pebblewriter

Author: pebblewriter

  • An Important Inflection Point for VIX

    The grind higher continues, driven by an earnings beat by JPM and Chevron’s $33 billion offer for Anadarko.  It hasn’t hurt that USDJPY has (again) spiked above its SMA200……and VIX is (again) testing trend line support dating back to its 8.56 lows on November 24, 2017.As an aside, that 2017 low was a bit of a travesty.  SPX was rolling over in the final hours of the last trading day before Thanksgiving [details HERE.]  Out of nowhere and on zero news, VIX plunged 11.7% in a matter of seconds.But, hey, all’s fair in love and algo-driven rallies.  SPX melted up another 271 points (10.4%) over the next two months before giving it all back over the subsequent 9 sessions. Not to be too dramatic about it…but, whether or not VIX breaks down now will determine whether stocks remain in a holding pattern or go on to test their all-time highs.

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  • PPI Confirms Inflation Troubles

    PPI just confirmed what CPI declared yesterday: Despite official White House discourse, there is inflation.Of course, it’s very clear that food, energy and trade services are the primary drivers.  Without them, PPI is as low as it was in Aug 2017.As a reminder, when Aug 2017 PPI was announced, the 10Y was about 2.1% versus the current 2.5%.  WTI, shown below in purple, had doubled in the previous year and was on its way to a near tripling in price, eventually driving the 10Y to 3.248% as CPI topped 3%.We were reminded yesterday that the deficit has ballooned since then.  We’re on pace to top $1.1 trillion in fiscal 2019, putting the new total public debt around $22.7 trillion.  This is obviously not a great time to be ramping up interest rates.

    Yet, if oil and gas prices were to continue rising, this is exactly what would happen.

    While the algos are happy to track rising oil and gas prices, the handful of carbon-based traders out there who have done the math know that this is not a sustainable path.

    The Fed can pretend that food and energy prices aren’t relevant to their policy decisions.  But, they know full well that the consumers who are expected to keep the economy humming have to buy food, gas up their cars, and fork over their soaring rent payments (not owner’s equivalent rent.)

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  • Inflation: A Double Edged Sword

    Oil and gas prices are up strongly since December.  While it has been extremely beneficial to algo-driven portfolios, the inflation chickens are coming home to roost.  MoM CPI rose to 0.4%, driving the YoY rate back up to 1.9%.

    While a single month pop isn’t all that alarming, there’s a very good chance that these data will temper expectations of Fed dovishness.

    Meanwhile, across the pond, Mario Draghi just issued another “whatever it takes” declaration.  Could this finally be the start of the currency realignment that has been so long in the making?

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  • Algos Gone Wild

    Things got off to a nice start for bears yesterday…until our old friend the V-shaped recovery showed up.  Even when it looked like it would falter, it just kept melting up.

    So, instead of a clean, simple channel to 2875.15, ES has this ridiculous path to follow — all for the sake of delaying the inevitable for a day.As usual, blame the algos.  USDJPY was in on the action, pushing up through its SMA200 every time stocks started to falter.  As we expected, it was a head fake.

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  • Key Economic Data Ahead

    This is an important week for economic data, leading off with Durable Goods this morning at 10am.  Following later in the week, we’ll get CPI, PPI, import/export prices, continuing claims and consumer sentiment — not to mention FOMC minutes.

    This morning, we’ll take a look at durable goods new orders – a pretty good indicator at times for what to expect from the stock market. The chart below shows YoY percentage change on a monthly basis.

    Note that the last time orders broke trend we saw a one-month bounce followed by a much bigger drop which, in turn, corresponded with an interim top and the 2015-2016 correction.  Since it has recently broken trend again, it could have much to say about the state of the economy.

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  • Food for Thought

    Despite the bounceback from last month’s dismal employment data, all of our targets remain the same. The only deviations at this time are USDJPY, which has broken out of a falling channel… …and VIX, which put a shot across the algos’ bows this morning in order to ensure the proper response from equities.  It has since bounced back to channel bottom support — putting the knee-jerk reaction in doubt.I’m going to spend the day focused on the big picture.  In the meantime, some food for thought…

    Corporate debt to GDP just broke out to new highs.  Note that this ratio correlates well with both recessions and market tops.

    Another measure of equity valuations and debt is the multiple of corporate equities to total corporate credit market debt. It just reached levels not seen since 3Q 2000.

    The ratio peaked in 1Q 2000 and 2Q 2007, just prior to SPX’s peaks (FRED doesn’t offer SPX data prior to 1990.)

  • Can TSLA Survive This Crash?

    Last May we questioned whether TSLA could avoid a crash.  The answer came quickly, as TSLA bounced back above horizontal resistance a month later.  Since then, however, it’s been a constant battle — marked by multiple breakdowns and rescues (most of which landed Musk in hot water.)

    The latest bounce, however, pits the stock against the horizontal resistance, the .382 Fib retracement and a falling wedge top — triple resistance. Then, came the latest disastrous forecast miss.Now, TSLA looks likely to test 250 again.  If it fails, it could fail in a very big way. continued for members… (more…)

  • The Slope of Nope

    As a chartist, I’m often struck by how similarly the stock market acts at important tops and bottoms.  By “important tops” I’m speaking of those which precede large corrections or even crashes.  So, with apologies to Tim Knight’s excellent Slope of Hope…

    In 2000, SPX retraced a Fibonacci 88.6% of its initial drop before falling off a cliff.  If you were to draw a trend line (TL) between the two tops, it would take on the slope of the yellow line below.The 2007 top was completely different: no big retracement, no place for a trend line with a similar shallow a slope to connect, just a setup for a gag featuring a roadrunner and a coyote.

    But, in 2011, we saw the pattern all over again: an 88.6% retracement and a very similar TL.What many didn’t realize at the time was that the TL from 2007 TL was simply making a return appearance.Isn’t it interesting, then, that the slope of the line between the Sep 21, 2018 high and today’s high (and passes through the 88.6% Fib retracement) is exactly the same?The Big Picture…

    Is it possible that all the bad economic and earnings news we’ve had these past few months is just…bad news?

  • COMP’s Turn

    Three sessions after SPX completed its Golden Cross, the NASDAQ Composite is set to join it.

    Stocks continue to benefit from algos keying off of VIX, which has reached our next downside target… …and, USDJPY, which threatened a breakout from the falling white channel. As a result, ES popped through the last Fib resistance standing in its way from reaching new highs.Of course, there are other considerations.

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  • Is Resistance Futile?

    Oil and gas have both now reached our upside targets. USDJPY is pressing up against the top of a falling channel. VIX is testing support that has been responsible for several declines over the past two months. Durable goods orders just came in well below expectations. What will it take to stop ES/SPX from pushing up through overhead resistance?If it can’t push through, the nearest strong support is well below current levels.

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