Dizzying Volatility Is A Killer For Investors

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1-27-2016 3-43-26 PM


There was some good news buried among "Fed-watching" Wednesday.

New Home Sales for example rose 10.8% which is a good number obviously but does that follow the Fed interest rate increase perhaps stimulating a "buy-now" attitude?

Secondly, and perhaps most important was news Russia is willing to discuss oil production declines with OPEC. Since imploding oil prices have been at the center of stock market declines, this is considered a positive development. But, one kernel of hope doesn’t a deal make given the attitudes of the would-be participants. On that score, oil prices rallied early Wednesday despite a massive 8.6M barrel increase.

Bulls suggested the price increase was due to the usual refrain—“…it could have been worse”.

Naturally, the Fed Meeting result was mostly an expected outcome. Surprisingly while stating labor market growth remains um, “solid” the concern was wage growth remains weak. That admission led the Fed to reduce what they termed “full employment” to 4.9% vs estimates over 5% due lower wage growth.

The Fed also stated the goal of 2% inflation has been difficult to achieve given the “transitory” effect of declining oil prices. I love that transitory crap which they’ve been asserting since oil was over $70.

The Fed implied through Fed mouthpiece WSJ’s Jon Hilsenrath, they’re worried about “financial market turbulence and slow overseas economic growth”. So, it’s about the markets after all.

Stock markets reacted negatively thinking the statement wasn’t dovish enough in addressing economic realities.

I still believe markets could rally to S&P 500 1902-1956 from the previous low of 1812 set January 20th given oversold conditions. We closed just two days later at 1906.

Goldman Sachs has argued that 4 issues remain to keep markets higher which include: Month-end pension rebalancing; Majority of corporations exiting their buyback blackout window next week; A reduction in equity supply; and, severe oversold indicators. That may work for a short-term rally or not. But from above we did hit the lower end of our projected top.

The Fed likes to say U.S. manufacturing declines are primarily the result of a stronger dollar. I would strongly argue this weakness is due to global economic weakness and the Caterpillar (CAT) sales result indicates.

1-27-2016 3-32-52 PM

Market sectors moving higher included: Crude Oil (USO), Gold (GLD), Gold Stocks (GDX), Oil & Gas Equipment (XES), Russia (RSX), Brazil (EWZ), Regional Banks (KRE), Banks (KBE) and Volatility (VIX).

Market sectors moving lower included: Everything else.

Below is the heat map from Finviz reflecting those ETF market sectors moving higher (green) and falling (red). Dependent on the day (green) may mean leveraged inverse or leveraged short (red).

1-27-2016 3-33-11 PM
 1-27-2016 3-33-46 PM
12-17-2015 9-04-44 PM Chart of the Day




1-27-2016 3-53-25 PM.png AAPL


Charts of the Day


  • SPY 5 MINUTE

    SPY 5 MINUTE


  • SPX DAILY

    SPX DAILY

  • SPX WEEKLY

    SPX WEEKLY

  • INDU DAILY

    INDU DAILY

  • INDU WEEKLY

    INDU WEEKLY

  • RUT WEEKLY

    RUT WEEKLY

  • NDX WEEKLY

    NDX WEEKLY

  • XLB WEEKLY

    XLB WEEKLY

  • XLE WEEKLY

    XLE WEEKLY

  • XLF WEEKLY

    XLF WEEKLY

  • KBE WEEKLY

    KBE WEEKLY

  • XLI WEEKLY

    XLI WEEKLY

  • XLY WEEKLY

    XLY WEEKLY

  • XRT WEEKLY

    XRT WEEKLY

  • IYT WEEKLY

    IYT WEEKLY

  • XLU WEEKLY

    XLU WEEKLY

  • IYR WEEKLY

    IYR WEEKLY

  • ITB WEEKLY

    ITB WEEKLY

  • IBB WEEKLY

    IBB WEEKLY

  • HYG WEEKLY

    HYG WEEKLY

  • TLT WEEKLY

    TLT WEEKLY

  • UUP WEEKLY

    UUP WEEKLY

  • FXE WEEKLY

    FXE WEEKLY

  • FXY WEEKLY

    FXY WEEKLY

  • FXB WEEKLY

    FXB WEEKLY

  • GLD MONTHLY

    GLD MONTHLY

  • GDX MONTHLY

    GDX MONTHLY

  • DBB MONTHLY

    DBB MONTHLY

  • USO MONTHLY

    USO MONTHLY

  • EFA WEEKLY

    EFA WEEKLY

  • IEV WEEKLY

    IEV WEEKLY

  • EEM WEEKLY

    EEM WEEKLY

  • NYMO DAILY

    NYMO DAILY
    The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

  • NYSI DAILY

    NYSI DAILY
    The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends. I believe readings of +1000/-1000 reveal markets as much extended.



