• Dow Theory gets triggered – stocks go lower.

  • S&P kisses June lows and holds…Today is another chance to test.

  • Oil trades lower, think stronger dollar and global recession narrative – OPEC will not stand idly by.

  • Italy elects Giorgia Meloni in a SNAP election.

  • Try the Garganelli w/Sweet Sausage in a Tomato Cream Sauce.

MWCB (Market Wide Circuit Breaker) levels (Again). Just for your information.
Level 1 – the S&P loses 258.52 pts - 7% to halt trading for 15 mins.
Level 2 – the S&P loses 480.12 pts – 13% to trigger the 2nd halt – 15 min.
Level 3 – the S&P loses 738.65 pts – 20% to trigger a trading halt for the balance of the day.

On Friday morning I was on Varney & Co at 9 am with Stuart Varney…during that block, I discussed how the Dow Industrials had NOT yet broken the June low (29,653 – on June 17th),  but the Dow Transports had broken their July low (July was lower than the June low) – and if Dow theory held true – then the Industrials must break the June low in order for the theory to be validated…. – which in the end would signal more weakness ahead.  Here is the clip from that appearance.

At 10:02 am – on Friday September 23rd- the Dow Industrials breached that low….and it proceeded to tumble from there…. – The algo’s reacting to the technical signal – sent wave after wave of sell orders into the market and that sent stocks into a tailspin…. Remember that when the algo’s get triggered – it triggers a two way reaction….the first – is the automatic cancellation of inline buyside interest – which creates ‘that’ void in prices and the second is the waves of sell orders that are generated because OF the that technical signal……and then the humans step back – as chaos reigns…..and so it was….at 3pm – the Dow industrials made a new low – falling 826 pts to 29,250 before ‘rallying back’ into the bell.  The S&P did NOT break it is June low…it came within 11 pts…. but today will be the test…. (More below).

By the time the bell stopped ringing – it was clear – it was another losing day – capping off a losing week…. - The Dow ended the day down 480 pts or 1.6%, the S&P lost 64 pts or 1.7%, the Nasdaq fell 200 pts or 1.8%, the Russell lost 43 pts or 2.5% and the Transports gave back 225 pts or 1.8%. Just to be clear – the Dow Industrials not only broke the June low – but has now created a new 2022 low (29,250) while also establishing a new 2022 ‘closing’ low of 29,590.  The Transports also collapsed again on Friday and made a new 2022 intraday low of 11,960 before closing at 12,129. So – the theory has been activated…. now it is just a question of how deep will it get?

Now look – why are you surprised?  Haven’t we been discussing this for months now?  And with every day that passes – we get even more information about the economy that continues to show new signs of slowing economic stress.  Over the past week – we saw a bevy of central banks raise interest rates in their countries and that only added to the angst…..and rightly so, because most of these central banks are well behind the 8 ball and behind the FED – which itself is well behind the 8 ball – considering that inflation rates in the US are now running at 8.3% Y/Y while Fed Funds rates are now 5% below that – at 3% – 3.25% - and that is not good.

And now – they started to showcase anyone considered influential thru the media…. Last week it was Janet Yellen, who assured us that she is ‘convinced’ that JJ will be successful in bringing inflation down saying that ‘at some point next year’ we should start to see the benefits of his decisions.  Then on Sunday morning – Atlanta FED President Raffi Bostic told Margaret Brennan on ‘Face the Nation’ that ‘there is a good chance’ that the FED will get to 2% inflation without killing the economy……In fact – he recognized that there will be job losses and said that he thought they would be ‘smaller’ than what we’ve seen in other situations…..and also went onto say that he thinks they can navigate a ‘soft landing’ (if they try really hard)…..Are you kidding me?  A soft landing? 

Dude!  Wake up….even your colleagues are now conceding that narrative – calling it a ‘modest’ landing – which is really funny – because up until now – there were 3 definitions of a ‘landing’ – they were – soft, hard and CRASH…..never has any landing been described as modest – but hey – it’s 2022….just change the rules –I mean men can have babies now…. – It is an amazing time we live in.

