pebblewriter

Category: Charts I’m Watching

  • Oh Yeah, the China Trade Deal…

    When does “it’s over” mean it’s not over?  When the market plunges 65 points, of course.

    The 2% hiccup came when Fox’s Martha MacCallum asked Trump advisor Peter Navarro whether John Bolton’s claims that Trump delayed imposing sanctions on China over its policy of interning Uighur Muslims would jeopardize the China trade deal. Navarro, fresh off accusing China of deliberately seeding the virus in the US by sending “over hundreds of thousands of Chinese citizens here to spread [it] around…” didn’t equivocate.

    “Do you think that the president — he obviously really wanted to hang on to this trade deal as much as possible and he wanted them [China] to make good on the promises because there had been progress made on that trade deal,” MacCallum told Navarro. “But given everything that’s happened … is that over?”

    “It’s over,” Navarro responded.

    ES quickly plunged below its SMA10 and 2.618 Fib, but was promptly rescued by a plunge in VIX and spikes in CL and USDJPY which, not so coincidentally, popped back above its SMA10.

    In all the turmoil over 9.2 million sickened and 475,000 killed by COVID-19, the ongoing social unrest, and an economy which is arguably teetering, it’s sometimes easy to forget the China trade deal and the months during which the market took its cues from the daily press briefings and chopper talk quips about how magnificently negotiations were going.

    With the White House amping up its rhetoric over China’s culpability for the pandemic, I imagine Navarro’s initial assessment was the honest one.

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  • Charts I’m Watching: Jun 22, 2020

    Futures are off slightly this morning as ES has backtested the channel it meant to break out of on OPEX Friday.  Today marks the beginning of the last seven sessions until the end of Q2 – traditionally a period of flat or rising prices.

    Can the seasonal trend offset the growing list of bearish fundamental and technical factors?

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  • Quad Witching Friday

    It would be unusual in normal times for stocks to drop on OPEX or a Quad Witching Friday. Given the massive stimulus inflating the markets, these are far from normal times.

    ES broke out of the falling channel it’s been in since June 10, primarily on the VIX breakdown and oil breakout we’ve been expecting. The big question, given that we have a quarter end coming up, is how far equities will go.

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  • The Holding Pattern

    Futures are heading for another test of the 2.618 Fib extension at 3076.93, the fourth since last pushing above it on Monday.

    There are numerous targets below, but that would mean cooperation from the algos – a rare commodity these days. The bearish case, however, is growing stronger every day.

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  • Powell: A Translation

    My two favorite Powell quotes from yesterday’s senate testimony:  “I don’t see us wanting to run through the bond market like an elephant snuffling out price signals and things like that” and “We want to be there if things turn bad in the economy or if things go in a negative direction.”

    Without question, the Fed has snuffed out price signals in service of keeping “things” from going in a negative direction. Translation: we have and will continue to manipulate bond yields (and currencies, volatility and oil prices) whenever necessary to prevent (1) yields that would otherwise spike higher from bankrupting the country; and, (2) stocks from falling.

    Look for more of the same doublespeak today.

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  • With a Little Help From its Friends

    Oh, I get by with a little help from my friends
    Mm, I get high with a little help from my friends
    Mm, gonna try with a little help from my friends

    Faced with another do or die moment, equities survived another brush with a breakdown – with a little help from the Fed, of course.Now, 234 SPX points later, it has cleared most of the overhead hurdles and is back on track to behave the way we would usually expect given that Friday is OPEX and the end of Q2 is not far off.

    Just for the record, the spike had little to do with retail sales – which served only to boost ES back above its 10-day moving average and the yellow TL connecting the 2018 highs.

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  • Another Do or Die Moment for Equities

    S&P 500 futures tagged our next lower target overnight, the .618 Fib retracement at 2930.12. Notably, they tagged the SMA100 but just missed the SMA50 down at 2906.56. Most importantly, they missed the channel midline which I have felt was critical in determining whether or not we’ll see a bounce into the end of Q2.

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  • Is It Safe?

    It happened 9 sessions before our charts indicated, but ES and SPX both tested their SMA200s yesterday. As expected, we’re getting a nice bounce – primarily on the back of a 15% drop in VIX from yesterday’s highs (and the breakdown to come of the dashed, red trend line.)ES looks likely to backtest its 2.618 extension at 3076.93. The complication, for bears, is that this will put SPX well above its lower 2.618 extension. In other words, it will gap back above overhead resistance as soon as the opening bell rings. What else is new?

