I saw this posted by a portfolio manager for a big state pension plan yesterday.  It struck me just how significantly the market has changed over the past 20 years.  Twenty years ago, stock buybacks were mostly illegal. They were considered manipulative.

Today, they are commonplace — fueled largely by historically low interest rates, favorable tax policy and an incentive structure that rewards corporate chieftains more for short-term rallies in their stock (buybacks) than for investments which will pay off handsomely in the long run (capex.)

If this scenario troubles you, though, what should you do?  Suppose you’re a portfolio manager with responsibility for providing retirement security for a million participants. Where else should you put the millions of dollars arriving every month from participants’ paycheck deductions?  Treasuries paying 1.8%?

Many portfolio managers have told me they’re secretly scared to death of the market’s nosebleed levels.  In the next breath, however, they all say basically the same thing: there is no alternative.  Those who aren’t stumped by TINA live in Fear of Missing Out.

As a result, the equity market has turned into a grand game of musical chairs. Buy stocks to keep up with the averages, but hope to God you can grab a chair before everyone else when the music stops.

Meanwhile, central banks are doing their best to ensure the music doesn’t stop.  Ever.  Why else would the discount rate be back down to the level it reached in Jan 1931, the middle of the Great Depression, when the Dow had plunged 55% on its way to an 89% crash? For the umpteenth time in the last few months, futures have recovered their most recent losses and are threatening new highs. Nothing especially positive has been reported in the financial press. But Trump is speaking to the NY Economic Club at noon, no doubt to report on the incredible progress being made in the China trade negotiations which were successfully concluded last month (but which are, oddly, still being negotiated.)And, of course, the algos are still being stoked by VIX threatening new lows and CL and USDJPY threatening new highs. What else is new?

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Today we celebrate America’s veterans. Please take the opportunity to thank a veteran in your life for their service and their sacrifice.

There are many organizations dedicated to helping veterans which rely on charitable donations for the good work they do.  One of my favorites, the Michael J Novosel Foundation, was established to assist National Guard and reservists with the challenges of transitioning from service in Iraq and Afghanistan to civilian lives.  Their info can be found here.  Please give generously if you are able.

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Futures are off just enough to test a trend line from the Nov 6 lows.  This is the 6th day in a row that ES has tagged its 2.618 Fib extension at 2076.93.This follows a brief breakdown of important VIX support at the close on Friday which was, in retrospect, a head fake……and another failure (the 5th) by CL to retake its SMA200.continued for members… (more…)

Another day, another after-hours ramp on trade deal rumours…

This time, the news is out of China.  Last night’s news, however, was more convoluted than usual.

China says that it has agreed with the US to remove tariffs in phases.  But, it also said that the deal would require that both countries simultaneously cancel tariffs on each other’s goods in order to reach a “phase one” deal.

The China spokesman said the proportion of tariffs canceled for both sides must be the same, but the number to be canceled can be negotiated. “In the past two weeks, the lead negotiators from both sides have had serious and constructive discussions on resolving various core concerns appropriately. Both sides have agreed to cancel additional tariffs in different phases, as both sides make progress in their negotiations.”

Maybe it’s just me, but that does not sound like a deal is in place – phase one or otherwise.  In fact, it sounds exactly like the type of news blurb which would have been released months ago: “We’re working on it.”

But, please, don’t bother the machines with the deets.  ES made new highs……while VIX has collapsed again (to its previous lows of course)…  …USDJPY has popped up past its SMA200 again……and, CL has topped its SMA200 again. These are repeats of moves that have all previously failed. But, hey, we have new highs in the S&P500!  So, what’s not to love?

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When the market hangs around an important level of resistance day after day, without breaking out or breaking down, it usually means something important. is in the works.  We’ve seen it in the S&P futures, loitering around the 2.618 Fib extension (of the 2007-2009 crash) at 2076.93.  We’ve seen it in VIX, bouncing repeatedly off a trend line of support dating back to Nov 2017.

And, we’ve seen it in AAPL, one of the poster children of the market’s latest rally and one of my favorite stocks to chart and trade. It has been very, very good to us.As we discussed the other day [see: Chasing Highs] the broad market has made a habit of disappointing those who blithely chase after each breakout to new all-time highs.  Is this also true for AAPL?  And, if so, what does it tell us about the broader markets?

We should start with the observation that it has essentially repeated the pattern it exhibited this past May – backtesting the channel from which it broke down a year ago.  This, in itself, suggests trouble ahead.

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Yesterday delivered the initial stages of a potential downturn.  The after-hours action, again, threw it into question after — you guessed it — more whispers of progress on the trade front.Naturally, we also saw more algo-baiting nonsense in VIX, USDJPY and crude.The record books will reflect that the market continues to hit new all-time highs.  But, what about price discovery?  Is it still a “market” when prices are manipulated so easily every single day?

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Buy-and-hold investors are no doubt pleased with today’s new all-time highs.  A review of the past two years, however, shows that traders who are tempted to chase stocks here should be very careful.

This is the 4th breakout to new highs since January 2018. The figures below show limited upside in the days following each breakout compared to the losses incurred once the breakout failed.  The average cycle gains averaged only 1.29% while the subsequent losses averaged 8.30%.

If ES were to top out here at 3083.75, it would represent a 1.79% gain above the Jul 26 highs — right in line with previous breakouts. A drop to the TL connecting previous lows, slightly below the SMA200 at 2891, would produce a 5% loss — the smallest of the four previous cycle drops.

There’s something different about this breakout, of course.  ES just completed an Inverted Head & Shoulders Pattern targeting 3717 — a 20% gain from here, if today’s new highs hold.

So, what happens next is critically important to the outcome for the coming year.  Is the market really breaking out in pursuit of another 20% gain, or is this merely an exercise to ramp the Dow up to new highs?  There are a lot of folks who need such a headline.

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This rally isn’t going down without a fight.  The better than expected jobs report is this morning’s catalyst, sending S&P futures 13 points higher to break out of the little channel from which they broke down yesterday.

Yes, it’s all very confusing – especially since the Fed just cut rates based on what is ostensibly pretty decent data. And, with a little more of a push from algos, SPX could make new highs this morning.What isn’t confusing, however, is that VIX has held important support and our 2s10s model is still signalling a downturn — meaning this pop should be faded.

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