Joel Elconin – Geopolitical Volatility, Contagion Effects From Higher Oil Prices, Picks and Shovels Trades, And Quad-Witch Expiration

0:00Hello and welcome into the K.E. report. I'm your host, Shad Markowitz. And today we're getting an update with Joel Elconon. Joel is the co-host of the pre-market prep show and founder of the Stock Trader Network and we will put links to those down below in the show notes. Joel, it's great to get you back on the show for an update. I had just visited your show earlier this morning and now you're returning the favor. But it's not really a great environment to talk bullishness because the world is still sidetracked by the geopolitical turmoil in Iran, the state of Hormuz being closed. Higher oil prices are not just affecting the oil sector, they're affecting many sectors with a lot of people worried about a potential economic slowdown on the horizon. I guess let's pick it up there with the cost of oil going higher. There's really a lot of contagion effects, other markets that depend on oil and obviously businesses and consumers are hit with a higher sticker price. What do you make of the markets in light of the volatility we're seeing overseas? Good afternoon, Chad.

1:01Thanks for having me. The R word. I mean, I don't want to go to the stagflation or the depression route, but I think what you're seeing in the markets today is a fear of a recession. The longer the diss war goes on, the recession risk is increasing. There's no other way to buy it. It's going on. The streets of Hormuz affects so many different things, so many different sectors. It's hard to ignore the longer this war goes, the deeper and deeper the economic impacts going to be on the United States and the world. Well, just to follow up on that, you said the R word recession, but not stagflation. I agree. It's not a depression, but with stagflation, the idea with it being a 1970s analog is higher energy prices, slowing growth, which we've seen in the GDP number going down quarter over quarter and stickier inflation and job losses.

2:03Now, in the 70s, it was job losses for a different reason. Now we've got AI job losses. Why couldn't it be a stagflationary situation? It could be. It could be a stagflationary situation. Another thing adding to the momentum to the downside was your PPI number coming in hotter than expected yesterday. The market took an immediate reaction to that. No comfort from Mr. Powell. Now we're talking about maybe one rate cut this year and maybe one next year. That's certainly not what the market was pricing in. So a higher unemployment because of the AI, the potential of the overspend on AI, a cat backs, just going up enormous, it's going to hurt the earnings of those companies no matter what. So it's very hard and if you just want to get technical on things, you are losing your 200 day movie average in the S&P 500 cash. So no matter what bullet scenarios that people want to throw at me, I mean, you could just

3:07look at the pure technicals here and the technicals are breaking down. The fundamentals were past earnings season, not a lot to look forward to right now, unfortunately. Yeah, some great points, Joel, the Fed, kind of a nothing burger, doesn't look like rate cuts are coming anytime soon and maybe not as many as people were hoping for the market loves that easy money and it's hard to justify that when inflation is creeping higher and the PCE data and some of the inflation data hasn't even factored in these higher energy prices yet, but neither have a lot of other markets. We were talking earlier today about fertilizers and how much those companies are going up. That's one of the green spots on the screen, but that also means food costs are going to be going up and the food costs go up and energy costs go on. What does that mean for consumers? Oh, yeah, yeah, consumer that maybe losing his quarter of a million dollar a year software engineering job. The impact of this oil is getting a lot of different sectors right now.

4:10Ministers are facing fair larger shortages and higher prices, right? Container ships are moving goods around the world have seen fuel prices skyrocket much more than the crude oil price, plastics require petroleum inputs, airlines have to jack up fares to cover rising fuel costs, moving goods around by truck is more expensive as diesel fuel rises, economies run on power, right? The great electricity generation is impacted by oil and natural gas shortages. I mean, it just keep going on and on of the potential disruption, not only in our economy, but by the global economies because of the impact of this war. Yeah, it's hidden different countries in different ways. At least the United States is blessed with a lot of natural gas, which is why we are exporting it to Europe and to Asia, but their prices over there are insane right now.

