iBankCoin
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

Institutional Investors Are Waking Up From The Matrix

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In my opinion nothing has changed fundamentally from the September lows.  In my second to last post, I talked about last Tuesday as potentially being the top of this rally.  So far we have compelling evidence that this is the case.  I have added some exposure this week and I will likely add some more if we don’t gap down tomorrow.  The high yield complex is rolling again and most of this week had a distinctly risk off tone with stocks cratering left and right except for the few chosen FANGS.  We are entering the part of the bear market where most will realize it is a bear market.  I had thought this phase would have occurred sooner but I did not expect the bear market rally that we saw.

The indices are being held up by air and I expect this sell off to gather steam barring any central bank intervention.  Underneath the hood is a disaster as evidenced by the out performance of mega caps versus small caps and mid caps.  The global economy is slowing very quickly as can be seen by the commodity recession that is showing up in earnings of the industrial, energy, mining, enterprise tech and semiconductor companies.  The malaise is spreading to the US consumer as corporate layoffs from the previously mentioned sectors and Obamacare’s 25% premium increase next year are both coming into the collective consciousness of the masses.  The reports by Macy’s, Nordstroms, Walmart, Wholefoods and others suggest the consumer is tampering spending way down.  What is interesting is that the high end retailers are having issues as well.  Bottom line is that inventories are high and sales and earnings are down which suggests a very poor x-mass and serious discounting and no reordering over the next couple of months.  Essentially we are about to have an old fashioned inventory liquidation recession.  Wholesale inventories versus sales have not been this high since the Great Recession.

In addition to the rapidly weakening economy we have a Fed that is hell bent on raising rates.  They are either stupid, bluffing or there is some other geopolitical consideration going on here that I may talk about at a later date.  Clearly they have amped up the rhetoric and the bond market for the time being is believing them.  This is clearly not helpful to the liquidity situation and the deflation that is raging across the globe.

We also have the lifting of the veil and by that I mean the capital markets are slowly shutting down frauds and questionable business models that rely on the capital markets to grow.  In very short order we have had both Valeant and Theranos, Hedge Fund and VC darlings, completely implode.  These revelations are withdrawing capital from the markets at an alarming rate and the Tech Unicorns and other financial engineering stocks are likely to implode in very short order.  Fidelity has written down their Snapchat holding by 25% and the Square IPO is coming in 30% below their last private round.  There is a perfect way to play this implosion through a certain bubble stock.  I will be writing on this soon.

Finally I believe many institutions are waking up out of their QE induced slumber and don’t like what they see.  The Matrix is being revealed.  QE does not work and deflation is the result.  This is showing up in revenues and earnings.  Trust me the buy-side will not ignore lower earnings and revenues for long.  Half of my friends on the buy side knew this was bullshit from the get go and have one foot out the door.  The other half truly believed there was a recovery and refused to listen to my warnings.  Interestingly enough many of these true believer folks are calling me and are no longer hostile to my bear thesis.  The risk is that the non believers who played the game and the believers who are awakening to the Matrix of QE both head for the exits at the same time.  Liquidity is non existent and if this selloff gathers steam we could see a repeat of August.  I am fairly certain that the August lows will be retested. In my mind the question is how quickly it happens?

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33 comments

  1. permabull

    Great write up. I have a super cycle that completes this run up terminating soon and which further negates the continuation higher – in fact to go higher would seem completely absurd as we would have to complete several more elliot wave counts up which last for several more years and is mathematically impossible. This is it! The game is over buying the dip. It will be interesting how this all unfolds!

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  2. permabull

    I just want to add. Usually, corrections are very tricky but are sharp and fast. Probability favors over the period of next 90 days!

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  3. golflover123

    Sold most of my VIX calls yesterday and some of my TVIX. What other vehicles are you using to short on bounces?

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  4. matt

    Great post . Thank you Bluestar. Chinese situation is like a runaway train.
    Everyone like to believe its different this time !

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  5. oddlots

    “They are either stupid, bluffing or there is some other geopolitical consideration.” I believe the reason has been a combo of bluffing/geopolitical consideration. The bluffing contains the equity market,(they talk it down with rates every time we rally hard) and the geopolitical is related directly to China and their increasing wealth and power. As long as we are the worlds reserve currency I expect we will keep them in check. The lack of attention to the geopolitical concerns by the equity markets is stunning to me. So many games being played and countries vying for control over land and resources I’m surprised equity markets stay so elevated. BTW, thanks for your contribution to this sight. I enjoy the “bigger picture” views you have on the markets.

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  6. Juice

    Blue, aside from all this stock market stuff, I know you love a good conspiracy – where you stand on the JFK whodunnit?

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  7. gorby

    Good post Blue. I’ve been thinkiing of an event that
    might trigger your implosion.I think the market is
    waiting to see how many energy companies go
    bust and the extent of damages that causes to other
    companies -like banks.I think we float until then.

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  8. CF4

    Would love to know how you express a bearish view on unicorns..

