According to my risk summation system, the days this coming week or so with the highest risk of a turn in or acceleration of the current trend in the DJIA are Monday September 26th and a somewhat wide window stretching from the afternoon of Thursday September the 29th through the morning of Monday the 3rd of October.
Last week's Wednesday the 21st risk window lived up to its label tagging an apparently important turn down and wide swings up and down as the market tried to digest the undercooked gruel dished up by Chef Powell.
The crash risk window that I noted last week theoretically closes tomorrow, or maybe not, maybe the Fed's largesse noted below has stretched the crash window. I suppose I'll only know in 20-20 hindsight. I don't think the 1700+ DOW points lost in the last half of last week really constitutes a crash, so unless things get really nasty on the new moon rise tonight, I guess this dark harbinger will just have to sulk back into his cave and wait until the next crash risk window in about a month,
Speaking of caves, or rather big holes, the British Pound certainly fell into one this past week. For some reason that I can't fathom, the new UK government, right out of the gate, has broken the first rule of holes, when you are in a hole, stop digging. If they were in a trade war, I could understand the move, but they're in an inflation war and lowering the value of the currency drives up inflation. They and Putin both appear to have been reading from Sun Tzu's less popular book, The Art of Losing a War in Three Easy Steps. I would love to be a fly on the wall at the next meeting of the BOE Head and the Exchequer. I suspect language unsuitable for BBC prime time will be liberally thrown about the room.
As to trades, the chart below using an fxtop.com plot shamelessly based on Larry Pesavento's three drives to a bottom technique shows a path for the Pound to substantially break the buck which is a big deal no matter which side of the pond you live on. I plan to keep buying the Pound as it falls in the knowledge (read hope) that soon common sense will prevail, and steps will be taken to right the Pound before a full-blown currency crisis erupts and this chart projection is made a reality.
As I pointed out last week and is still true, the Fed is not selling off debt securities from their balance sheet at anywhere near the 80 or 90 billion per month rate they stated in their inflation fight plan. As the Fed plot below shows, they are currently running off about 35 billion a month less than 40% of their plan. Given the stock market crash risk window that we have been passing through, I guess I can't blame them, especially considering their unspoken third mandate, the S&P 500. Maybe that's why the drop, at least so far, has been controlled and not a crash. Over the last couple of weeks, it's clear that Doctor Powell fully intends to continue to pursue his slow and steady inflation cure experiment. I just don't believe the economic patient will be willing to suffer too long before demanding a quicker treatment for what ails him.
The continued oil price plunge is probably also filling the Fed with false inflation hope. The rig count as shown in the oilprice.com plot below has been more or less flat since the crude price peak in June probably due to the price incentive for increased production slipping away. Lower prices at the pump are not discouraging growing consumption, so at some point the demand and supply curves will once again cross, resulting in soaring prices and more inflation, probably just after the Fed declares inflation victory.
Regards,
Douglas