising stock market horror show. No, the world didn’t end during the Yen carry trade panic. In fact, the S&P 500 finished the week lower by less than a tenth of a percent. Not bad! The 3% skid on Monday was the large-cap index’s worst one-day performance since 2022. To all but erase that kind of one-day move in less than a week is downright impressive. Thanks to some eager dip buyers, this summer volatility spike hasn’t led to any serious pain. Despite the VIX ramping up to levels we hadn’t seen since the Covid crash, investors were far from fearful last Monday as they raced to pick up “cheap” shares of their favorite stocks. Axois reports that Interactive Brokers data showed that “clients saw Monday's selloff as a buying opportunity rather than a reason to get out of the market,” as buying picked up in popular names such as NVIDIA Corp. (NVDA), Tesla Inc. (TSLA), and Amazon.com Inc. (AMZN). The mega-caps weren’t the only plays attracting the bulls. Leveraged tech ETFs like SOXL and TQQQ also experienced increased buying activity, Axios notes. Hey, if you’re going to BTFD, you might as well do it in style… It doesn’t take any deep market knowledge to see why investors were so eager to grab shares last week. Like any powerful bull market, this year’s rally has rewarded dip buyers without fail. When it comes to the big, popular stocks, every single drawdown was a strong buying opportunity. NVDA is the perfect example of just how powerful the buy-the-dip phenomenon has been this year. Here we have a highly visible market leader that has shoved the major averages to new highs. The stock fell double-digits during last Monday’s Yen carry meltdown, yet buyers immediately stepped in to scoop up shares. Recession fears, the failure to post new highs last month, and an upcoming earnings report – none of these situations seem to faze investors who eagerly backed up the truck last Monday. They’re back at it again this week as NVDA offered refuge during yesterday’s choppy session, gaining 4% as the Nasdaq finished near breakeven. I can’t tell you how it’s all going to play out. But I do know dip buyers will continue to push their chips in the middle until they’re eventually crushed. Can they survive a deeper drawdown? We might soon find out. While the initial shock of last week’s quick drop has dissipated, we’re now facing the possibility of much choppier conditions as the market attempts to regain its footing. [Attention! Before You Read Any Further…]( Before you read any further in today’s issue, an urgent situation needs your immediate attention. If you don’t plan on [claiming this new upgrade to your Strategic Intelligence subscription,]( you’re missing out on a huge opportunity. Right now is your chance to grab one of the biggest (and most valuable) upgrades our company has ever made to a newsletter. I’m taking Strategic Intelligence to an entirely new level and I’d hate to see you left behind. [To see how to claim your subscription upgrade, click here now.]( Once you’re done with that, read on to see today’s issue. [LEARN MORE]( Is the Market Losing its Mojo? I’m not predicting a big crash (or a spectacular rally, for that matter). But I do believe the market is potentially at its most vulnerable point since the melt-up rally began late last year. If there was a time when the dip might finally betray the early buyers, this could be it. For starters, it’s important to note that the major averages had turned lower before last Monday’s Yen carry trade scare. The S&P 500 topped out nearly a month ago in mid-July and had posted three straight weeks of declines before volatility popped and everyone headed for the exits. Could the S&P in the process of forming a corrective channel over the past four weeks? I think this is one possible conclusion. If it’s true, last Monday’s lows simply represent a logical spot for a short-term bounce – the bottom of the downtrending channel. This would also mean the S&P would need to close the Aug. 2 gap and extend to approximately 5,450 in order to break the current short-term downtrend. Is this move possible? Of course! And if a sharp rally does materialize here, plenty of buyers will gobble up shares and shove the markets back to all-time highs. But if the S&P bumps its head at the top of this channel and fails to climb back above 5,400 in a timely fashion, a retest of those Monday panic lows are probably in our future. The 200-day moving average (not pictured in the above chart) near the April swing lows at 5,000 looks like a reasonable landing area. This also matches up well with the bottom of our downtrending channel. To be clear, a drop to these levels would not kill the current bull market. We’re not talking about a crash or anything else out of the ordinary. Overall, this move would mark a peak-to-trough drawdown of approximately 11%. That’s normal behavior, especially considering the strength on display during the first half of the year. Surviving Another Data Dump The bulls’ work isn’t finished yet. Now, buyers will also have to navigate a barrage of economic data this week that could set the tone for the rest of the month. First up: the market runs the inflation data gauntlet. PPI came in first this morning and was weaker than expected, earning a positive market reaction. CPI hits on Wednesday, followed by retail sales on Thursday. Obviously, CPI is the big number everyone is watching. Bloomberg reports that Citigroup options data indicated the S&P will move 1.2% in either direction on the CPI release. Economically sensitive investors are looking for any clues that will offer a little clarity as to which way the Fed might move next month. A hot or cool CPI could begin to swing the odds of the expected September rate cut, which is currently a dead heat between a 25 basis-point cut vs. a 50 basis-point cut. Is the so-called “soft landing” still in play? Or is the dreaded R-word (recession!) going to creep back into the picture? These are the forces we’re dealing with in this crazy late-summer market. Don’t be surprised to see the overall market remain choppy for the next few weeks, potentially sucking in overeager traders on some false moves. Bottom line: This is NOT the type of environment where we can just trade any stock that’s caught a bid and is moving higher on any given day. We can also expect overreactions to the data and any other surprises the financial media might toss out this week. Remember, the news is always changing. But people are the same as they’ve ever been. The lizard brain always wins! It’s the most predictable aspect of any big investment question. Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [Man Who Predicted Biden's Drop Out In October Issues Shocking New Election Prediction]( [Click here to learn more]( After calling Biden's withdraw, former White House advisor Jim Rickards issues an even more shpcking election warning... [>> Watch This Video to Learn More <<]( [LEARN MORE]( In Case You Missed It… A Supreme Jolt to Reindustriale America Sean Ring, Editor [Sean Ring] SEAN RING Hi Reader, We have to talk about the Supreme Court. The court’s June 28 decision in Loper Bright Enterprises v. Raimondo, overturned the forty-year-old Chevron Doctrine. In essence, the new law of the land, per the Supremes, is that federal courts need no longer defer to determinations by government agencies when interpreting ambiguous statutes. All of this may seem like arcane legalism, but it matters to investors as I’ll explain. In fact, it’s fair to say that the Supreme Court just pulled a big rug out from under the feet of our modern bureaucratic state. So, let’s dissect this… What Was the Chevron Doctrine? Chevron and the EPA agreed to regulate emissions from major operations like refineries as a single source. This result gave Chevron much more flexibility to run its facilities; for example, to make alterations to a refinery that might, say, increase emissions from one area while reducing emissions from another, without having to go to the EPA for approval for each and every change in conditions. And in this sense, it was a good result for Chevron. Regulators Rule (but Chevron Came Away Happy, Too) In essence, the Supreme Court held that the trial court should have deferred to the EPA’s approach to regulating Chevron’s facilities. Presumptively, per the court, the EPA is home to an organizational body of knowledge and expertise that comes from working within its regulatory mandate. And this insight and clarity should be determinative to regulatory outcomes. You’ve probably heard the old expression, “You can’t beat city hall,” right? It means that the government has ample resources to string you along, fight you in court, drag things out, and get your way. Well, the Chevron Doctrine presumption in favor of agency expertise and insight is much the same thing. Since 1984, that decision has just rolled on and on, all in support of the modern bureaucratic state. Or one might say, “be careful what you wish for,” even if you are the Chevron oil company. Now, That Chevron Doctrine Is No More With the decision of June 28 in Loper Bright Enterprises v. Raimondo, the Chevron Doctrine is overruled. Chief Justice Roberts wrote the majority opinion and based his ruling on a technical review of underlying agency law, namely the Administrative Procedure Act (APA), a federal law that defines how regulatory organizations are supposed to work within the U.S. system of governance. The Chevron Doctrine was inconsistent not only with the APA but also with the Constitution’s division of powers among the three branches of government. The Chevron doctrine, he wrote, requires judges to give up their constitutional power to exercise independent judgment, and it allows the executive branch to “exercise powers not given to it.” Reindustrializing a Deindustrialized America What happened to America’s shipbuilding industry? Or its consumer electronics industry? Or textiles and clothing? Or furniture? Or what happened to large swaths of the country’s mines, mills and metal smelting and refining industries? Again, every industrial story is different, but neither is it difficult to find tales of mine, mill or factory closings, or plant shutdowns based on, say, EPA regulations under that above-noted Clean Air Act, or a myriad of other regulations pertinent to clean water, solid waste disposal and much more. The American industrial decline is not a recent phenomenon; it’s been ongoing for forty years, about since the days of the Chevron Doctrine. One might say that it takes a while to strangle a vast industrial economy via bureaucratic action. But with regulatory bureaucrats as with life, and like that proverbial “little train that could,” persistence pays off. Where Do We Go from Here? Looking ahead, what should happen? It gets back to a point I’ve made before, in one form or another and in many articles; that if the U.S. wishes to remain a wealthy, wealth-creating, value-adding industrial power, and not backslide into global second-rate status, the country must rebuild vast amounts of infrastructure and basic industry, and do it on a massive, continental scale. And the country must do this while protecting old and new firms against being smothered by low-cost imports. Previously, I’ve named several ideas that should do well in the coming years, one way or the other. First, look at Energy Fuels Inc. (UUUU), a metals producer in Utah. Energy fuels produces uranium yellowcake from ore, and thus is a key player in domestic energy. Also, it produces vanadium metal, an important steel alloying agent, and also used in battery systems. And finally, Energy Fuels just announced successful completion of a system to recover REs from ore, right now the only American company with that capability. Next, look at a name we’ve previously seen, Contango Ore Inc. (CTGO), a gold miner in Alaska. Contango has been mining ore all winter and spring, and sending it to stockpile at the Fort Knox Mine, near Fairbanks and owned by Kinross. This summer, Kinross began to process this ore, and recently (July 8, to be exact) poured the first gold bar. So Contango is actually in the gold production business, which generates cash flow. I expect a market upgrade as the summer unfolds and larger investors begin to move in. Finally, look at offshore drilling plays, certainly in the event that Donald Trump wins the presidential election and changes the bureaucratic and regulatory approach to development on federal offshore acreage. I like Transocean (RIG), which has a large fleet of drill-ships and crews. And I’ve long been impressed with Oceaneering International (OII), a service provider to offshore developers. Share prices of both companies are already moving up, as investors realize how these firms will benefit from a more petroleum-friendly administration. Note that these names are not official recommendations and will not be tracked in the portfolio. But I watch the companies and expect them to do well in the years ahead. If you buy shares, be sure to follow the charts, wait for down days in the market, use limit orders, and never chase momentum. To wrap up, the recent Loper decision gives cause to believe that industrial redevelopment in the U.S. will benefit from a new “jolt,” to borrow from Justice Kagan. Looking ahead, and absent the Chevron Doctrine, many industries can expect to encounter less red tape. And now, industrious people are back to playing on a more level field, versus the administrative state. That’s all for now. Thank you for subscribing and reading. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com X (formerly Twitter): [@seaniechaos]( Thank you for reading The Morning Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. [Paradigm]( ☰ ⊗ [ARCHIVE]( [ABOUT]( [Contact Us]( © 2024 Paradigm Press, LLC. 1001 Cathedral Street, Baltimore, MD 21201. 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