$ES - 200 Day Moving Average?
Macro Perspectives: Tue 5 Oct 21
The correction in stocks continues - we've been looking at this chart below, as our guide, following the break of the uptrend.
This 50-day moving average (pink trendline) in the chart represents the ~40% climb in stocks from election day, in anticipation of continued easy money, and a massive fiscal spend to fund Biden's clean energy agenda.
Now the Fed has set expectations for a change in policy direction, and the politicians on Capitol Hill are getting closer to firing the fiscal bazooka.
With that, we had a catalyst to trigger this correction.
And if history is our guide, we should expect some more pain, maybe something in the 10% neighborhood. Going back through almost 80 years of data, we have a 10% decline in stocks, on average, about once a year. The 200-day moving average (blue line) now comes in at 9% below the record highs. I suspect we'll see that tested.
That said, while stocks were down to start the week, commodities were up. This is a clue.
Unlike many of the declines in stocks we've seen in the post-financial crisis decade, this decline is not about demand - it's about prices.
The media will continue to harp on the Chinese property market, the U.S. debt ceiling and related infighting on Capitol Hill, but this continues to look like the world is waking up to a materialising energy crisis.
Last week we looked at the storm that is brewing in global energy. The record prices are reflecting a combination of the war on fossil fuels, meeting supply chain bottlenecks and a ramping of global demand (coming out of the depths of the pandemic).
We looked at coal futures - up another 12% since we saw this chart last.
We looked at natural gas - tripled from the pandemic lows.
Global demand for natural gas and coal is now higher than pre-pandemic levels, yet supply has been choked off by the global climate agenda.
So demand is turning to oil - and guess who's back in the driver's seat in determining oil prices? OPEC. Not surprisingly, OPEC chose not to take measures to curb prices in a meeting yesterday. And with that, we have this chart in oil...
After the OPEC news, oil broke above the big $77 level, to seven year highs. As I've said, get ready for $100 oil.