pebblewriter

Category: Charts I’m Watching

  • Algos: “We’ll Take it From Here”

    More fun and games from the market-rigging department…

    If SPX’s rally has impressed you, check out the Nikkei.  Since its Aug 26 lows, NKD is up a whopping 13.8% — more than twice SPX’s impressive 6.0%.Do what I did and google “Japan” and “economy” for the past month and you’ll see nothing but negative stories including this one which confirms a “worsening economy” even before the effects of the recent 25% increase in the consumption tax have been absorbed.

    So, why the 13.8% rally?  Unlike the Fed, the Bank of Japan makes no secret of the fact that it buys stocks.  In fact, the BoJ and the government pension fund are the two biggest owners of stocks in the Nikkei 225.

    Thanks to negative rates, investors pay the BoJ to hold their cash.  So, it costs the bank nothing to buy up everything in sight.  All they have to do is make sure the stocks never decline in value.  This is accomplished in two ways: (a) buying more stocks (throwing good money after bad); and, (b) by manipulating the currency (the yen carry trade.)

    Lately, the yen carry trade has been working overtime.  At some point the yen could theoretically get too cheap; so, the USDJPY is reset lower most nights when the low-volume futures markets are more easily propped up.

    When the cash market opens, though, the USDJPY takes off.  I’ve highlighted the period between 6:30am and 4:00pm in the chart below.  The effects on the NKD are immediate.  A few nanoseconds later, the S&P 500 futures join in.  The algorithms which drive 90% of all US equity volume watch USDJPY like a hawk.

    What happens if, for some reason, the USDJPY can’t be driven any higher or is busy resetting when extra assistance is needed?  We’ve written often about the benefits derived from hammering VIX futures.  Another favorite of central banks is oil futures.

    As the chart below shows, it works exactly the same way as the yen carry trade.  The only difference is that higher oil prices reverberate through the real economy, affecting nearly every business and consumer in fairly short order.  So, the manipulation requires a little more finesse. The Fed has its own trading desk, presumably with the ability to dabble in the futures market. Their cost of funds is essentially zero as they can print money any time they like.  Imagine how fun it will be when interest rates go negative and investors pay them to drive stock prices higher.

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  • Charts I’m Watching: Oct 15, 2019

    It was a mixed morning for banks.  JPM beat on the top and bottom line due primarily to fixed income, currencies and commodities.  But, Jamie Dimon sounded downbeat, referring to “weakening business sentiment and capital expenditures mostly driven by increasingly complex geopolitical risks, including tensions in global trade.”

    GS and WFC both missed on the top and bottom line, though WFC managed to beat on a non-GAAP basis due to having retired 9% of its common.  Again, the commentary was subdued as both suffered from lower interest rates, an absence of tax breaks and a difficult trading environment.Futures are actually 10 points higher. The algos are much more interested in the fact that VIX continues to be hammered lower, now off 35% from its Oct 2 highs and testing the top of its red Flag Pattern yet again.  Of course, the previous two times this occurred, it bounced nicely and ES tumbled 90 and 150 points.  In other words, it’s a good day for a pop-and-drop.

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  • Analog Update: Oct 14, 2019

    It’s that time again.  After fading Friday’s fake news trade deal, it’s time to plot out the next few weeks of our analog.

    Futures are off mildly in what should be the next to the last hurrah before a substantial correction.

    But, as has often been the case lately, VIX is threatening to dash the bears’ hopes — this time with a plunge below its SMA200.  Can the bears finally maul the algos?

    The only person who seems all that excited about the trade deal is Trump.  Mnuchin was completely unconvincing and couldn’t even muster a lie on CNBC this morning.  And, Liu He practically rolled his eyes during Trump’s self-congratulatory announcement on Friday.  No one was fooled, and hopefully no soy bean farmers have rushed out to buy new acreage as Trump suggested.

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  • Sell the Rumor?

    Once again, we reach an upper target for our analog without having tagged the downside target. It’s not that there weren’t opportunities. But, the cheerleading has been loud and long, with winks and nods over the last 12 hours as to how well both the Brexit and China trade deal negotiations are going.

    Then, of course, there’s been the incessant algo-baiting, with VIX again threatening to abdicate its breakout.There’s an old saying that says “buy the rumor, sell the news.” There’s another admittedly less well-known one that says “fade important Fib and channel tags, especially when there’s an obvious rising wedge in the midst of a short-squeeze.”Will this be one of those times when one should sell the rumor?

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  • Market in Maintenance Mode

    The market remains in maintenance mode — meaning only positive headlines are permitted to register.

    Futures plunged 48 points from yesterday’s highs on news from the South China Morning Post that talks weren’t going well and the Chinese delegation would be leaving Thursday.

    They rebounded on a CNBC report that talks would continue through Friday.  They plunged again on a Fox Business report that the talks would end Thursday.  They rose again on algo-bait releases regarding US concessions.

    Speaking of algos…USDJPY, CL, RB and NKD are all being pressed higher in service of stable stock prices.  USDJPY, for example, has rallied into the close most every day and is shooting higher this morning to get ES back to green in time for the open.VIX, of course, remains under heavy pressure.  Every attempt to break out has been hammered back below a recently-completed line in the sand.  It’s silly, but it’s enough to impress the very impressionable algos.Naturally, the financial press remains focused on basketball.

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  • Seen This Movie Before

    Another day, another China trade deal rally. Futures are up about 21 points but the ramp job really started shortly after 7pm last night and peaked on “news” of a supposedly more conciliatory attitude on the part of the Chinese.

