The Indexes Are Barely Hanging On (Technically Speaking For 3/14)

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The spike in diesel prices is more pronounced than gas prices:

In the US, average retail prices have surged above $ 5 per gallon for the first time ever. In the UK, it’s selling above 1.70 pounds per liter, equal to more than $ 8.5 per gallon. The surge matters because of the ubiquity of diesel in modern life. As the fuel of transportation, the price rally will hit everyone, adding to inflationary pressures that are already running at a multi-decade high. More than the cost of oil, skyrocketing diesel prices should be the main worry of central banks.

Here’s a chart to put the recent spike in perspective:

Diesel prices

Diesel prices (Bloomberg)

Not only is demand growing at a strong clip but supplies are at multi-year lows:

Diesel Inventories

Diesel Inventories (Bloomberg)

This is another reason for the large increase in energy prices:

Energy CPI

Energy CPI, FRED

There’s a fair amount of second-guessing the Fed’s reaction to inflation. Monday morning armchair quarterbacking is always easy. However, remember that globally, governments shut down entire economies to slow the spread of COVID. Millions of people were quickly dismissed while GDP contracted sharply. There was no end in sight to the pandemic, meaning the economy needed maximum stimulus to survive. On the flip side of the recovery, it was reasonable to assume that supply chains would have rebounded by now, making inflation transitory. The shift in consumer spending from services to goods, which further exacerbated supply issues – could not have been predicted. Just as importantly, the Fed has properly reacted to the data and has switched to a hawkish stance.

The latest China lockdown will negatively impact supply lines.

The number of container ships waiting off Qingdao, one of China’s biggest ports, is continuing to rise as the country doubles down on its Covid Zero policy, adding more delays to a strained global supply chain.

About 72 vessels were spotted off Qingdao port in Shandong Monday, almost double the amount at the end of February, according to shipping data compiled by Bloomberg. The increased delays there and in other parts of China are expected to push up freight rates.

There’s also a growing backlog of vessels off the ports of Shanghai, Ningbo and Zhoushan. There were 262 ships counted there, up from 243 a week ago. However the situation off Shenzhen and Hong Kong has eased a bit, dropping to 162 vessels from 208 on March 7.

Not good.

Let’s check in on two sets of charts:

1-day SPY, QQQ, DIA, and IWM charts

1-day SPY, QQQ, DIA, and IWM charts (Stockcharts)

The markets were clearly lower today due to a sell-off that started right after the open that lasted until early afternoon. Prices did consolidate losses starting about 2 PM.

3-month, SPY, QQQ, DIA, and IWM

3-month, SPY, QQQ, DIA, and IWM (Stockcharts)

On the 3-month charts, prices are barely hanging on. The QQQ broke trend today but it did so just barely. The SPY closed below the trend as well, but also just barely. The IWM and DIA are right at support.

On the plus side, the indexes did not crater. But they did not rally either. They’re all at key levels and we’re only one day into the trading week.

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