The evidence is not 100% in yet but I believe the hand-off from the Fed to the ECB will not be enough. Today we learned that the ECB will not be buying bank debt or sovereign debt yet. So they did QE but not really. Plus we don’t know the size of the program until October 2. This stock market advance since 2011 has been about a crack cocaine high supplied from the central banks. Todays reversal action tells me we are going lower. The IWM (Russell 2000) looks like it has topped out at a lower high. My guess is that volatility in currencies, stocks and bonds is about to rise and we should see stocks begin to sag nicely until we get a clarification from the ECB or the Fed is forced to step in.
The dollar has been on fire lately. In days past a strong dollar would have been a sign of strength but in todays geared up super giant carry trade a strong dollar is a sign of deleveraging in my humble opinion. Interestingly enough the dollar began its recent run at the beginning of July which also coincided with the retest top in the Russell 2000 which to me is a measure of risk on appetite. The dollar is due for a near term top but I believe it made its 4 year cycle low in May and we are at the beginning of a major breakout to the upside after a multi year basing pattern. I bought some IWM puts last Friday and bought some more yesterday and I will be buying some more today. Follow me at your own peril. I really don’t care about the NFP report today. It is noise compared to central bank policy. I think the die has been cast and the central banks will need to step in again to prevent a correction…but maybe they want one this time? Remember Janet did say small caps, social media and biotech stocks were stretched.
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on the money
Juice,
Thanks.
Makes total sense.
Heed grandma Yellen’s warnings..good post, shouldn’t be long now
How much time are you buying with your IWM puts?
Totally Agree Blue. One think I wanted to throw in, Chinese Copper (which IMHO really started the mess in 2009), notice that import data last night were down 10%, weak again. Ever since the port scandal in Feb, the Chinese have been unable to feed global “investments” with borrowed “commodity money”. Maybe, it really doesn’t matter at all how much EU could promise? If Liquidity (hot money) dries up in China?
typo Thing not Think, (So word blind).
Where is the volatility?
bluestar I read your posts. In my mind I agree with your outlook. I look at the market through the same glasses as you do but I feel like your emotional about this.
Market action says different and I find it amazingly hard to believe the FED will let all this blow up in their face by raising rates and leaving the market. They will come kick the can down the road. They are in too deep to just say well its time to raise rates and blow everything up.
I feel like the thing about this rally in the eyes of conventional wisdom should crash but its going to play out weird and different. Not what people think.
Price action tells a different story
I would post how the attempted pullback over the past two days has sucked in shorts…again…but I don’t want to jinx it, so I won’t.
J Livermore,
Are you serious? I bought December puts. I got time. Plus look at the currencies. Vol is there. It will work is way here to equities.
Anyone who got short today will have to cover Monday. Why piss away money like that. lolz
tommy,
We may go a little higher but when QE ends the market rolls just like it rolled after QE 2 and QE 1 ended. If they come back with QE 4 then I cover. Look I am definately front running this a bit and I don’t have confirmation that the top is in but by the time that happens the market will be well on its way down and puts will be expensive.
the market will test these levels when QE ends. Hence the bottom.
J livermore,
I must have missed the pull back you were talking about.
Jules,
Love your avatar.
The small caps have already corrected. You’re telling me they’re going to knock down these stocks again, some of which have moved down 70-80%?
lol
Quality Control,
IWM all time high was 121. It is now 116. A mere 4% lower. With all due respect What exactly are you talking about?
Fly and Blue, My take (which I am normally wrong on), for the coming week is that after the Euro catching a bit of dead cat bounce on Friday( after the miss on NFP), should fade this week. US Dollars have to be raised for that Massive Aliaba IPO coming, so euros have to be sold plus Eur/USD should continue to drop on weak German data tonight?). With a Stronger Dollar and a need to sell stocks to raise money for IPO buying, market should pull back. Bigger Story is whether our Cross Roads give us our bear story (which would make Dave Tepper wrong, which also doesn’t happen),for that, Junk Bonds haven’t done that QE rally thing it normally does, so even with the rally on Friday and Fly lol’ing, I think we are still sitting at that crossroads spot? Commodities in China are not acting like QE rally either…all of it looks like the house of cards I have been waiting for years to happen (and will probably continue to wait for 🙂 ). It will be an interesting week for sure.