Overnight on Monday the world heard from ECB President Christine Lagarde then at 3:50 pm est we will hear from Cleveland’s Loretta Mester.  Tuesday at 6 am – will be Chicago’s Charlie Evans, at 7 am – JJ Powell will be participating on a panel about digital currencies.  Wednesday – we will hear from JJ at 10:15 am, at 11 am – it will be Governor Bowman, On Friday- we get Vice Chair Brainard at 9 am and Governor Bowman (again) at 11.  Now I am sure we will see St Louis’s Jimmy B on CNBC and do not discount Minneapolis’s Neely Khashkari, San Fran’s Mary Daly or NY’s Johnny Williams - because they will all have something to say – they will surely try to continue the ‘We got this’ narrative and ‘while it may be difficult – we expect to be successful’.  Well, duh…of course at some point it will be successful – (only after you destroy the economy) but if you think it is going to happen anytime soon – you better go back and stick your head in the sand.

Last Wednesday saw the FED raise rates by 75 bps (which was expected) but then JJ surprised the crowd by telling us that they will most likely have to raise rates by another 75 bps in November in order to get rates to a new ‘terminal rate’ – or the rate defined as neutral – which is now 4.6% - and that is up from what they have been telling us was 4 – 4.25%....and THAT was the straw that broke the camel’s back.

By the end of the week – the 2 yr. treasury was yielding 4.295% while the 5 yr. is yielding 4.04% and the 10 yr. is now knocking on the door of 3.75%.... the highest that has been since 2011 – leaving the yield curve completely inverted now entering week 15. ……and this move continues to put pressure across the broad market.   

Every sector was bleeding…Energy – XLE getting slammed lost 7%, Consumer Discretionary – XLY losing 2.3%, Basic Materials XLB – 2%, Communications – XLC down 2%, Industrials – XLI – 1.8%, Financials – XLF – 1.6%, Consumer Staples – XLP – 1.6%, Real Estate – XLRE – 1.2%, Utilities – XLU – 1.2% and Healthcare – XLV – 0.5%.  And again – the contra trades surged ahead…. PSQ + 1.6%, SH + 1.8% and DOG +1.6%.  SPXS +5% (triple levered S&P short– not made for everyone!).

Economic data due out today is all about Chicago and Dallas Fed surveys…. what is going on in those regions of the country.  Chicago expected to be 0.23, while Dallas is expected to be – 10. On Thursday – we will get the 2nd revision to 2 qtr. GDP and guess what?  It is still negative….at -0.6%.... Capisce? And on Friday – we will get the PCE Core Deflator (FED’s favored inflation gauge) and that is expected to show a gain of 0.5% m/m and 4.7% y/y – BOTH higher than last month. 

Oil got crushed on Friday….falling nearly 5% or $4.06/barrel to end the day at $79.43 as the recession story took root and the dollar strengthened even more….…..and this morning- oil is weaker again…..trading at $78.36 while the dollar index rises to $114.52 – up from $113.20…..which makes you ask….What will OPEC+ do now?  They won’t sit on the sidelines if oil continues to fall….in fact – many are expecting them to intervene – and why would this be important – because it would be outside of their ‘scheduled monthly meeting’….that would be like the FED moving in October – outside their scheduled calendar….and that just sends a message that someone is anxious….in this case it would be the Saudi’s and the other case it would be the FOMC committee. Either way – it sends a message of fear and economic concern….and you know what happens then……Remember – we do have increasing China demand and the whole Iranian oil supply story is stalled – so these are both bullish for oil…but if the focus remains intently on a global recession and the surging dollar (due to FED action) then oil will go lower….and I am betting that the Saudi’s will say – ‘Not now – big boy, not now’!

Gold is trading lower too…. falling $3/oz to $1652/oz…. feeling the pressure of the rising dollar – which at some point will not make sense IF the global economy enters a recession…Gold is a store of value and when the sh*t hits the fan – investors will buy gold

US futures are a bit weaker at 5 am as the markets await the sunrise…. Dow futures are down 42 pts, the S&P down 3 pts, the Nasdaq is flat and the Russell off by 3 pts.

