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Weekly Memorandum 1/24/2022

Stocks were crushed last week as we saw months' worth of gains erased in just a few days. This is as bearish as it gets with respect to price action. Our downside price objectives, as well as other key support and resistance levels were shared in the Mercator Letter that was published yesterday. An even bigger story, of course, is the notable outperformance of value and inflation-sensitive segments of the market compared to their growth and tech counterparts. With inflation running at multi-decade highs, the macroeconomic environment no longer favors the tech trade, which has led to the downside during this market rout.

Precious metals held up best last week, with Gold and Silver finishing in positive territory while equities were crushed. Here too, the macroeconomic environment continues to favor higher metal prices in the long-term. Don't be surprised if bonds find a floor and catch a bid due to a flight-to-safety trade either. If bonds rally, it could provide a tailwind for metals. They exhibited a strong positive correlation between 2018 and 2020.

Grain markets had strong weeks too, along with livestock meats. Of particular note was the Lean Hog market, which just broke out in the April contract. Crude Oil finished higher as well. The U.S. Dollar was up too, as the geopolitical tensions send global capital piling into the world reserve currency. The "war trade" seems to be working right now: Higher dollar, higher metals and oil, bonds (potentially) bottoming.

Cryptocurrencies were crushed too, and our bearish outlook, which was outlined extensively in our Mercator Crypto report, was vindicated. This was a classic bubble, and now that it's unraveling, the probability of much lower prices remains ahead.

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