Recovering Large Cap Growth PM. How I invest my own money is nothing like how I had to play the insane benchmark game.
Joined May 7, 2014
165 Blog Posts

Did You Get The Top?…I Did!

I don’t like to brag but I must.  I was long ES into the squeeze close and then flipped max short in my futures account in Globex AHs.  Why did I do that?  I have adapted to this market.  It is controlled by robots algos and central bankers, however, they are not above the laws of nature.  My VIX indicators smelled a squeeze that was unsustainable plus the overall bearish structure had not been invalidated yet.  I also saw 2 possibilities as well.  The first was it was a buy the rumor sell they news affair so if we got Bremain we sell off.  The second was a surprise Brexit. The set-up favored a massive short either way.  Also we came within a tick of the ES continuous high from June 8th which would have blown out the bear market set up.  Additionally, Janet just told us that the stock market is over valued.  I think they will be inclined to let some air out of the stock market using the Brexit as cover.  I don’t think the Fed bid will be as strong here initially.

We all know the fundamentals are awful so now stocks may catch up with them.  We took out the May low which may have been an intermediate term low.  If that was the case then we have a failed left translated cycle at play which is extremely bearish.  It means we don’t bottom until the end of July.  Don’t bet the farm on shorting here because we don’t know for sure.  I have not covered yet.  This may be a large swing trade for me depending on how this unfolds.  Right now the bear market is alive.  Lets see how this unfolds tomorrow.  If we get massive stimulus I may cover and go long but I have a feeling we may get some legs on this move.  It the perfect cover for the Fed.  Good Luck Today!

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What Is Up With The Vix?

Much has been stated about the Vix’s explosive move but yet the market has barely budged.  Apparently this has hardly ever happened in the history of the data.  Bottom line: with the VIX at 21 prepare for the market to correct some more.  This has been the strangest couple of weeks I have ever seen.  There was a day where the Dow moved in a 3 handle range for hours on end.  We are talking the Dow here that moves up and down in 100’s of points daily.

You can sense the unease and disbelief  out there.  We are in uncharted territory.  Bond yields are imploding and he economy is falling apart but yet stocks are acting like everything is fine.  The current downturn has wiped out weeks of index price gains.  We may bounce soon but I think further downside is ahead.  The VVIX chart looks like it it did in August which is straight up.

Additionally I got a frantic call from my friend schooled in the technical analysis of the Daniel Code.  Its an arcane system that uses price and time codes from the Bible.  Its not always right but it does creep me out to watch the precision with which his targets were hit.  We closed on his numbers 3 days in a row almost to the tick.  He contends that the price recognition and the death cycle time window has him very nervous that the top is in and that a very big decline is coming.  We shall see.  The market has been very frustrating for bears.

As an aside the news is getting more strange as time goes on.  The Russians may leak the Hillary Clinton emails proving that she broke the law.  Apparently they are frustrated with the pace of our legal investigation.  Think about how absurd this is, just bizarre.

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Possible Inflection Point

Being a bear has been awful these last few months.  The top on April 20 saw a meager 3.8% sell off and was actually a buying opportunity for many sectors.  I have not been very active in the market except for some individual stock shorts.  I have a large slug of cash and I am waiting.  If we get a sustained breakout over the May 2015 high I will reassess my bearish ways.

Fundamentally things continue to look bad but technically we don’t have credit or the VIX on the bear’s side.  We do have the possibility of a failed trading cycle here if we were to roll and take out the May 19th low.  There is a potentially very subtle short set up here but I am not playing it until some key levels are taken out and the Vix wakes up.  I got a call from a friend that is convinced that we are about to make a big turn here and begin to crash according to his very under followed methods.  I want to believe him but I will err on the side of caution here.

I know I have not been posting much but on the bearish front there has not been much to post lately and I don’t want people hurting themselves trying to short a market that won’t go down.  In addition to the short set up there is a long set up as well for a breakout.  This inflection point is way harder than last year was because everyone was looking up and were not worried about downside.  The investment community is now aware of what I saw last year and now its about herd positioning.  The monthly bollinger band width is at an extreme low and we will be getting a very big move soon.  I would like to tell you it is down and that this is the mother of all head fakes but I can’t honestly say that I know for sure.  Watch credit, the VIX and key support resistance levels for clues.  It is apparent to me that TPTB will not let this market implode before the Fall.  The question we all have is can they hold it up much longer?

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Bear Market Interrupted?

