If last week were all about employment and the first half of the Fed’s dual mandate, this coming week would be all inflation and the other half of the Fed’s mandate.
From an inflation standpoint, the Fed’s goal has been met, and that is unlikely to change anytime soon. Following Friday’s strong jobs report, the Fed is just about where it needs to be from an employment standpoint. It is close enough that I think the Fed is likely to tell everyone at Jackson Hole the economy has made substantial further progress, which is the first hint that a taper is coming at the September meeting.
But the initial reaction by the market on Friday was clear. Yields rose sharply, spreads widened, pushing the dollar dramatically higher. This put a big bid into the reflation sectors as investors sensed a taper was coming, and low rates would be a thing of the past. Nothing is that simple, though, because not every sector will be a winner, especially if the dollar continues to move higher, which I have been saying for a long time it would even as many were looking for a big debasement.
1. U.S. Dollar
The dollar index has put in a huge double bottom and has a ton of bullish momentum behind it. All it needs to do is break resistance at 93.20, and it should move sharply higher, probably back to 95 or 96.
2. Oil
This will be bad news for energy, commodity, and multi-national stocks. Oil prices have already started to decline, and they will likely have further to fall from here as the dollar strengthens. Oil has been trending lower, and once support at $67 breaks, there is a good chance oil is trading sub-$60. There is a lot of bearish momentum behind oil prices.
3. Exxon Mobil
This will weigh heavily on stocks like Exxon Mobil (NYSE:XOM), which is trending lower, and hanging on to support at $55 and probably on a path to $44.
4. Copper
Copper prices will also have a problem going forward due to a stronger dollar, which will push the price lower, maybe to as low as $3.75. There are clearly bearish trends here, too, based on the RSI moving down longer-term.
5. Freeport
Freeport-McMoran Copper & Gold Inc (NYSE:FCX) doesn’t differ that much from copper and should continue to head lower towards $31.50.
6. NASDAQ 100 QQQ
The QQQs have been run sharply higher since the May 19 low and are overdue to correct. The price hit the last week was equal to 100% of wave blue “A,” and it is also equal to 78.6% of wave red “A.” Maybe it is by chance, but all the Qs need to do is break the uptrend at $365 a push lower. The RSI and MACD are both already diverging lower, coming off very overbought levels, so this is as good a place as any for a nice pullback.
7. Apple
Apple (NASDAQ:AAPL) has already broken its uptrend and has a path lower toward support at $130.