    It’s tough to see on the chart above, but VIX’s SMA10 was just about to cross above its SMA20 – a bullish sign for VIX and bearish one for stocks. If VIX is hammered today, the bullish cross can be avoided.If stocks’ meltup is to resume, we could still see VIX backtest its broken white channel or the yellow trend line off the 2018 lows which is nearing the SMA200 currently at 24.89.

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  • Powell: What Did I Say!?

    I saw an interesting interview on CNBC this morning where the guest observed how important overnight trading was to the market’s overall performance. Andrew Ross Sorkin offered data that if one bought the S&P 500 at the close of each day of trading and sold at the next morning’s open, they would be up 650% since 1993.  If, instead, they bought at the open and sold at the close, they would be down 3%.

    This observation won’t surprise any of our members, who are well-versed in the market’s increasingly endemic ramp jobs over the past 12 years. So far so good. The problem with the interview came when a rationale for the effect was offered: one should be compensated for taking overnight risk.  Mike Santoli then chipped in, adding another explanation: more news happens outside of market hours than during.  Ugh. And, it was going so well…

    Let’s be clear about one thing: markets are manipulated, and it’s almost always intentional. Sometimes it’s quite obvious and effective, such as the announcement of a enormous new round of QE on March 23. This particular one was ridiculously obvious, as it came at 8am on the day the Dow would complete a 38% crash to test its Nov 9, 2016 lows (the day after the presidential election.)

    The rest of the time, it’s done so discretely that most observers are unaware of the actual machinations. We discuss the whys and wherefores every single day, as understanding the motives and means provides an excellent road map for our forecasts.

    A great example is our VIX chart, which has exhibited an orderly collapse since it reached our Fibonacci .886 target at 80.3 on March 16.The declines most often come in the after-hours, before the cash market opens. This prompts the algos to buy futures, which results in a gap higher on the open as the rest of the machines kick into gear (index funds, ETFs, quants, etc.) The fundamental crowd, which accounts for only 10% of volume, brings up the rear.

    It’s notable then that after bouncing at its 200-DMA and a trend line off its 2018 lows, VIX finally departed from this channel (the yellow arrow above) last night.

    This allowed our favored scenario to play out as described yesterday.

    I’m leaning toward a correction beginning today, but am unsure whether the channel bottoms at ES 3076 and 3122-3135 will hold or not.  It depends a great deal on what Powell says later today.

    Bottom line, Powell’s comments weren’t terribly uplifting as he essentially confirmed that a rebound is not just around the corner. The problem is the fallout from the coronavirus – which the rest of the world is beginning to understand has not gone away — not even with the Fed’s best efforts.

    As to the markets… so far, so good. The key, of course, will be what happens if/when it reaches the 2.618 Fib extension at 3076.93.

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  • OECD: Worst Global Recession in Nearly 100 Years

    The OECD reports that global economic output will fall by 7.6% if another wave of coronavirus arrives in 2020, by 6% if not.  US GDP will fall 8.5% if a second wave occurs, and 7.3% if a second wave is avoided. If Dr. Fauci is right, a second wave is likely. I’m almost certain of it.

    Also out this morning, US CPI – which came in roughly in line with consensus and registered the third monthly drop in a row.

    CPI fell 0.1% in May versus the 0.8% drop in April – the biggest since the GFC. YoY, CPI inched up 0.1% versus April’s 0.3% gain.

    Core CPI, which excludes food and energy, also fell 0.1% following a 0.4% drop in April. Annually, core CPI rose 1.2% in May – the smallest rise since 2011.
    But, the big news today will be the Fed.  Will they or won’t they expand the massive stimulus seen over the past two months? Inflation is low and unemployment is high – both cause for additional stimulus under normal circumstances.
    But, the FOMC certainly realizes they have reinflated markets beyond what the economic circumstances would dictate – zombie companies and all. The disconnect is so stark that even permabulls are attributing new all-time highs to the Fed’s actions.
    There are many, but one of my favorite frothiness indicators is Citadel’s report that Russell 2000 stocks priced under $1 (penny stocks) are up 79% in the past five trading days. Nothing weird about that, right?  Wouldn’t it be cool if one of the reporters covering Powell’s press conference asked him about market integrity and equity bubbles?
    Nothing much new in the futures. We still have the .886 just overhead, with OPEX on the 19th and Q2 closing out on the 30th.  Both are typically bullish.  But, the downside potential is significant.
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