Back on 4/29, I blogged about how amazing the Nasdaq looks, from a buyer’s perspective. I was enamored with this chart:
Quite timely analysis too, really. Both blogs on 4/29 were to point out how bullish the Nasdaq was. That was the first initial low in this multi-week sequence.
Fast forward nearly a month later, and the NQ is at the same price as the chart I posted back on 4/29.
I’m being asked about my level of conviction and honestly, I feel much more confident than I did on the 29th saying how I feel about the markets here. Now that I have 20 days of validation and confirmation that the chart I posted, which was just a few points off the low of the day on 4/29, on the FIRST attempt at those prices was actually going to be the line in the sand moving forward.
Now I have oversold signals to work with and another failed VIX breakout which are always handy in situations like this.
So to answer the question about where this analysis fails, falls apart, or needs a contingency plan, I’d say that those same prices I rushed to point out on 4/29…I’d say those have to give way first, at the very least.
OA
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I think the biggest change in the market since 4/29 is the general sentiment. I am repeatedly reading comments on SA (Seeking Alpha) and elsewhere about near-term retirees becoming fed up with the current market and looking to throw in the towel. Add on to that the outflows from hedge funds and I think this is a solidified trend.
As for the markets, I am more bullish than I was on 4/29, and that cliffhanger (will we go higher or lower) has gone on and on and on…
Some reasons I am bullish:
1. Oil has decoupled from the market. It is priced in. Some think a return to $70, others to $40 (me included, thinking 40-50 range for a while).
2. The fed hike has been completely overblown, as was the Doha meeting, as was the labor report. We have priced in the negativity for the most part.
3. Retail is moving up on a day when we are nearing a capitulation point. (are we near capitulating if there is strong demand for retail stocks?)
4. Short term China is looking better, not worse. Let’s set aside the long-term credit defaults for now and see where we are at in 6-12 months time to further that discussion.
5. There are not a lot of signals of irrational exuberance out there. TSLA anyone? It has come down from the higher levels to a more rational basis. Maybe gold miners are the exception to this? It’s not a runaway pricing scenario at the moment though.
6. Inflation is not a real concern at this moment IMO.
7. The strong dollar has kept a lid on prices.
8. Real estate is not out of touch, booming in the west, but as a whole growth continues.
9. I think the pullback today really set up some charts nicely, checking in at 20/50/200 lines, consolidating/paring big gains on many charts, setting new bases for moves higher. This is a solid chart-building event…
What do I have wrong about this market potentially grinding higher at a reasonable rate?
Why should I run away from these charts instead of marching into them?
For the record, I went long with SQ, JO, GDX, GDXJ, BIDU, IYM, JJC, and IPI. Yesterday went long with ALK (oops), F, GM, VSLR, CANV, CREE, GOOGL, IWM, RMHB, TRTC and TRIP.
Much appreciated perspective Jeff. We’ve had no less than 4 strategists present in our office these past few weeks and they are uniformly gloomy. One guy was our firm’s chief strategist back in 2007 and he nailed the U.S. housing crisis bang on. Then in March 2009 he went long the market and it paid off. Now he’s scared of the fragility of the world markets in any deviation from the status quo (hide your women and children kinda scary). It takes lots of perspectives to make a market, but your calm rationale is defining.
I won’t argue the fragility of the world and markets here at all. I have to tune a lot of it out to function.
All things considered, outflows, short interest, minimal households owning stocks, etc…the bull still has gas in the tank, IMO.
What’s changed is that:
1) The USD was in a downtrend and has now bottomed & reversed
2) 2 rate hikes are now back on the table (dealer consensus survey & fed fund futures stats)
3) other indexes have followed & matched the QQQ lower, whereas b4 it was the odd one out
4) credit spreads have begun widening again
but you know all this already … so what gives? Shouldn’t the bigger question be “What keeps us from trading back to the Feb 11 lows?”
Stocks and dollar can’t rally together? Can’t rally in a rising interest rate environment?
It’s hard to justify higher multiples when cost of funding goes up and relative value to Treasuries diminishes.
The Fed is actively trying to decouple the USD from stocks leading them to likely start trade inversely vs. together, the way they’ve been doing since the 1st Hike in Dec.
From a technical perspective… declining 200dma with Lower Highs & Lower Lows have been the broader trend since late 2015 right?
I hear what you’re saying, sounds like we are weighting the fed differently. Right now I think it’s just a convenient narrative for people to latch on to.
A 25bp is not the end of the world, and I find it unlikely to take place in June given the current market (and political reality). Where is the inflation taking root in the market that an interest rate hike will help temper? A
You are right about the dollar, that’s the current crux of the issue.
It seems, a lower relative dollar is difficult to achieve when BOC is willing to prop it’s market while devaluing the RMB, meanwhile Europe has said they are willing to do whatever is necessary to keep the markets afloat (got your ark ready Fly?) and the BOJ is being the BOJ…
In a vacuum, the dollar should be weakening; it is difficult to be weaker in the face of other world currencies given leaders’ language and their current market props.
I should stop talking, I’m beginning to turn more bearish…
So, how do we achieve a lower dollar?
I’m confused. You say we need a lower dollar but then you say 25bps isn’t the end of the world.
Raising rates is effectively raising the USD…. which I thought we agreed on, wasn’t good
Depends what this low in the Nasdaq does, then you make the case that the trend is/has changed.
