Morning Comment: Heading into the eye of the hurricane soon?

I am very excited about a change that will be taking place with my publications. I will begin self publishing next week! I will send you details about how to subscribe to my work early this week..

With this change, I will also be changing the names of each piece, but they will be essentially the same as I've been providing for several years. The "Morning Comment" will now be called, "Before the Open"...and the weekend piece will now be called, "Weekend Insights".

Again, I will be publishing through Marketfy until this Friday...and I will send you details about how to make the switch VERY soon. Thank you very much!

The stock market took it on the chin once again on the Friday…as another decline of well over 1% in the major averages took them back down to their June lows. The DJIA did make a marginal lower-low on a closing bases…and the S&P 500 and NDX 100 closed very slightly above their closing lows from June…but they all qualify as a retest of the June lows…….Friday’s decline came on a BIG jump in volume. The 4.8bn shares that traded on the composite volume was the highest we’ve seen since June if you take out the “quadruple witch expiration” day we saw a week ago. Also, breadth was quite poor…at 6 to 1 negative on the S&P 500 and more than 7 to 1 NDX 100. Therefore, even though it bounced a little bit off its lows in the last hour of trading, it was still a very rough day for stocks.

As we move into the last week of September, the list of problems that we are facing is growing. Not only do we have to worry about inflation, earnings, high valuations (still), the situation with China/Taiwan…but now we have to worry bout nuclear threats from Russia, unrest in Iran, and a potential currency crisis. This last issue could blow up on several different fronts…and maybe all at the same time. The British pound, the Japanese yen, and China’s yuan are ALL experiencing significant stress…and you don’t have to be a masters degree in financial history to know that a currency crisis frequently wreaks havoc on the stock and bond markets.

Severe volatility in currency markets is something that frequently take place in the second leg of a bear market. Like many crises, a currency crisis tends to come in waves. Therefore, the problems we’re seeing now might turn out to be the beginning of a bigger problem at some point down the road. We’ll likely get some relief for the pound, yen and yuan at some point soon, but if history is any guide, we’ll see more problems before the situation in the currency market calms down.

In fact, this could be a good week for these currencies to see a short-term bounce. Looking at the chart of the DXY dollar index (below), you can see that it is getting very overbought on a short-term basis. Both its RSI chart and its Bollinger Bands chart have become very extended. In fact, it has become extremely stretched on that Bollinger Bands chart. Therefore, no matter what the underlying fundamental reasons might be for its rally…we could see a short-term decline in the greenback (and a short-term bounce in other global currencies)…before we see this brewing currency crisis become a bigger problem.

On top of the overbought dollar, we can also say that the stock market has become quite oversold. As we mentioned in our weekend piece, the S&P 500 and the NDX 100 have both reached the oversold levels on their RSI charts. Yes, they HAVE become even more oversold before they have started a short-term bounce several times in the past. (This past January was one of those times.) However, they have still reached levels where a bounce could begin at any time. Will we get a “turnaround Tuesday” tomorrow? Will it, instead, come later this week…or even begin today? That is extremely hard to know. It’s also hard to know if something will “blow up” this week…and cause a big round of “forced selling” before that bottom is reached. In other words, we could be very close to a low in terms of time…but still be quite a ways away from hitting a short-term low in terms of price.

Either way, we believe that the stock market is getting close to some sort of bounce in the stock market that will last for more than just 1 or 2 days. If that happens near the current level in the stock market, the bulls will declare that it’s a “double-bottom”…and that the market will rally into the end of the year. If we do indeed get a bounce from near current levels, we do NOT believe it will be THE bottom for this bear market. The stock market is still overvalued…and with earnings estimates for 2022 and 2023 about to be cut…it will tell us that the market is even more overvalued than the readings are telling us right now. This, in our opinion, still leaves us at risk of falling down to the 3,000-3,200 range…which we’ve been talking about for most of this year…before the ultimate bottom is reached.

Therefore, any bounce…even if it’s a sharp one…is something that should continue to be used by investors to raise cash and get more defensive. Remember, even though September is usually the worst month of the year, most of the big “September declines” have not bottomed until some time in October. Frequently, those October lows are quite a big lower than the September lows…because that’s when a big bout of “forced selling” takes place.

Jamie Dimon said earlier this year that we’re headed into a hurricane. Well, we could/should be headed for the “eye” of that hurricane soon. However, as it is with the eye of a real hurricane, it is merely a respite before the storm reasserts itself in a major way.……Caveat emptor.

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Sep 26, 2022 — 8:09 AM
Comments ({[comments.length]})
Sort By:
Loading Comments
No comments. Break the ice and be the first!
Error loading comments Click here to retry
No comments found matching this filter
Want to add a comment? Take me to the new comment box!