Is The Market Finally Coupling To Economic Relaity?

Let's start by reminding ourselves that price making a weekly close above SPX 2130 means all conversations about recent volatility are moot since the overall market uptrend will have resumed, to which only an unforeseen economic event or financial collapse will reverse. Meaning, if you are a detached buy and hold investor needing access to retirement income, because the government has killed savings and savers and made us all market speculators, relax. Fundamentally nothing has changed in the fictitious Kenseynian universe of debt stimulus, weak USD, and appreciating risk assets.

What is worth looking at, in my opinion, is market weakness that has prevailed since 20 April, why it has occurred, persisted, and whether it will continue.

SPX Weekly Chart

The first issue, why is has occurred, is simple. There were more sellers at SPX 2111 than buyers. Why the sell off persisted for over two trading weeks is due to the fact that there were enough institutional sellers who have not accepted the not-so-new normal that stock market and economic performance are completely detached from one another.

Addressing the last issue, of whether the market will break into new highs or continue to sell, I am optimistic it will break out in coming weeks and my reasoning, looking at inverse correlating indicators, is as follows.

1. No volatility: 

VIX Daily Chart

2. Low interest rates:

US Ten Year Monthly Chart

3. Rising Commodity Prices:

OIL Weekly Chart

4. The spoiler that's not likely to spoil anything:

DXY Monthly Chart

So, to answer the headline question, no I do not believe the market has coupled to economic reality and likely will not until something cataclysmic and completely unforeseen occurs to realign our Keynesian science fiction universe with financial reality. 

Happy Trading!

Oppose the Puerto Rico Bailout. My Letter To Congress (copy, paste, send)

Dear Representative/Senator         ,

Please do not support any kind of financial bailout or assistant to the foreign country of Puerto Rico.

As the Caribbean version of Greece, Puerto Rico purposely accumulated debt it could never repay believing (wrongly) that its imminent default would be covered by future generations of American taxpayers. Let them sink!

Pumping money into Puerto Rico will start a domino effect of intentional defaults that will hasten the collapse of the entire, already insolvent, US government and economy.

Puerto Rico is a foreign country that should be cut lose by the United States. Their debts are their decision.

It is time for the United States to put an end to idiotic, interventionist foreign policy which only results in the adoption of low IQ nations and all of their social, cultural, and financial problems.

Sincerely,

(Your name)

Markets 28 March - 1 April 2016

Key Metrics:
SPX  -2060
Oil    @$40 pb
DXY +96

VIX  -15

US10Yr +1.90%

FOMC: Chair Yellen speaks 11:30EST Wednesday. Non-Farm Payrolls 08:30EST Friday

Forecast: Continuation of intermediate broad market uptrend with eye on interest rate differentials and USD strength.

Despite recent terror attacks in Brussels and Islamabad we do not see much of a challenge to our ongoing thesis of probable new market highs unless, of course, there is something earth shattering from this Tuesday's Yellen statement, Wednesday's ADP release, or Friday's Non-farm payrolls number. 

Last week we were looking for opportunities to join the broad market intermediate uptrend, which came at the SPX 2025 level, interestingly, on the last trading day of the week before Good Friday. 

I am expecting moves to the upside to continue early in the trading week, this week, to the SPX 2060 level before going quiet ahead of Friday's Non-farm employment release. 

Two charts that are drawing my attention as potential challengers to new highs are the 10 year and the DXY. 

I want to keep a close watch on both of these metrics, as you can be certain the Fed is, because they have the potential to put negative pressure on equity prices as they are inversely correlated to our inflation, consumer, debt-based economy. 

The yield on the 10 year, for example, looks like it is in a position of strength as it continues to challenge 2.00% last week with more veracity than it did the week before last. 

US Ten Year Yield Weekly

The question now becomes who is selling (buying treasuries) at 2.00% and do they have the financial backing to keep yields down? If the answer is, "the Fed" then we know yields could crash here, regardless of technicals. The Fed is simply the most massive personally-vested institution moving markets and a train you, as a trader/investor, want to be riding on and not sitting in front of. 

As for the USD, we fully expected buyers at 95.00 but I am not expecting survival beyond 98.00 with the aforementioned market at current levels.