5:11And so the global economy is facing a slowdown. That hurts with trading partners, that hurts with exports. It just makes kind of a mess here. So what areas of the market do you think are most at risk of feeling the heat in a recession because even the consumer staples and some of the value sectors have been in the hot seat lately? Well, yeah, we talked about just a couple of weeks ago on the show, we're talking about market being led by, you know, staples and drugs. I mean, that's not what you want to see. That's not the lifeline for a strong market. Now, those have come in, the XLP and the XLV have really come in. So they've been hit, that you don't have to consume or spending less money. Your restaurants are going to get hit, you know, anything related to the consumer, that is, is vulnerable. So and that you have to go on back again, not consumers losing, losing jobs, they're

6:11going to have less money. They're spending more money at the pump, less disposable income. You can go your airlines, you can go to your cruise lines, you know, your hotel stocks. I mean, I can't believe that Delta came out and reaffirmed some higher-guided yesterday. I mean, if that wasn't a selling opportunity, I don't know. So international travel, your travel stocks, I mean, there's really no sector that's immune to a recession and it slowed down in the economy. I mean, your utilities are still, you know, hanging in there with your dividends, but still, it's because of power. I mean, there's a major transition going on and having a bad couple days, the XLU, there's a regime shift out of the mega-cap tech, the software sector is being tore, I mean, this disruption from AI on software is just, you know, it cannot be ignored.

7:14So and then you look at your commodities and your gold and your silver market copper. I mean, if we're not building new buildings and building out, you know, new construction, new, your housing sectors getting absolutely annihilated. So what's going on right now? It's all such as the economy and I, you know, can I wish I could tell you, there's some, well, the bond market's showing a little bit of a, a little bit of strength today. But we got a real problem on our hands, Shad, I'm sorry to say, I know I've taught Polish and bearish over these airways over the years and trying to give it, you know, my honest opinion and not be affected by the media, which I am. But right now, there's a lot of warning signals out there that people are, I mean, we're five, six percent off all time high. I mean, we are basically at all time high, Shad. We are still 1800 points above that April low. I mean, I just don't, people think realize still where we are at in the market and they

8:20can, no, I can't sell the S&P was at 7,000, I can't sell it, it's 6,600, well, people can say that all the way down, you know, I'm not going to sell it 6,600 and then it's at 6,400. So as of right now, you can see the clear overhead resistance developing in the market and the fact that we have breached the low from last week and haven't recovered is another negative signal for future pricing. Now, the war ends, you get a relief pop. We'll see. A lot of people are in the water and they're going to be selling into that relief pop. And we know with, you know, Trump likes to protect the market. Well, he's got himself in a real pickle here. Well, it is a definite pickle and there's a lot of red on the screen just from a technical perspective. You were bringing up the S&P and some of those levels there. It does look like it's put in a sort of rounded top to me and that it did gap down some today below yesterday's clothes.

9:21So what do you make of it technically as far as the downside because I think you're right. I think a lot of people still feel like we're pretty close to that 7,000 mark, but they'll feel that way all the way down. But then when there's relief rallies, people will hit the eject button. So what is your outlook for downside support that's maybe stronger, longer term support? I wish I could give you. I mean, I'm looking at this, the 6600 level, you know, from my methods of techno analysis, that spaces the futures and these kind of situations, so I said to be honest, yeah, you've got to go to the weekly charts that you do have a weekly low in the cash index at 6522. It's currently trading at 6572. That would be my next objective on the downside. And then you lose 6500 with vengeance. I mean, there are weekly lows, not really no two in the same area. I'd say if we breached 6500, I think I'm looking at 6200.

10:25There's just not a lot up there. And it folks, look at your charts, look at your weeklies and look at the where we were. You know, just in April of last year, I mean, giving back half of that move in the cash index, the S&P cash. If you want to do that for a retracement, that would take the cash all the way down to under 6,000, 59 hundred. Yeah, and if we get some bad economic data reports that come in on the inflation side, on the job side, on the GDP side, it's not going to help the cause. The markets can stay divorced from the economy for a while, but eventually they start sinking up. Well, let's talk about tech because you brought up software. We've talked about tech a lot with you over the years. And we've talked a lot about this AI trade. And the question has been on everybody's mind. Did it really get into a bubbleicious territory there? Is the giant capex build out spends? Are they going to happen?