  • VIX WEEKLY

    VIX WEEKLY
    The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation has changed due to a variety of new factors including HFTs, new VIX linked ETPs and a multitude of new products to leverage trading and change or obscure prior VIX relevance.


































 No, nobody has a good forecast as to what lies ahead. If the past 4 days of trading is any guide, we should rally 200 points on the Dow and that would be followed by 200 points lower on Friday. Just sayin’.

More economic data on Thursday includes Durable Goods Orders, Pending Home Sales and Jobless Claims. Then Friday is the GDP Report, Employment Cost Index, Chicago PMI, Consumer Sentiment and Baker-Hughes Rig Count.

Let’s see what happens. 

 

Charting The Crash - How Far Will The Bounce Get?...


By: Clive Maund


The purpose of this update is to define exactly where we are on the market clock, because if we know where we are, broadly speaking we will know where we are going.

Before going any further I want to point out that so far we have tracked this nascent market crash well, first looking for the market to cave in last Summer, in the Preparing for the Crash series, calling for the Biotech sector to plunge before Christmas in Biotech Inverse ETFs update - Perfect Entry Point for New Shorts, for China to crater at the end of December in the China update and more recently calling for a waterfall decline in the US stockmarket right at the start of the year in Broad US Stockmarket Still Perched Atop a Cliff

Last week the market plunged to arrive at the last ditch support level in the 1800 - 1850 zone on the S&P500 index that we had earlier defined as marking the lower boundary of the giant Head-and-Shoulders top. Once this level is breached, the full-on crash starts. Because it arrived at this support level in an even more oversold state than it was at the depths of the plunge last August, and because Smart Money has become bullish, it made it unlikely that it would break down and crash just yet, and sure enough the market has started to bounce, which means that the danger has probably abated, for now. The stabilization of the market here is expected to generate a short covering bounce, regardless of the rotten fundamentals, and as it unfolds the "reasons" for it will be presented in the mainstream financial media as "Market responds to stimulus talk" etc.

The big question now is how far this bounce is likely to get, and that is what we are going to attempt to determine here, because it is crucial for the purpose of piling on short positions at the optimum juncture at the best prices in the future.

S&P500 2-Year Dome Top Chart

Smart Money is looking for a bounce...

Smart Money / Dumb Money Confidence
Chart courtesy of www.sentimentrader.com


Whilst no-one can be sure how far this bounce will get, possibilities vary from it being over already to it making it all the way back up to the Dome boundary shown on our charts, as it did after the August plunge, it will likely be sufficient to substantially alleviate the current extremely oversold condition and so create the conditions for the full-on crash phase, which means that it is likely to rally at least to the resistance in the 1980 - 2000 area shown on the 2-year chart for the S&P500 index, and it could even make it all the way back up to the Dome boundary again, although this is considered highly unlikely, the reason being that we are not looking for symmetry on the way down - since markets drop on average twice as fast in bearmarkets as they rise in bullmarkets, the market should not keep rising up to the Dome boundary on rallies, certainly not after it breaks down from the Head-and-Shoulders top.

So, the relief rally should take the S&P500 index somewhere into the red box shown on our chart, probably to the resistance level, but perhaps a little higher or lower. We will be watching in an effort to gauge where it is going to stop, which is where we will ditch any short-term long trades and pile on the shorts again.

S&P500 5-Year Dome Top Chart

The longer-term 5-year chart provides more perspective and enables us to see the origin point of the Dome top and better appreciate the downside risk should the support at the lower boundary of the Head-and-Shoulders fail in due course as expected. Actually, you need to go back a lot further than this to understand just how far this market can drop, which is better understood on the long-term chart for the Dow Jones Industrials shown below which goes back to 1980. This chart gives a downside target in the 5,500 area (it's now at almost 17,000), achievable within a year or so, which might seem incredible to many, but is certainly well within the bounds of possibility, as this chart makes plain, and if ever the conditions existed for such a devastating decline, it's now. This means that the market should lose two-thirds of its value. Note that the Dow Jones Industrials are used in preference to our normal S&P500 index here because they fit the Bullhorn pattern better.

Dow Jones Bull Horn Top 1980-2016 Chart


Remember that we are at the end of an era, with the entire debt-wracked Ponzi scheme that the world economy has now become set to go down in a ball of flames like the Hindenburg, a reset that will involve unprecedented devastation including wars and revolutions, yet from an evolutionary standpoint is an absolute necessity. Fiscal restraint and discipline, having been abandoned for decades now, will be imposed by force, the force of the markets, and discredited Keynesian economics will be consigned to the garbage can of history where it belongs, and some sort of gold standard re-introduced.