{"id":46672,"date":"2023-12-23T07:31:45","date_gmt":"2023-12-23T07:31:45","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?p=46672"},"modified":"2023-12-23T07:40:45","modified_gmt":"2023-12-23T07:40:45","slug":"santa-rally-monetary-easing-offsets-china-woes","status":"publish","type":"post","link":"https:\/\/thepatientinvestor.com\/index.php\/2023\/12\/23\/santa-rally-monetary-easing-offsets-china-woes\/","title":{"rendered":"Santa rally: Monetary easing offsets China woes"},"content":{"rendered":"

China’s economy is struggling despite injection of moderate stimulus and efforts to support a collapsing real estate sector. Shrinking demand from China threatens a global economic contraction. G7 central banks have responded with monetary easing, causing a broad rally in stocks. This is most likely a bear market rally, with far shorter duration than a bull market.<\/p>\n

China’s Shanghai Composite Index is testing primary support at 2900, warning of an economic contraction. The Trend Index peak near zero confirms selling pressure.<\/p>\n

\"Shanghai<\/p>\n

Copper, however, has penetrated its descending trendline. Follow-through above 8500 would test resistance at $8750 per metric ton, threatening a wide double-bottom reversal with a target of $9500. Breakout above $8750 would signal global economic recovery, while reversal below $7800 would warn of a global recession.<\/p>\n

\"Copper\"<\/p>\n

US Stocks<\/h2>\n

The S&P 500 is testing it 2022 high at 4800, buoyed by injections of liquidity into financial markets.<\/p>\n

\"S&P<\/p>\n

The equal-weighted S&P 500 broke resistance at 6300, suggesting a broader rally than just the top 7 stocks. Retracement that respects the new support level would confirm the target at 6665.<\/p>\n

\"S&P<\/p>\n

The Russell 2000 small caps ETF (IWM) threatens a similar breakout above 200, offering a target of 240. Breakout would confirm that investors are growing more aggressive (risk-on) and downplaying risks.<\/p>\n

\"Russell<\/p>\n

Interest Rates<\/h2>\n

Ten-year Treasury yields are retracing to test resistance at 3.9% or 4.0%; respect is likely and would confirm the target of 3.5%.<\/p>\n

\"10-Year
\nAn increase in supply of Treasury Notes will test bulls’ conviction next week:<\/p>\n

A raft of fresh, post-Christmas government bond supply will put that comprehensive bullishness to the test. Next week, Treasury will auction $57 billion, $58 billion and $40 billion in two-, five- and seven-year notes, respectively. That\u2019s up 20%, 15% and 7% from their average sizes over the past four monthly auctions. (Grant’s Current Yield<\/a>)<\/p><\/blockquote>\n

The 2-year Treasury yield (purple below) is falling in anticipation of Fed rate cuts next year. A peak in the 2-year tends to lead the first rate cuts by 6 to 9 months. The signal misfired with the SVB banks crisis in March but the October peak warns of Fed rate cuts in Q2 or Q3 of 2024.
\n\"Fed<\/p>\n

International Stocks<\/h2>\n

The FTSE 100 is testing resistance at 7700, with a Trend Index trough at zero signaling buying pressure.<\/p>\n

\"FTSE<\/p>\n

The DJ Stoxx Euro 600 — reflecting the top 600 stocks in Europe — broke resistance at 470. Follow-through above 480 would test the 2022 high of 494.<\/p>\n

\"DJ<\/p>\n

Japan’s Nikkei 225 is testing long-term resistance at 33750. Breakout would signal a fresh primary advance but declining Trend Index peaks show a lack of commitment from buyers.<\/p>\n

\"Nikkei<\/p>\n

The ASX 200 is testing resistance at 7600, buoyed by strong iron ore prices and falling long-term bond yields. A sharp rise in the Trend Index indicates buying pressure but reversal below 7400 would warn of a correction to test support at 7000.<\/p>\n

\"ASX<\/p>\n

Gold & the Dollar<\/h2>\n

The US Dollar Index respected resistance at 102.50, confirming the target at 100. Trend Index peaks below zero signal strong selling pressure.<\/p>\n

\"Dollar<\/p>\n

Gold broke through resistance at $2050, closing at $2053 per ounce. Expect retracement to test the new support level; respect would confirm another attempt at $2100. A falling Dollar and increased bullion demand from central banks is expected to maintain upward pressure on Gold prices.<\/p>\n

\"Spot<\/p>\n

Conclusion<\/h2>\n

Stocks are rallying in response to falling long-term Treasury yields and in anticipation of Fed rate cuts next year. But falling LT Treasury yields is a medium-term rally in a long-term bear market, with LT yields expected to rise in 2025. Fed rate cuts are also a bearish sign, normally preceding a recession by several quarters — falling earnings are definitely not bullish for stocks.<\/p>\n

Investors will need to be agile, to take advantage of the current bullishness in stocks while guarding against:<\/p>\n