    Wasn’t it Trump who wasn’t previously open to a “partial deal?”

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  • Rolling Over

    Futures were already off 20+ points even before the big miss in PPI: -0.3% vs +0.1% expected.  This is the worst print since Sep 2015.The YoY picture continues to look bleak, with PPI and Core continuing to roll over.

    It’s an excellent metaphor for the overall market — which makes me wonder when the next Kudlow soundbite will hit the wires.  Could Trump stifle himself as SPX reaches 2900, 2840 or 2820?  Remember, last Thursday [see: Did Kelly Evans Just Take the Red Pill?], it happened when SPX reached a 1% loss.

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  • Bonds Aren’t Buying It

    Despite an impressive meltup over the past two sessions, bonds continue to warn of another plunge in equity prices.  Which is correct?

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  • Did Kelly Evans Just Take the Red Pill?

    In The Matrix, Morpheus presents Neo with a choice between a red pill and a blue pill and explains:

    You take the blue pill, the story ends.  You wake up in your bed and believe whatever you want to believe.  You take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes.

    Neo chooses the red pill, of course, and suddenly realizes that the world he has known as reality is a virtual reality construct used to pacify humans who serve as organic batteries (for the machines which are really in charge.)

    They’re doing what!?

    I couldn’t help thinking about Neo’s awakening yesterday as I witnessed Kelly Evans, one of CNBC’s more intelligent hosts, come to grips with the market’s reality: it’s a construct used to pacify investors who might otherwise question its inexplicable moves.

    Ms. Evans was clearly shocked at the market’s sudden reversal after plunging in the wake of very disappointing PMI data.  She seemed bewildered by the apparent machination:

    The president seems to be watching this very closely and to be kind of intentionally — look, I’m just going to call it as I see it — be intentionally coming out with a positive headline every time the market slides the way it did.

    Even tomorrow’s jobs report, if it’s terrible, should we expect then some further reports about some trade breakthrough with China? …Is it as simple as the data was terrible and then the president came out and had some positive commentary on China and that was all people needed to hear?

    The timeline of events illustrates just how ridiculous Kelly’s suspicions regarding Trump’s intentional intervention are.

    • 10:00am – ISM non-manufacturing PMI released and disappoints
    • 10:01am – SPX plunges 22 points in the first minute
    • 10:07am – SPX registers a 1% loss on the day
    • 10:08am – SPX off 1.09% when everything reverses, heads higher on the day
    • 10:35am – Trump stops for some “chopper talk,” briefly mentions upcoming China talks

    By 10:35am, as Trump suggested to incredulous reporters that China should also investigate Biden, SPX had already rallied 25 points.  Trump’s comments came 27 minutes after the 10:08 reversal.

    It wasn’t ridiculous that Trump would try and prop up the market with another spurious China remark.  He does it all the time.

    What’s ridiculous is that the market was so easily “rescued” by manipulating the algos into buying everything in sight. I wrote last week [see: The Big Picture] how spikes in oil, gas and USDJPY and especially breakdowns in VIX cause stocks to rally on demand by sending powerful signals to algorithms which are programmed to notice such things (e.g. volatility is plunging, must be time to buy!)

    Maybe it was the BoJ. Maybe it was the ECB.  Maybe it was the Fed.  Remember what Fed Governor Robert Heller argued in a WSJ article in the wake of the 1987 crash, suggesting that the Fed not only had the ability to prop up stocks but should not hesitate to do so.

    But wouldn’t it be more efficient and effective to supply such support to the stock market directly? Instead of flooding the entire economy with liquidity, and thereby increasing the danger of inflation, the Fed could support the stock market directly by buying market averages in the futures market, thus stabilizing the market as a whole.

    Maybe it was a major bank, brokerage firm or hedge fund caught on the wrong side of a huge trade and just wanted to postpone the plunge until after all those put options expire today.

    It doesn’t really matter.  What matters is that it has become this easy to force the market to turn on a dime.  Sometimes I involuntarily wink when saying the word “market.”

    Did I mention that everything reversed precisely at 10:08?  See if you can spot the pattern.

    The lead factor, in my opinion, was VIX which spiked 7.5% in the minutes following the ISM report.  It topped out at exactly 10:08 at 21.44 — only slightly lower than Wednesday’s highs — and was then relentlessly crushed. It made seven successive lower lows in the process of shedding 11.2% by the end of the session.

    Ordinarily, VIX alone would be enough to stave off a significant drop.  In this case, though, everything else reversed at exactly the same time — seconds after SPX had registered a 1% loss.

    A fluke, you ask?  If you’re wondering why futures are higher after this morning’s lackluster jobs report, check out VIX’s latest “breakdown.”

    BTW, don’t bother looking for Kelly’s segment online.  I’ve checked, and it’s buried somewhere deep and dark.  Welcome to the Rabbit Hole, Kelly.

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  • Saved by the Bell

    Members and lurkers…I’m going to take a break from accepting new members beginning this weekend.  Monthly and quarterly subscriptions are available HERE.  Those who wish to convert to an annual membership at a discount (a year for the price of 3 quarters, a $399 savings) should CONTACT ME directly.

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    ES came within 2.75 of our next downside target yesterday before getting a bounce that lasted most of the day.  It was only after the cash market closed that it got another shot at 2871.25.  Ultimately, it was saved by the bell.

    Thursdays are rarely cycle lows, meaning today could be another day of watching paint dry.  And, there is a significant chart pattern that could save stocks from another day like yesterday.  We’ll take a look.

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