European markets are choppy 5 am…. Eurostoxx, France, Germany, and Italy all higher while the UK and Spain are just below the unchanged line. Yesterday – the Italians elected Giorgia Meloni – in a SNAP election and she would be the first female Prime Minister and will represent the first far right gov’t. since the end of WWII.  You can see a part of her speech here: (copy and paste to your browser)

The S&P lost 65 pts to close the day at 3693…leaving us less than 60 pts away from the June lows – lows that we came close to breaching on Friday….….The idea that the June lows will offer plenty of support is now the question – after Friday’s carnage….….S&P 3400 may be more realistic if the 3rd qtr. earnings season proves to be as weak as some are no suggesting……remember – JJ kept telling us that the economy is strong enough to handle rising rates….but that is proving to be ‘fake news’…..and that might cause the seasonal weakness (which I have also been warning about) to become even weaker.

You know me - I remain cautious about the coming earnings season….and am being patient…I am putting money to work in cash and a handful of names that I believe are at the core of a long-term portfolio.  

Remember – we are in a seasonally difficult time –and a test lower is still very much a reality.  If you want to continue to put money to work - stick with the Big, Boring names/sectors…. Healthcare, Consumer Staples, Utilities, Energy and Big Tech.…. take advantage of the lower prices.

Garganelli in a sweet sausage tomato cream sauce

Spectacular…. For this you need:  sweet sausage out of the casing, 1 lg Vidalia onion, garlic, olive oil, can of plum tomatoes in their juice (not puree), heavy cream, dry white wine, s&p. 
Heat olive oil in a pot...add crushed garlic and one diced onion (Vidalia if you can get it).  Sauté until soft and sweet, next add the sausage meat - sauté until browned.

Next add 2 cups of dry white wine and let the alcohol burn off.... open 28 oz can of plum tomatoes and rough crush - so that it is a bit lumpy. Bring to a boil and then immediately turn to simmer.  Stir and cover.  Do not go too far because you will need to stir again.
Now add 1 cup + a little more of heavy cream (you can use lite cream if you prefer - but heavy cream gives it a richer taste).  Let simmer until thickens...only about 4 or 5 mins....season w s&p.

In a separate pot bring salted water to a boil and add pasta - You can use any type of pasta you like - typically a short pasta is better for this dish- so maybe a Rigatoni, or Garganelli or Mostaccioli Rigate….

Cook until aldente - 8 / 10 mins...strain - reserving a mugful of the pasta water....Add the pasta directly into the sauce and stir - making sure to coat well.  Add a handful or two of parmegianna cheese and mix.  If it looks like it needs some more liquid -add a bit of the pasta water to moisten.  Serve immediately - offering more grated cheese to your guests.  -

On a separate plate - make some garlic bread - using "Panne di Casa" sliced loaf.  Melt butter/olive oil add crushed garlic and heat so that the garlic permeates the butter.  Next using a pastry brush - brush the bread with the butter/garlic mixture and place under broiler until golden brown.  Turnover and toast.  When done -- remove from oven - slice in half and serve alongside the pasta.... It does not get any better than this.

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Information and commentary provided by ButcherJoseph Asset Management, LLC (“BJAM”), are opinions and should not be construed as facts. The market commentary is for informational purposes only and should not be deemed as a solicitation to invest or increase investments in BJAM products or the products of BJAM affiliates. The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. There can be no guarantee that any of the described objectives can be achieved. BJAM does not undertake to advise you of any change in its opinions or the information contained in this report. Past performance is not a guarantee of future results. Information provided from third parties was obtained from sources believed to be reliable, but no reservation or warranty is made as to its accuracy or completeness.

Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will be profitable. The price of any investment may rise or fall due to changes in the broad markets or changes in a company’s financial condition and may do so unpredictably. BJAM does not make any representation that any strategy will or is likely to achieve returns similar to those shown in any performance results that may be illustrated in this presentation. There is no assurance that a portfolio will achieve its investment objective.

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