Nymph, most large managers that are actually going to get stock on the BABA IPO have likely already made room in their portfolios. The Fido’s, Cap Group, and Tempeltons of the world are the ones that take down the lion share of deals like this, and they manage titanic portfolios that make most HF’s look like dinghy’s. It takes them weeks to move out of certain stocks. Everyone knew that BABA was coming sometime in September, so they’ve been making moves already. On the FX moves, an IPO raise, even the size of BABA, wouldn’t materially change the direction of such liquid currencies like the DXY or EUR, especially considering the recent ECB actions. Just my two cents, but I think the BABA IPO will/has a much more direct effect on over/underweight’s of large cap tech stocks vs. any noticeable effect on FX flows.
ForgetAlpha, In my Analysis I was using the research done with M and A and Cross boarder transactions. They found that even though the M and A deal was only in the billions vs the daily Trillion F/X, it still effected it. The paper I was using was http://www.bis.org/publ/bppdf/bispap02n.pdf . I have noticed the move on F/X on M and A deals in 2012, 2013 following that pattern even though the rumor was already out there. You are right about the large Funds moving overtime, but won’t the Acquiring Company also move slow before announcement of M and A? Eur/USD is so close to 52 week lows and with the end of QE it would be nice to see it break, Could be Scotland giving risk off? Draghi? Alibaba shaking the market? It is the crossroad imho. Plus, Have patience with me, I am such a slow student.
Thanks for the link to the M&A paper, sounds interesting.
Trading Nymph,
Forget alpha is correct. The market will not go down because of BABA. Likely affects AMZN the most if at all.
Blue, Do you think market will go down if eur/usd breaks hard to the downside? FWIW, if that collapse hits, it may suggest that Draghi didn’t pull a rabbit out of the hat again?
Well we did hit a 52 week low on the eur/usd at 1.2884 today….Equities should follow the big dog soon?
Nymph, why do you think that equities should fall if the EUR/USD is hitting lows? There really hasnt been a great correlation between the two at all.
Forgetalpha, Since 2009, everytime we had hint of a QE or announcement of QE, we saw a rally in Aussie, Kiwi and Euro. All of these are Global Growth plays. A weaker Euro gives us a stronger dollar which hurts our exporters, commodities priced in USD’s and Companies that have been making their numbers using currency swaps. Plus, it could be IMHO the crossroad, in which the selling of the euro is not just Draghi trying to take it down, but a sign of true weakness and a loss of control of the EU economy? China data has been missing, China is Germany’s biggest trading partner. We have Russian tensions also hurting EU. Maybe we have come to that point that Central Banks can’t fix the problem??
Trading_Nymph,
The market will go down when it is ready. My opinion is we are close. Currency volatilty is a precursor to risk on assets volatilty. But i would be care ful to separate your market analysis from what is going on with the directiojn of the euro. What is important in my mind is that vol is picking up. equities are not priced for vol.
Agree with Blue on this one, taking equity cues from the FX market has not been a great indicator for sometime unless you’re talking about EM or Japan. The DXY/EUR can and have moved very independent of their respective equity markets.
Blue and ForgetAlpha, I have been trying to merge my analysis into a mix of commodities/bonds/f/x and global equities since 2009. I can see how they play off of each other and I have been following them since early 2009 (which imho a bubble was created based on China Govt importing massive amounts of global commodities which didn’t match actual demand). Central Bank Action has killed me every time because I have underestimated the risk they would take and their inability to acknowledge a bubble. The eur/usd is just one indicator, did you notice junk isn’t in rally either. The Euro is striking my interest at the moment because it has been in such a slide over the last 8 weeks, and the slide is now taking out key supports. Blue, Waiting for this market to go down is taking forever..Dec 2013 was the logical point in the 1750ish range…all of this froth has just been so confusing.
Bluestar, what do you think of Why Amazon Has No Profits (And Why It Works) ?
Nymph, the best macro traders on the planet haven’t been able to make money trading trends in FX/commodities/interest rates since 2009…the markets have changed, and those traders haven’t, and they are being hurt because of it. I’m not saying you’re wrong, just saying there are easier ways to make money/protect capital in this market than taking contrarian bets against markets which the largest institutions in the world have total control over (central banks).
Juice,
I think this is kaka. I refer you to my piece I wrote.
http://ibankcoin.com/bluestar/2014/05/13/amzn-the-emperor-has-no-clothes/
BlueStar, have any guess-pectations for LULU earnings tomorrow am?
My only current position in my trading account is TZA, which I opened on 9/3 @ $14.29/share. I haven’t liked the price action in the overall market from an uptrend standpoint. Here’s to hoping I’m right.
juice,
my guess is good because i am still long but I have been wrong so far on this one so far.