Monetary Policy, 1 Minute S&P Chart, Trading Lockheed, Microsoft AI, Disney

President Biden made his "State of the Union" address last night. The event may have made for good television. As far as financial markets are, or were concerned, the speech was a non-event. Politically, I'll let you be the judge.

Though my political career ended at the local level with a lifetime record of 2-1, I am no politician. I do have my views and they are mine. I don't think anyone who reads me daily (... and for that, I thank you), comes to me to hone, deepen, or change their own views on the matters at hand. When politics goes beyond or extends into fiscal and monetary policy, economic performance, or national defense, that is where I draw my line and enter the discussion.

Good thing then, that the president's speech, if you're a trader or an investor, was not the "headline level" public event of the day or evening on Tuesday. Fed Chair Jerome Powell laid claim to that title as you choked down the last of your PB&J on white bread with that diet cola you seem to be addicted to. In fact, with Minneapolis Fed Pres. Neel Kashkari opining on policy Tuesday morning, President Biden's speech probably came in a distant third place. At least in our little universe of daily victories and defeats.

One thing that I did want to point out to the masses, was the ridiculousness of what now passes for the modern process of price discovery. We'll get to that. First, the meat and potatoes.

Powell sat down before the Economic Club of Washington, DC and really did not move off of any position that he took or anything that he said at last Wednesday's FOMC press conference, even after considering last Friday's BLS robust employment survey results for the month of January.

On that Powell stated, "We think we are going to need to do further rate increases. The labor market is extraordinarily strong." Powell added that the BLS data "shows you why we think this will be a process that takes a significant period of time."

In short, Powell remained hawkish in word, and pragmatic in personal approach. On consumer prices, the Fed Chair commented "There are still plenty of hurdles on the horizon for inflation. You will see some repricing here." This came after Neel Kashkari, who does vote on policy this year maintained his hawkish stance. Kashkari said, "Right now, I'm still at around 5.4% (on the Fed Funds Rate). If I had to pick a number today, I'd be where I was in December."

Some Call It Progress

The direction of equities in a broad way has been upward for almost all of 2023 to date. Same for Treasuries, though that worm has started to turn in February. The US dollar, though weaker for 2023, has found a bid of late as foreign central banks have started getting more aggressive than the Federal Reserve currently is, as these central banks are still in the early innings of their tightening cycle and at least financial markets believe the FOMC to be in the later innings of that ballgame.

US equity markets moved higher once again on Tuesday after pausing for a couple of days. The ride into and out of Powell's interview in DC was not, however, anything close to smooth.

I would love to point out the absurdity that is modern price discovery. Very smart people are debating the impact of ODTE (zero days to expiration) options on market direction, the devaluation of traditional metrics as indicators and anticipate just how ugly the day to day charts might get when individual investors discover that this new vehicle for hedging, gambling and forced hedging is actually a double edged sword. That ugliest of days surely can not be very far off at this point.

That is not however, what I am trying to point out to readers, at least not right now. Powell started speaking between 12:30 ET and 13:00 ET on Tuesday. I have often voiced my displeasure with the removal of human beings from the process of price discovery and the replacement of those human beings with high-frequency, keyword-reading algorithms. These programs can and do launch and cancel massed orders in timing measured in microseconds that are capable of reading each others' intent while still "in the pipes'' while reacting or racing accordingly.

Just take a look at this one-minute chart of the S&P 500 for Tuesday...

Does this look like anything close to a "well thought out" determination of value? Look at the range from just before 1 pm until just after 1:30. Then from about 1:50 on. The very function of an exchange (any exchange) is to maintain fairness and order, while bringing buyers and sellers together to efficiently disseminate information impacting the determination of price.

What this looks like to me is that the modern "high-freak" algorithm has been created in order to intentionally force organic buyers and sellers to outright miss each other at the point of sale so that price dislocation might occur and momentum might be forced to the point of overshoot. The only thing apparently not important here is the determination of the right price for both buyers and sellers at the right time.

High speed, price insensitive execution. Zero days to execution options. There are some among us, not those that hold their hearts true to the high standards of honor in creating just and equitable principles of trade, but those who prefer impurity in design if there might be some benefit at public cost that would call this... "progress."

HIMARS

Some may have noticed on Tuesday morning when Credit Suisse analyst Scott Deuschle double-upgraded long-time Sarge fave Lockheed Martin (LMT) two levels to "Outperform", while taking his target price from $427 to $510.

More of you probably noticed the Tuesday afternoon headline that the US was considering a $10B weapons sale to Poland. The idea is to help improve and update the military capabilities of a NATO ally especially exposed on the regional level to Russia's war on Ukraine.