Since the February lows the market has had an amazing turn around.  HY credit has healed to November tights and the flow of new issue paper goes unabated.  It will be extremely difficult for the market to roll hard unless we see financial tightening.  I don’t get too excited about shorting a highly valued market.  It can stay highly valued for a long time.

Credit is the spice that must flow in order for this rally to continue.  I have been hesitant to get too bearish from the 4/20 high due to the slow dribble down and the lack of credit weakness.  The market is at an inflection point and we need to see oil, credit and equites roll or the bears are in danger of getting run over here.  I don’t have an edge and I am running light exposure.  If we see more than nominal ATHs then bears may have to pack it in as they will lose the current bearish structure.

The fundamentals are awful but until we see volatility rise and credit weaken the bears need to hibernate.  Now that I have typed this we should all expect a top and reversal tomorrow to show us all how bear markets truly work.  Both bulls and bears get slaughtered.

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Beta Is Underperforming As We Head Into Opex

I will be brief.  Beta is underperforming since April 20. Energy stocks have begun to underperform since then as well even though oil continues to chug higher.  Overall the market looks weak.  The sell off since since 4/20 low has been massively slow and choppy.  The transports look awful. We should Gap down tomorrow, however, it is Opex week and I can’t believe the dealers want a repeat of August last year when they lost control.

The bottom line is that government bonds seem to be signaling recession while credit issuance has been very strong of late and spreads remain relatively calm.  The market is unlikely to gather steam on the downside unless credit begins to deteriorate again.  The European banks have troubling looking charts.  There is a chance that equity could lead credit lower as we begin to see a serious selloff.

This is a treacherous market.  Stay nimble. Ultimately we should see weakness and then a likely QE4 stick save.  I don’t think the TPTB let this market go below 1600.

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VIX Is Very Quiet

This has been a slow motion sell off since the 4/20 top.  It has been moderately risk off in the old leaders.  The new leaders which are energy and materials have been moderately risk on.  The overall index is barely down and the VIX while up off the bottom is really not showing any fear yet.  Credit has widened a little but as long as oil stays bid I imagine that it will stay tight.  Basically watch the dollar as it is trying to bottom.  As a bear, I love my individual stock shorts but the overall short of the market is not exciting yet.  Bottom line is we do not have any bearish structure yet.  We need to take out the 4/7 lows and get a back test before its time to get overly bearish.  I expect a moderate bounce here even if we take out the 4/7 lows.  The economic data continues to get worse but beware the summer chop.

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Cross Roads Update

Clearly my call from 2 weeks ago was premature and wrong.  The squeeze has been epic but even more epic than I thought.  Additionally, the cyclicals and credit have decided to put on a nice move as well since April 7th.  At this point the bear case has become weakened due mostly to improving credit.  Credit has improved because Draghi has backstopped it and Janet and Obama have been rumored to talk about backstopping the banks on their energy losses.  As a result, the VIX has been crushed and volatility has returned pre-August levels.  However there are numerous signs of waning momentum and converging DeMark signals in all different types of assets classes.  Could we melt up? Yes the possibility is there.  I still believe that this is a head fake but I have been stopped out of many positions and would rather see a turn at this point than commit any more capital.  I am still short some financial frauds that continue to bleed.

I have come to realize that the CBs are losing power as it takes more and more candy to prop this up.  However, I now also realize that they act before in what they call macro prudential actions before the ball really gets rolling.  If it is true that they will back stop the banks then this is unprecedented manipulation and moral hazard.  This will result in shallower corrections than we might expect. Trading two ways is recommended at this point.  The disconnect in financial assets and fundamentals has never been greater than it has been.  We have record valuations with declining earnings.  The systemic threat has never been greater to both the financial system and the fabric of society as it is now given the political backdrop.  If it is true that losses are being absorbed behind the scenes then the 99% will not be pleased.  Just the mere threat of this seems to have gotten the job done for now.




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A Decline Has Begun And Should Accelerate This Week


Did you miss it?  April Fools day was likely a near term top.  Underneath the popular indices cyclicals and beta have started to roll.  Most tops start off this way.  No one seems to notice as volatility has been crushed and the usual suspects come out on CNBC and wave the all clear sign.  Nothing has really changed fundamentally to make me want to buy equities for more than a trade.  This is a bear market rally and it reminds me of the May 2008 rally when after Bear Stearns was acquired by JPM everyone thought the worst was over and we rallied for weeks.  The VIX then broke its rising trend line and crushed the bears much like the VIX in March broke its rising trend line from July and has crushed the bears.