Happy marketing.

Markets 21 - 25 March 2016

Key Metrics:  

SPX  + 2040 

Oil    @$40 pb

DXY @95

VIX  -14

US10Yr -1.90%

FOMC 'Staying put'
Forecast: Cautious optimism for new market highs.

Last week markets behaved as predicted in our weekly premarket post both before and after the Wednesday FOMC statement which was accommodative due to, according to nine of ten Fed governors, the deflationary energy sector, weak business spending, soft net exports, and risks of global economic instability.

For those, however, still sipping the sauce of monetary policy interventionism I assembled a chart of the Baltic Dry Index (below) to exemplify how impossible it has been for the world's central banks to create demand with debt and inflation. And, yes, we can expect, despite the global downtrend,  more debt, more inflation, and continued shrinking demand unless an Andrew Jackson, or someone like him, becomes President of the United States or head of the European monetary union.

Baltic Dry Index Monthly Chart

This Monday (tomorrow) we will start the trading week looking for pullbacks (selling opportunities) around SPX 2050 - 2055 as low risk entries into the ongoing intermediate uptrend.

Keep in mind that, despite the technical, fundamental, and monetary policy aligning of planets, markets have not resumed the overall, broad market uptrend and will not until breaking through the historical interference between SPX 2060 - 2130.

SPX Weekly: The boundary to pass lined in red

Happy Marketing.

Markets 14 - 18 March 2016

Last Tuesday I said "price action suggests a push trough (SPX) 2000 without retesting 1950." With that move calibrated we can now focus on whether price will break SPX 2110, and resume a broad market uptrend, or get crushed by sellers at 2040 - 2060 and pounded back into bear market territory.

Available technical evidence suggests a struggle (selling opportunities) at  2040 - 2060 for bulls, as bears wait to "prove" their assertions about weak earnings and low single digit GDP growth, but an eventual push through SPX 2110 into new market highs.  

SPX Daily

USD strength, for example, is failing as the DXY looks more poised to test 90 than maintain 96 - 95, assuming there are no abrupt exits from the Euro. In our inflation and debt-based consumer economy US dollar weakness, as demonstrated over the past forty years, boosts stock prices to the detriment of our purchasing power.

DXY Weekly

Accompanying probable US dollar weakness is rising commodity prices. Does the oil chart below look like a picture of weakness to you? If so I'd like to know your reasoning.
 

Oil Monthly

Adding to the bullish outlook is the VIX which, now below 20.00, looks ready to dive deeper into the mid teens.

VIX Daily

Lastly, from the fundamental perspective, there is a perfect storm of uneventful, non-consequential US economic data for the remainder of the month following this Wednesday's predictable FOMC statement. Expect a rosy forecast form a "prepared" FOMC this Wednesday bolstered by positive February Non-farm numbers and ascending risk asset prices.

Happy marketing.

Markets 7 - 11 March 2016

Weeks ago we stated price would test SPX 2000. With that move complete we now shift focus to one of three eventual outcomes; a resumption of the broader market downtrend, a test and rally from 1950, or a push from Monday's close to SPX 2060.

SPX Daily

Evidence from yesterday's price action suggests a push trough 2000, without retesting 1950, to 2040 - 2060 where we can expect a strong showing from sellers.

Be flexible and ready, however, for selling and buying opportunities on your SPX correlated products between 2000 and 1950.

Happy trading.

Market Snapshot Thursday 3 March 2016

Adding strength to our "SPX 2000" theme is the VIX resuming its teen status as the risk averse are dissuaded from insuring falling stock prices.



VIX Daily

The questions now become, will buyers overwhelm sellers at SPX 2000 and 2060, push price into new highs, above 2120, and resume a broad market uptrend?

SPX Daily



Available evidence suggests "yes" assuming risk assets can make peace with their common foes; a stronger US dollar and rising treasury yields.

DXY Daily

US 10 Year (Yield)

Bulls, with the obstacles of SPX 2000 and 2060 to overcome, are not out of the woods yet and can expect a fight from institutions will millions of dollars bet on bear a market.

Happy trading.