The sale would include 18 M142 HIMARS (High-Mobility Artillery Rocket System) rocket launchers, which is a self-propelled system with an operational range of about 300 miles and ammunition considered to be highly accurate at under 190 miles. The system is a Lockheed Martin manufactured product that uses an engine manufactured by Caterpillar (CAT) .

The package would also include the MGM-140 ATACMS long-range missile system and the Guided Multiple Launch Rocket System according to the Defense Department. The ATACMS (Army Tactical Missile System) is a tactical ballistic missile with a maximum firing range of... you guessed it... 190 miles. The missile was originally designed by Ling-Temco-Vought well before that firm disappeared. The current contract for manufacture belongs to Lockheed Martin.

Readers may recall that more than two weeks ago, we were looking for support at this 200 day SMA (simple moving average), and even suggested selling a $440/$430 bear put spread expiring January 27th. You don't have to look. The trade worked. The point now is that instead of testing support at the 200 day line, LMT now tests resistance at the 50 day line after making short work of the 21 day EMA.

Both Relative Strength and the daily MACD (Moving Average Convergence Divergence) leave plenty of room for upside potential from here. I don't like to be greedy, but with the world in the shape it is, and if LMT can take and hold that blue line, which has not happened just yet, a target price of $541 could be very reasonable. Failure here could produce a trading range, at least into the spring when expected military activity in eastern Europe once again becomes more aggressive in nature.

Go Satya, Go Satya, Go !!

Tuesday has come and gone. Microsoft (MSFT) CEO Satya Nadella introduced a new version of the Bing search engine using artificial intelligence supported by OpenAI's ChatGPT, and stated quite flatly, "I think this technology is going to reshape pretty much every software category." Nadella added, "But the one good thing here is the business model side of this, because it builds on the cloud."

Explaining further, Nadella got mildly granular, "Beneath what OpenAI is putting out as large models, the heavy lifting was done by the Azure team to build the complete infrastructure, because these workloads are so different than anything that's come before."

The stock of Microsoft ran 3.6% for the day on Tuesday, as the stock of Nvidia (NVDA) , the designer of chips crucial to the development of AI, ran 5.1%. Today, Alphabet's (GOOGL) Google unit will step to the plate with their counter to the Microsoft event.

Here, readers may also recall that back on January 10th, we suggested getting short a MSFT $215/$205 bear put spread expiring January 27th that also worked. Now, well past the short-lived post earnings beat-down, the stock has rallied off of a double bottom reversal with a $264 pivot. That pivot has been tested this week.

Should MSFT hold the gains made on Tuesday, or at least above pivot, that target price moves to $304. I would like to point out that just a few days ago, the five star rated (by TipRanks) analyst Ivan Feinseth of Tigress Financial, who I think of as one of the very best of the best, reiterated his "Buy" rating for MSFT while setting his target price at $411.

Tonight's The Night

Wednesday evening. All eyes will be upon The Walt Disney Company (DIS) , as that firm reports its fiscal first quarter. Wall Street is looking for an adjusted EPS of $0.78 on revenue of $23.35B. That would be sales growth of 7% year over year.

I don't know how much the numbers matter tonight. What will matter will be how CEO Bob Iger presents himself and the firm's plan to manage costs going forward. There's a lot on the plate and investors need to hear something on all of it. Is "Direct to Consumer" under control? Can the parks continue to carry the firm? What if a recession slows down attendance? Will Iger address Nelson Peltz and Trian? Are the shareholders rooting for Peltz? I think I am.

So much to look forward to. Investors might prefer a soft kiss that awakens Sleeping Beauty. They might be better served by Mr. Toad's Wild Ride.

Economics (All Times Eastern)

07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.19%.

07:00 - MBA Mortgage Applications (Weekly): Last -9.0% y/y.

10:00 - Wholesale Inventories (Dec-rev): Flashed 0.1% m/m.

10:30 - Oil Inventories (Weekly): Last +4.14M.

10:30 - Gasoline Stocks (Weekly): Last +2.576M.

13:00 - Ten Year Note Auction: $35B.

The Fed (All Times Eastern)

09:15 - Speaker: New YorkFed Pres. John Williams.

10:00 - Speaker: Reserve Board Gov. Michael S. Barr.

13:45 - Speaker: Reserve Board Gov. Christopher Waller.

Today's Earnings Highlights (Consensus EPS Expectations)

Before the Open: (BG) (3.18), (UBER) (.02), (YUM) (1.26)

After the Close: (AFRM) (-.99), (EFX) (1.49), (MAT) (.29), (ORLY) (7.73), (DIS) (.79), (WYNN) (-1.16)

(LMT, MSFT, and GOOGL are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these stocks? Learn more now.)

At the time of publication, Stephen Guilfoyle was Long DIS, LMT, MSFT, NVDA equity.