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  9. infinitezuul

    Never underestimate a short squeeze and never fear a short squeeze.

    Well, actually if you are short into a squeeze you’re dead. So let me rephrase.

    Identify and respect the short squeeze.

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  10. permabull

    infinitezuul –

    A short squeeze would be at the bottom of a pattern technically – we aren’t quite there yet.
    VIX cross over huge – the selling just started on the SPX!

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  11. permabull

    infinitezuul –

    I agree with you short squeeze statements. The point now is the lucky bulls got away with to much crime($free money) and thought they had been genius traders. The truth of the matter is 6 weeks up was in itself a red flag for any professional trader that this run up would end bad! And here we are today! The party just started – the selling with prevail. There is an old saying – the trend is your friend until it ends!

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  12. permabull

    Cheers all – enjoy 2015!

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  13. Nobiku

    I’ve been waiting for this through all of October. October was my worst month ever. The Dow will get beat down low enough that when the FED does nothing in December it will see an explosive rally even though the fundamentals are weak.

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  14. permabull

    Nobiku

    Yes, the greedy bulls are the ones to blame for this crazy run up. The DOW will fall hard now. Not sure about what happens in December but the market is beyond weak and there are NO diveragances LOL. Absolutely ridiculous nonsense comments I have seen on here. No foundation for trading. I think most people just got lucky “buying the dip”…

    Great year mate!
    cheers!

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  15. Nobiku

    Permabull,

    I predicted that the Dow would surpass the lows of August, but I watched in disbelief as October unfolded and I got beaten badly. I truly believe the Fed will do nothing, and as irrational as it seems, just as in October, the Dow will blast off again.

    I only trade the mini Dow (my 13th year) and I was up 90% for the year prior to October (I’ve never had a losing year). I am returning to my custom indicators/system that got me to that point. That is, I treat each day as a new market and disregard all of the noise from the outside. Price tells me everything I need to know. I am only 56% correct with that system, but it is good enough for HUGE returns since 2002. This year was going great. Then August happened and I got greedy. I missed a 700 point overnight move and looked for ways to increase my chances of hitting a home run. I started pulling in outside data and moved more to a swing trading style, only to get schooled on many lessons I had previously learned. The very lessons the caused me to develop a system based on price many years ago. Greed is a killer.

    I shouldn’t even be reading these blogs. These influences get me out of my pure number driven trading.

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  16. probucks

    @Nobiku & @Permabull

    You guys done jerking each other off yet?

    market content > fapping

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  17. Nobiku

    Not done jerkin it. Shot a huge wad going short near the high this morning…then out before the opening bell. Won’t trade again until after the open at 1700…after today’s closing numbers show the direction with the highest probability.

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  18. probucks

    *facepalm*

    I come to BlueStar’s comment section to find content, add some, and avoid the meat-rubs like yourself who post about “huge gains” everyday AFTER the market closes.

    Go do that on Dr. Fly’s blogs sir.

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  19. freebie

    Sell 30 April at 142?? lolz

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  20. Freebie

    Raise you hand if you are still holding your shorts.

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  21. GM

    All of the bulls are sound asleep now, dreaming of the Santa rally.
    The market is beautiful, it lures the dreamers into its maws with tasty morsels, then BANG it snaps its teeth tightly closed, trapping all inside, as it dives down to dangerously deep waters.
    Sleep well little bulls, sweet dreams, your nightmare awaits, and you’ll never awaken.

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  22. J Adabese (your pen pal)
    J Adabese (your pen pal)

    Dude. Where are you?

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  23. BlueStar: Contrarian Investor
    BlueStar: Contrarian Investor

    pen pal,

    I am alive. My wife went out of town. Full on daddy day care.

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  24. Jamey

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  25. Micah

    Thanks , I have recently been searching for information about this subject for ages and yours is the best I’ve found out till now. However, what concerning the bottom line? Are you sure in regards to the source?

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  26. bionut

    Most of Bluestars comments are from him. Their names do not show up anywhere else on IBANKCOIN> Bluestar is a fraud, a giant loser who has been on the wrong side of the tape for an eternity.

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  27. bionut

    Oh well, we get A BIG DOWN DAY, the clown will post 3 times,,, we go up for 10 days, the asshole disappears. You bluestar, are a fraud…

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  28. bionut

    The giant scumbagness that is the lie BLUESTAR cannot be overstated. This blogger is a fraud. All the reply’s to his posts are frauds. If you followed this fraud for the last 12 months, you have lost great loads of money.

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  29. bionut

    Read his predictions from the last 3
    months. WERE GOING LOWER wrong… THE LOWS ARE NOT IN… wrong..THE TOP IS IN wrong.. WRONG WRONG WRONG. Clown ass.

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  30. bionut

    Oh,,here’s an idea, read his calls for the last 12 months. WRONG.

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  31. bionut

    It’s hard to imagine that Le Fly has this giant stinkin asshat around. Oh well, what the fuck

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