I wouldn’t be a buyer of QQQ until I saw a rising 200dma and new highs.
You’ll be late with the rest of them then.
If the dollar operated in a vacuum with the fed as the only instrument inflicting its will on valuation, yes a 25bp raise would be the problem.
The value of the dollar is not controlled by the fed, just manipulated by the fed.
The market determines the value, taking the fed rate into consideration, just like it does every day.
If the fed tightened by 100bp tomorrow, I guarantee that the dollar would not be stronger a year later.
It’s not a 1=1 equation.
Big batch of SPY calls for tomorrow’s expiry based on VIX/ SPY reversal candles on the daily off the bollingers. put call ratio spiked to a level we have seen bounces the next day.
@Cascadia – you most certainly could not guarantee that.
obviously it’s not a 1 to 1 correlation. the USD currency and currency trades within the realm of relative value. The Fed hiked rates in Dec and the USD has been weaker ever since.
But what’s important 2 note is that it’s weaker b/c the market essentially priced out all the rest of the previously expected rate hikes for the year.
But yes. Raising another 25bps changes the EXPECTATI0N that hiking rates wasn’t a “one and done” type of thing and would cause the USD to trade up again as it reprices for more hikes 2 come
I agree with this comment.
That being said, do you really have more conviction about a June hike because of the comments earlier this week?
I don’t.
A convincing case has not been made as to how or why the fed would walk their muddy boots on this current market and leave tread marks that could decide an election.
Sounds like the fed is showing the whip to the horse, but is going to wait and see what the response from the market is.
Yellen had cover for the move in December, there is none for a June hike.
Can’t even imagine a Sept move unless this market is at a fever pitch to the upside.
Yellen was effective at changing the narrative on the economy and perception of strength in the US in Dec, there’s nothing effective or constructive about a rate hike now.
Hilarious, I just clicked on your name, which took me to your tumblr- can anyone guess what the first topic on there is?
yep. haven’t updated it a while but I noticed around Dec/Jan that most people really have no idea how fx trades and what interest rates do.
still relevant to this day
Have enjoyed the comments section the last couple of days. Many more thoughtful exchanges taking place. Guess that’s a sign of a coin flip market, right? Keep it up guys.
Fully agree – I was just thinking to myself the quality of the comments has been great the past few days and then saw your post.
+1
I recently went back to read my blog comments in late 2013. It shows that the only folks remaining have a higher IQ at this than most. In other words, we’ve trimmed the fat quite a bit.
+1
Bot SQ June 12 calls
Grind up OPEX? I noticed that a number of stock options had their “max pain” expiry values above current prices – would make sense to grind them up to destroy value and get closer to stocks expiries – also would take out a lot of that insurance for a market crash that seems to keep being delayed…
Bot FIT June 15 calls
Long $SCO this morning.
Bought some $CLRB @$2. Low float ripper, tendency has been to run for a few days and then flame out. First day up, massive vol.
Just got out of my SCTY 21 calls for a slight win – can’t count on 5% rallies all the time… Looking for exit strategy for my NFLX 91.5s – profitable, but think they still have room to run
Took half off here – letting the rest run.
Hat Tip to OA for nailing another rotation. Spirited move in semiconductors affirm that we are full speed ahead in the four letter names.
Price action in Transports here says they’re going to get going as well.
CHRW — me likey
Before we move on to a new post, one of the more useful things I’ve done this year is create a comparison chart based on OA’s use of Russell / IWM vs other indices as proxy for risk on/off. I am not saying this is what he does when he is looking at the indices or even what he looks but I find it useful.
I check this chart a few times a day to see if “they’re buying or selling them.” I mostly check “today” to look for where the IWM or QQQ are in relation to SPY and DIA – are they pulling away? Crossing up/down? Behavior of the IWM and QQQ (especially when crossing through the latter 2 indices on the “today”) have yielded some good short-term entry points on the SPY and DIA.
I also click 1 week and 1 month to tell me the 1 week / 1 month story, so to speak. It’s been very helpful building confidence on near-term market direction. If anyone cares to see what I mean, here’s a link:
http://www.freestockcharts.com?emailChartID=04ba60c7-c410-4a98-ab9f-5680f745686e
I invite you to save it and check it here and there to get a feel for the movement and how useful it can be. Maybe too basic for most but it was helpful for me, anyway.
Thanks a lot — this is helpful. Loving the comment section here lately. Lots of great information and discourse.
FIT grinding higher — move above 14.5 will bring more short covering resulting from point & figure breakout (using .25 box sixe)
Small cap biotech KERX is about to break loose.
CLRB, you grab any of this Kid?
missed it — what a move. congrats.
Preface: this is the kind of lazy, conspiratorial “analysis” that I hate when it comes from those presenting themselves as authoritative.
Thankfully, I’m just a commenter on a blog.
Do you guys think “they” would run markets up into the June meeting? Seems like the past pattern of the markets decreasing going into Fed meetings has been fairly reliable, albeit imperfect.
One with a cynical or conspiratorial bent might think that this has been an effort to push the Fed to be mindful of the potential for a sell-off and/or to account for “market factors” in its analysis. (I’ve even seen some claim that those with the ability to move the markets are trying to “force the Fed’s hand” with these pre-meeting downdrafts).
On the other hand, one might just view those moves into the meetings as reflecting levels of uncertainty/concern re the hike path that we now don’t have.
Curious what others think.
Chart of CYNO is a thing of beauty.