The rally from the August lows has been nothing short of amazing. I did not expect it to go this far. I am still of the belief that this is a bear market rally . Nothing has changed except my P&L. Everyone needs to step back and take their hands off the wheel for a moment and ask yourself this question: What kind of rally would cause maximum pain and wealth destruction if I am right and we are in the beginning stages of a bear market? Yesterday some of the most stalwart bears approached me and said they were about to cover. I suspect many did. I heard the same anecdotes from others. We basically came within a stones throw of the AT closing highs. The logical assumption is that we might as well go to new highs. So we have the folks hopping on board to punch this through and the bears covering for fear of the new ATH thus proving them wrong. So if we were to top yesterday it was a fitting day and would cause the most amount of pain. The market just took the bears money. Now its coming for the Bulls. If I am right then the next leg down will scare even me. I am close to yelling “Sell 30 April at 142”.
The 12 month LIBOR rate (Chart 1) is not buying this rally as well as the TED Spread (Chart 2). The TED Spread rose 4 BP this week This rate is the Interbank lending rate. Apparently the banks don’t trust each other. Its a measurement of financial stress in the system. If this rally was real it should not be accelerating higher. I suspect CDS and HY will begin to follow soon and then finally equities. 
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That seems very uncorrelated to SPX
Hey
the profit,
The analysis from blue star very accurate. Actually, if you think about it for a few minutes – not sure how many years you have been trading but the US markets are up around 6 weeks in a row all green candles(just ridiculous – but that was one hell of a rally). The market has never moved like that in history and if it was a healthy move we should have pulled 2%-4% in between but we didn’t – that in of itself should have made you question this move. The market is set to roll over any day hard just like it did in August this year and it doesn’t make any sense for it to go flat or “trend” the next 2 months. The S&P in general has been moving up like a penny stock. Just think about that – all technical indicators are beyond extreme. They are digesting and signaling a rate change in Dec 2015 and the markets are a forward discounting mechanism so it won’t wait for the day to turn the switch on. Don’t be long and wrong. In this market you must be flexible and that is the key to being a good trader.
Good point nightfox. All a trader needs to do is just look at the futures price action. It has been beyond insane – low volume up days on the cash open. I vote roll this market over now in November 2015 – ahh about -15% from here since we are up 220% since 2009 – that shouldn’t scare a REAL BULL or the buy the dipper… 😉
the profit,
Are you kidding me? Correlated LOL
To add icing on the cake for a free fall market right around the corner. Bob Farrell was a legend at Merrill Lynch & Co for decades not just trading since 2002… Check out his rules –
Bob Farrell’s 10 Rules
One of them:
2. Excesses in one direction will lead to an opposite excess in the other direction.
Guys,
Seriously – you can’t find well thought out stuff on markets like some of the stuff ibankcoin blogs. Precious info here and very very interesting and all for free. Can’t beat it!
Blue, I was eagerly awaiting your next post. Keep the faith! Admittedly, I followed OA on the IWM, but have maintained my oil short based on your thesis. I sit in an empty Houlihan’s in Pittsburgh on business. I remember the 90’s .. . This place would have been packed. The few tech titans will eventually be remembered as were the darlings of ’07: CLF, X, CHK, etc …
Nocturne,
I Wish I had followed you and OA. I did take some profits lower that have cushioned the pain.
Blue,
I’ve been impressed by your work over the past year on building the bear case and I’m always looking forward to your next post. I have a question on rates rising… Are institutions positioning for the rate hike by Janet, pushing the price of Eurodollars higher? I thought these increases in rates are exactly what the fed wants to see; a gradual move into the new environment of money tightening.
Just curious but why will you be scared of the next leg down? You are more than prepared for a marked turn lower given what you have posted over the past several months. I enjoy your posts and would like to read more. Regardless of the direction of the market it would be great to see you post more often.
I remember Houlihans in the 90’s in da Burgh! It now sits empty…but over in Europe…
the muslim invation continues and will be a MAJOR factor is the coming global collapse. If the Greek debt crisis of July caused so much consternation, the EU debt burden related to the influx of sponges draining wealth and culture away will cause collapse (and civil war).
It is a powder keg with a lit fuse…
We still need an event blue ,maybe higher rates
or a major bankruptcy involving derivatives
otherwise we go higher.
The JB,
I would say that is partially true. However the TED spread has been rising all year long and the recent pullback has not broken the trend. The rise in 12 month LIBOR has been pretty consistent even though expectations of a rate hike have vacillated so I would have expected the chart to have shown similar vacillations. If you look at banks like DB and others in Europe I see problems brewing behind the curtain. I believe banks know this as well and their is a rising fear being built into libor spreads. I am still of the belief that we have massive derivative losses from Oil going from $100 to $40 on someones or many players balance sheets. We need to see a confession to clear this market.
The Fed is basically in a liquidity trap. The slightest raising of interest rates will cause a reverberation around the globe. Yellen basically is lying through her teeth about raising rates because in the same breath mentioned NIRP. The Fed is playing politics right now and living in an economic fantasy land with their projections.
typebtrading,
If I am right the implications for the country are enormous. I don’t wish for people to suffer.
Love your blog, All these oil companies are going to have write down their assets to their real values based on the current prices for Nat gas and oil in their annual reports. That should rock the boat.
The copper/catalyst (i.e. Pt,Pd) boat is taking on water…and slowly sinking.
Interesting video and perspective… “Those that are watching whether Chinese stocks go up or down aren’t paying attention, in my opinion, to what the real problem is,” Bass said. “And the real problem is the loans in this banking sector.”
http://www.cnbc.com/2015/09/15/hayman-capitals-bass-chinas-real-problem-is-its-banking-sector.html
The JB,
I added the Ted Spread to the analysis to show it is ticking back up this week as equities may be topping. We shall see.
fryguy
Thanks for the link.
Bass doesn’t seem to say much publicly. I listen to whatever he says.
He’s definitely a big picture guy