Apparently AAPL slashing guidance is inconsequential and Bill Gates, who is predicting 10 million deaths, is some sort of conspiracy theorist – because the market continues to ignore the coronavirus story. Perhaps somewhere down the line the investing world will come to realize what we’ve known for years: stocks have become increasingly easy to manipulate.
Lately, it has been VIX’s constant smackdowns below various measures of support and the perennial games played with currencies which have directed algos to buy every dip. With oil and EURUSD having reached important downside targets, the formula might change somewhat. But, at what point will the game be obvious to all?
Futures are off about 15 points, not even 1/2% after a slew of dreadful headlines over the weekend.
In a stunning demonstration of the extent to which algos control the market, ES soared 56.50 points after the World Health Organization declared the Wuhan coronavirus a public health emergency of international concern.
While it’s true the press conference felt more like a China tourism promo, the declaration in no way reduced the risk the virus poses. Nor did it reduce the potential economic risk or stock market downside.
ES came to its senses after the close, reversing at its SMA10 and dropping back through its SMA20. If today weren’t the last day in January, a month clinging to a positive return for posterity’s sake, we would have seen the next leg down already.Meanwhile, we have scads of economic data coming out at 8:30 and earnings galore to digest.
Credit VIX, which uncharacteristically didn’t collapse last night……and CL which, having come close to our 51.62 target on Sunday, is taking another gander.Needless to say, our downside targets remain unchanged.
BTW, Boston folks, I’ll be downtown today and Friday. Drop me a line if you’d like to meet up.
Futures are higher this morning on what is expected to be a non-event FOMC announcement and press conference. I suspect attention will again return to currencies, as the US dollar’s surge over the past month, combined with the big drop we had anticipated in oil and gas, will serve to tamp down inflation fears. Of course, there’s a fine line between falling inflation fears and growing deflation fears.The bond market continues to reinforce the bearish case for stocks.
In our Aug 28, 2019 Update on Gold I noted that although GC had just reached our 1560 target, ZN had also reached our 132’100 target. The picture was further muddled by the fact that DXY and GC had been moving in unison – an unusual occurrence, to say the least.
ZN’s resistance could put the brakes on, meaning rates would rise and GC would theoretically fall. But…I expect ZN’s pullback to be modest — possibly only 3-4% — suggesting GC’s pullback would also be fairly modest.
As it turned out, GC and ZN both reversed. Although DXY made a half-hearted effort to break out, it was limited to 1.5% and GC’s reversal was limited to 1446.
DXY’s rally stopped making any sense at all once FOMC members began hinting at additional rate cuts. When the Fed resumed QE (QE-not as we like to call it), the market knew what to do: DXY has been steadily selling off and GC has climbed back to within $30 of its August highs.
All the bullish factors which have kept stocks aloft the past two sessions are still going at it. Hence, the futures’ snoozefest even as Trump is about to be impeached.The only potential fly in the ointment remains oil and gas, which have reached an important decision point.
It’s not too surprising that there’s been a firm floor under oil and gas prices, given the upcoming Aramco IPO. But, isn’t it funny how CL has popped above its SMA200 every single day this week, even in the wake of dismal inventory data?
Just like it’s funny that ES, which pretty obviously should have given up all its overnight trade data related gains should have given up at least most of them after the Reuters laid a little trade truthiness on us.If it had done so before the close, ES would have put in another bearish-looking daily candle. But, it waited until later in the evening, which allowed ES to leave a bullish candle in its wake. Funny how that happened.VIX is well-known for timely “breakdowns” that last anywhere from a few seconds to a few minutes which remind the algos of the glory which awaits them if they’ll simply buy-buy-buy. Today, like yesterday, it hit at exactly 9:00 AM – about the time futures were trying to decide whether the market should open in the green or the red. Watch for it to happen again if stocks should have the nerve to slip lower.But, the champion of bullish appearances has to be the USDJPY, which has reminded us of its incredible upside potential over the past month, repeatedly pushing above its SMA200 and pumping the Nikkei 12% in the process.Combined with timely soundbites from the White House on the incredible successes being achieved on the trade front, the market can’t be blamed for ramping higher most every day. But, what happens if the narrative changes? What happens if one or more of the factors fueling the machine runs dry?
The approach of the FOMC meeting which begins today has been very good for stocks. There’s nothing unusual about this. Like OPEX dates, stocks almost always rally into such important lines in the sand.
Most investors have lost track, however, of the fact that stocks have usually declined after such meetings.With SPX a few points away from an important Fib extension, will this one be any different? continued for members… (more…)
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.
SPX
ES
CL
RB
NKD
USDJPY
TNX
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.
It’s now been almost a month since we posted our analog-based forecast [see: Analog Watch July 15.] If it’s valid, we should see a sharp selloff over the next few days which ushers in 9-12 months of increased volatility and losses. From that post:
Ideally, an analog provides exceptionally accurate forecasts of a very significant move. I think this could be one of those and that stocks are on the cusp of the biggest drop since the Great Financial Crisis.
With currencies and VIX on board, all we need is for oil’s bounce to fizzle in order for the bears’ party to get started.Next up…lower lows?If it’s not valid, we’ll know very soon.