However, quietly and without much fanfare European Banks have rolled post Drahgi’s ECB announcements.  Take a look at the DB and CS charts below as they are approaching their February panic lows.  The difference then was that the VIX was 30 and now its 15.



Either these stocks double bottom here and everything is fine or we bust through to new lows.  I would contend that complacency is too high and we just made a confirmed weekly swing low on the VIX as of close Friday.  Look at the chart below and you will notice a pattern that weekly swing lows in the VIX have preceded declines.  I have no idea the degree of the decline or how fast but if prior bear market history is any guide we should take out the February lows over the next two months.  If we should bounce and go to new ATHs then we may be in the blow off top phase.  I weight the first scenario as 85% vs 15% for the second.  The energy sector debt and oil derivatives are on the balance sheets of the big banks.  I have been of the opinion that one or many of these banks are holding the old maid card and must take the write downs.  In any event equity markets are under pricing this risk which I think is huge.

vix weekly swing low

Additionally, we have canaries singing in the Auto sector as sub-prime delinquencies are accelerating.  Notice the bullish CDS charts of GM and ALLY below.  Even in this impressive market rally the CDS market is repricing risk in this group.  The equity charts in this sector peaked several weeks ago and have started to decline.   I am heavily short this sector.

gm cds

ally cds

Bottom line is that a decline has begun and we should accelerate into a low over the next few weeks.  It should become apparent by this week that the rally out of the February 11th low is over.  It remains to be seen whether or not we plummet straight from here, meander around sideways for weeks or go to new ATHs.  My obvious bias is to look out below.

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Is This A Bear Market Rally?

As I stated many weeks ago the short squeeze would be brutal.  Now I am being asked is the bull market resuming?  Do we go to new highs?…maybe we do.  However, take a look at the following two charts.  They are HYG compared to TLT and XLY compared to XLP.  As you can see they are making lower highs so far in this rally.  In 2009 at this point in the rally off the March lows it was clear that High Yield and Cyclicals were starting to outperform as they blew away the prior structural highs with ease.  Its hard to get excited about a market run, as impressive as this has been, without seeing credit and cyclicals leading to the upside.  Rather than waiting for the market to roll I am looking at cyclical sectors that have already started to roll over.  I think the bear market is still here, alive and well, lurking for it’s next victim.



The bottom line is that our friend Janet Yellen has managed to pump the algos into a frenzied index eating machine on no volume but if you look underneath you can find the canaries of the top in individual names and sectors.  I would take a look at everything auto as the sub-prime auto loan sector has rising delinquencies that will reverberate throughout the whole food chain ripping it asunder.

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AMAZON’s Cloud Business Is Deteriorating: Numbers Woefully Too High


At the beginning of the Year (see here) I made a prediction that Amazon’s AWS rapid revenue growth was a result of the QE Unicorn VC Bubble and that the growth would decelerate very quickly as the bubble had popped and funding was drying up.  Three months later, and unfortunately for Amazon, not only have the Unicorn fundamentals continued to degrade but Google has stolen Apple, Dropbox and Spotify.  Additionally, Google has hired Diane Greene the former founder of VMWare to take their cloud business to the next level.  A few days ago she announced plans to build 12 new data centers and will be ramping up the marketing efforts big time which have been lacking.  I would expect price wars to ensue due to the commodity nature of the business.  Also AMZN did not lower prices once in 2015 which was an aberration compared to the previous years which had seen draconian price cuts.  Given all of the above the sell-side is woefully optimistic on the revenue projections at AWS and will later this year race to the bottom in lowering estimates.  Additionally the multiple should contract in anticipation of the new capacity that google is adding much like hotel stocks have multiple compression when new supply is announced.  Keep in mind the entire 100% move in the stock last year was due to multiple expansion from the AWS business being revealed to the investor community and it was likely at peak metrics.

The chart looks like its forming a weekly head and shoulders and since the beginning of March is making lower highs.  My guess is we should retest the $480 level and eventually breakthrough.  The above news makes me more inclined to think we roll over in this stock soon.  The stock is woefully over owned by Momentum chasing hedge funds that will be in redemption mode.  My advice to them is sell first and often.  This stock has had a tremendous run but it is over.  I see years of underperformance in the name as they continue to disappoint on AWS, general corporate profitability and slowing overall revenue growth.

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