11:25Have these companies overspent on capex and build out of new centers? If those don't happen, what does that mean for other sectors, another job creation? What are your thoughts on the overall tech AI infrastructure build out discussion? I mean, I think you have to go. You have to go with the hardware stocks. Still, you know, micron down today off its earnings report, but it had run quite away. Micron, Sandisk, you got to think where does a video comes out and talks about, you don't want to say it's going to be a trillion dollar revenue company, you know, so you need the chips for the AI. I just don't know how patient the market is going to be with the monetization. You know, how long do they monetize of this AI and is it really all that it's cracked up to be? So, you know, tech has changed and software. I mean, have you messed around with any of the AI as far as writing code and stuff?

12:27I mean, it's pretty amazing what, you know, what would he could do? And so, your software engineers, you see how Microsoft has been reacting to this, Oracle, you see what's done to the IGV, I mean, there's, you know, tech was the place, but it's shifted from the mega cap, the Mag 7, you know, to some of the other sectors. So, tough, tough rotation, very tough rotation. Yeah, I've not actually used it for the software side of things, but I was talking to some people in other industries and they said that they are laying off a lot of counselors and therapists because AI chat room generated therapy is actually better at assessing it than some of the humans are. So, they're losing their jobs. It's using tutorials and in language lessons and all these other areas, a lot of teaching jobs are being hit by AI and there's even other sectors you wouldn't think would be affected, but everything from data entry all the way up to service sector jobs are a threat

13:29now because there's certain things that AI can just do in a systematic way better than people, which means I don't know what everybody's going to be doing for work pretty soon, but that's not going to help the economy. So, any other thoughts on the AI trade besides the hardware being maybe where you hide out? Is there actually anywhere to hide? Pixie shovels. Pixie shovels. All right. Yeah. The companies that do the cooling that are building the plants up cat and deer have had significant moves to corrections and stuff, but they're also exposed to the farmer. They're also exposed to the consumer. So something like a Mazdaq, an MTZ or a Modine manufacturing, M.O.D. companies there. But the risk with those is if they start canceling those projects and whatnot, then those companies are not going to have the revenue they expected. Yeah. It's a good point, Caterpillar and John Deere, two good names to look at as far as hardware

14:31in the farming side of things, but if food costs go up and the farmers can charge more for food, I guess they can offset the high cost of fertilizers, but is there any other sector out there on your radar that you think on your show on the Stock Trader Network or the pre-market prep that is trending or that people are more animated by? I mean, in video, the king, the king of chips, I mean, this has been in a six-month consolidation period after a major run-up. So that's your leader, that's your biggest stock in the market. If that could catch a bad moving, then perhaps could pull the rest of the market with it. I just don't want to leave you with old doom and gloom, which I've been known to do on occasion, but I just want to point out you have a quadwitch expiration tomorrow, right? And a lot of times, that marks turning points in the market. Now, if there wasn't a war going on, I'd be a little bit more comfortable in saying,

15:33hey, you know what, we've had a significant decline, options, everything's going to come off the board, we're going to reset a chance to turn higher. But right now, the geopolitical risks in this market are outweighing any technical, any fundamental, any expiration, any open, any kind of thing. Now, look at the lows from last week, which, you know, we're tested, it breached this morning, we're trying to close above it. So I'd say Friday, Friday, you know, tomorrow, quadwitch, man. They pound us, we've got to have an ugly quarter. Tomorrow, we get a little bit of a relief rally, then the market, it always gives you a chance. I mean, we were up at 6,800 a couple days ago. I mean, there's mysterious rallies, but what you got to be aware of is that the institutional money, a lot of the big players are using that to sell them the strength. And the other thing too is, you know, the war is over, then there's going to be a violent

16:36reaction. Just don't know if the impact of the war has already been done in the short term, it's going to have long-term implications. Yeah, Joel, I think we'll wrap it up there for today, but a lot of question marks. Question marks on how quadwitching will go tomorrow on options expiration. It's going to be interesting to see, does the war actually end in the near term, or does it drag on? If it does end, have the lagging factors already played through or will there be some delayed points? So a lot of question marks and a lot of red on the screen. Thanks for weighing in on it, Joel. And for those of you listening in, if you want to visit Joel and Dennis, his partner over at pre-market prep or the stock trader network, I recommend you do so. They have some great content. They have great guests on the shows. They have great ideas and technical debates on the charts. And we'll put links to those down below in the show notes. Thanks so much, Joel, looking forward to our next conversation. Okay. Thanks, Chad.