We’ll get a chance today to find out what so unnerved the FOMC in October that they lowered fed funds rates to 1.50-1.75%.  This level was last seen in March 21, 2018 (when SPX was 13% lower.) At the time, the FOMC was still raising rates in the wake of that sharp 12% correction.

In terms of cuts, though, the last time was in Oct 2008 after SPX had shed 20% on its way to a 58% crash in the midst of the Great Financial Crisis.  The time prior to that was in Dec 2001 with SPX off 27% during the 50% dot-com bust in the wake of 9/11…Rates also dipped this low during WWII and the recessions of 1953 and 1958.

Prior to that, though, you have to go all the way back to January 1931 when the Dow had plunged 55% on its way to a 89% crash in the midst of the Great Depression.

This latest meeting will also be known as the start of Not-QE – the resumption of inflating the Fed’s $4 trillion balance sheet.  This series of cuts and the restart of QE is being billed as a non-event.  But, if history means anything at all, it ain’t.

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Futures were off as much as 14 points overnight, but are making a comeback. It remains to be seen whether we’ll finally get a backtest of the 10-day moving average and whether will prompt an emergency meeting of the Plunge Protection Team.continued for members… (more…)

Futures melted up an additional 10 points overnight, largely on another VIX test and USDJPY buoyancy.With ES’ SMA20 nearly at the 2.618 Fib extension and the overhang of two channel tops, we could finally see the pullback discussed yesterday.  If not, it’s a different path all together.

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The market has ignored the most obvious reversal points. Does that mean the waters are safe? For what warning signs should we be watching? We’ll take a look back at the patterns exhibited in the last few meltups.

The first is that backtests happen.  The tricky part is the timing.  ES is currently about 44 points above its 2.618 extension and has broken a short-term trend line of support.  As we discussed Friday in our argument to fade that particular ramp job, the path to 3076.93 is wide open.  But, is the timing right?  Is a backtest certain?

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Another day, another breathless Kudlow report on trade talk progress.  At the open, SPX will have risen almost 6% since the Phase One deal agreement was announced.Thanks to Kudlow’s and Trump’s frequent updates, USDJPY and CL’s continuing ramp jobs and the incessant assault on VIX, the market can do no wrong.

Unfortunately for the bulls, ES is back to the top of a rising channel and this latest move should be faded.  The most interesting trade, however, is coming up in the oil market.

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If you haven’t noticed something strange about the market’s price action lately, you probably haven’t been paying attention. Hint: it involves more than the market “shrugging off” bad news.

This is the 9th session in a row where oil futures temporarily popped up above their 200-day moving average. Today is also the 10th out of the last 14 sessions where VIX was briefly hammered right at 9AM (the other 4 sessions, it simply cratered from an overnight high.) With futures off (horrors!) a few points, look for another trademark “breakdown” of the latest straw-man trend line.VIX got a scare yesterday when negative trade news hit the wire.  The panic lasted all of 2 minutes — the amount of time it took for someone to see the aberration and mash the SHORT VIX! button.

Futures have been dancing to the same tune every day – repeatedly “saved” from an ugly open and managing to remain above their 2.618 Fibonacci extension at 3076.93 for what is now approaching 10 sessions. The algos have very clearly been running the show. SPX is off a few points? Simply hammer VIX and ramp CL by a cents.  Works every time. But how long can it go on?

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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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