Futures tanked overnight on news of Israel’s rocket attack on Iran, only to recover all their losses as we go to press. The latest retaliation is being characterized as a tit for tat.
But it’s easy to imagine the Plunge Protection Team working overtime to calm markets by hammering VIX and WTI back down from their overnight highs.
Meanwhile, SPX came within 1.89 of our 5,000 target yesterday, testing support that continues to be quite important.
continued for members…. (more…)
As we suspected, Wednesday’s lows weren’t enough to generate a sustainable bounce. We’re seeing the aftermath of that premature technical bounce this morning.
Our long held bearish position on EURUSD, for instance, is finally gathering a little momentum.
The challenge for bears remains SPX’s 50-day moving average, currently at 5105. If VIX can remain below 18.50, then we could see more meaningful support for equities. If VIX surges past that long term trend line, then the bears could finally have something to celebrate.
continued for members… (more…)
I’ve seen one particular assessment over and over in the financial news this morning: The market’s rebound following Iran’s missile strikes last night was “surprising.”
No, it is most certainly not surprising! Not even a little bit. Anyone who pays the least bit of attention to charts could have seen this coming a mile away. It’s the same response we’ve seen countless times over the past several years and is a product of the way the market works these days.
The chart below shows a red channel which S&P 500 futures have followed religiously since stocks broke out of a downturn when Phase One was falsely declared a done deal on Oct 11.
Since then, ES has fallen substantially only when significant overhead resistance could be backtested [previously resistance, it would now provide support.]
Ever since ES first broke out of the rising purple channel on Dec 12, we have been waiting for a backtest of that channel. A backtest is the market’s way of saying it’s done with prices that are any lower.
Yesterday morning, I posted this chart – placing a downside target at the top of the rising purple channel around 3180. Only if the backtest didn’t hold would any of the lower targets come into play.
VIX, which spent the past week being smacked back below its 200-day moving average, began to creep higher as soon as the cash market closed. At exactly 7:41PM ET, it topped out and began a steady drop back to its former lows.
Why 7:41? Because that’s exactly when ES completed its backtest of the purple channel top. There was no other news, no announcements, no tweets – just completion of the backtest.
Yes, it could have waited until Monday when the purple channel top and falling white channel bottom intersected. But, that would have meant a more substantial intraday drop below the bottom of the rising red channel.
Remember, the rising red channel is the one that bulls are hell-bent on preserving – the path out of the rising purple channel which promised gains of only 1.4% annually.
By now, readers know that when I say “bulls” I’m not really referring to fundamentally-oriented portfolio managers and analysts who suss through news and data and draw conclusions about the likely impact on markets. They are in the minority, now that quantitative and passive trading are responsible for 90% of all volume.
I just finished Gregory Zuckerman’s excellent treatise on quantitative investing: The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution. It’s a great reminder that central bankers and their proxies have been enabled, incentivized and prompted to exert great control over stock prices.
continued for members… (more…)
Not too surprisingly, the Iran problem didn’t go away over the weekend. If anything, both sides are making threats that would significantly expand the conflict. What’s more, Trump’s unilateral actions have resulted in Iraq’s parliament calling for all US troops to withdraw from Iraq – without question an important win for Iran.
Trump’s 2011 predictions of a politically-motivated attack on Iran by Obama (which obviously never came to pass) are causing many to question the timing and motivation of his own actions, not to mention the existence of a coherent Middle East strategy.
So far, equities’ reaction has been contained. Though, gold and bonds are providing a less filtered reaction to the escalating risks. Gold popped up to tag our next upside target…
…and, 10Y notes broke out.
Past Trump-related emergencies (trade war, impeachment, etc.) have been easily downplayed or explained away. I can’t imagine that Trump or his sycophants will be able to spin this latest series of missteps as unimportant.
continued for members… (more…)
WTI futures spiked nearly 5% overnight in the wake of a US drone strike on Baghdad Airport which killed Iranian military commander Qasem Soleimani. It is a dangerous escalation in the US conflict with Iran which broadened when Trump alarmed US allies by pulling out of the Iran nuclear deal last May.
We argued at the time, as did many, that Trump’s actions put the US on the path to a potential shooting war. The assassination of Soleimani clearly amplifies the risks. So far, oil prices have pushed only slightly above the levels reached after the nuclear deal pullout and the Saudi Aramco plant was attacked in September. But, this is obviously a more serious geopolitical development. 
From an economic standpoint, a sharp rise in the price of oil further complicates the already thorny inflation problem facing markets – setting up a showdown between Fed hawks and doves in January.
continued for members… (more…)
