Dip Buying Porn

Orderly. The moves though May and June for all intents and purposes have been orderly. Despite some recent VIX spikes in response to the looming Brexit vote and markets still grappling with the implications of negative interest rates, we see nothing of the August 2015 variety, nothing of the January/February 2016 sort; just orderly, healthy price action. This is a notable departure/shift from the backdoor fuckery participants have been conditioned to expect.

Now, this week could trigger a nasty ‘lulled into complacency’ reversal especially if Monday was a bull trap (although I tend to agree with OA’s compelling analysis regarding how today’s and last week’s action has participants presently positioned). So, will Brexit live up to the hype and ransack markets back to the Middle Ages? European banks ($HSBC $BCS $CS $DB $SAN $UBS $RBS) are already pushing historically significant lows (could be a long term buy opportunity in a consensus-labeled disease space; they sure were bought up fervently on Monday).  For European banks at these levels, can Brexit already be priced in, or is the event too black swan-ish to translate ramifications in price action terms? Or, does Brexit even fit with the high stakes geopolitical, global economic ‘too big to fail’ narrative we’re running (wait, there’s a script?…ok, I’ll put the single malt down). How about Japanese banks ($MTU $SMFG $MFG) in the face of negative interest rates – more examples of foreign financials at historically significant lows. Even take the US banks ($WFC $GS $C $BAC $MS) near current swing lows. Or can we conjure up more headlines, like will the China (weekly $FXI $ASHR $CAF charts on support) ‘thing’ start becoming a cyclical market harbinger of panic like the Greek ‘thing’ has been throughout this global central bank mandated bull market since March 2009? What news flow will generate the market chop and visceral, unforgiving price action that has conditioned hedge funds to position into their highest portfolio concentrations in years? And, this just gets me thinking, what if this hedge fund concentration means headgies missing out on a rally for being long the wrong stuff OR if higher conviction bets in bigger size mean being easy targets for what Ackman describes as the ‘Pershing Correlation’ . There’s a regulation happening, an incessant exchange colonizing participants’ minds and actions under the auspices of free will – both in its exercising and in its self reinforcing illusory (good)will. We are tuned like instruments.

Price action for the aforementioned foreign and domestic banks at these levels may be likened to the following 20/20 hindsight reverberations echoed by sidelined market participants today: “Wow, oil was just in the 20s? $FCX was under 5? $BHP was under 20? $SLB under 60? $X around 6? $AG around 2.50? $JOY around 8.50? $WYNN under 50?” Will we look back 3-6 months from now to say, “Remember _______ (fill in any of the aforementioned banks at current levels)? If indeed the beaten up, left for dead, diseased spaces in this market follow this bottom fishing trend, then commence dip buying porn.

The scary thing is this may be bears last chance to take this market down before we break out to new highs, and dip buying really becomes porn when markets incessantly trend in the face of disbelief. Within this context is the scarier prospect that if market participants’ conditioning to buy breakdowns and sell breakouts over the past 2 years of rangebound action in the indices gets gutted- where disembowelment becomes the entrails of those shorting the pop and those closing positions on the pop from lower prices or for breakeven, then said camps see the market rip without them, and FOMO chase syndrome ensues.

Last item to keep on the radar: We get an update on the state of the homebuilding recovery with $LEN and $KBH earnings due out this week. Last month produced some of the best homebuilding numbers in many years. Can this serve as a proxy of further evidence of domestic economic momentum and fuel bullishness OR even help perpetuate rate hike talk? This space has been dead for the past couple of years, and still remains an elusive feather in Obama’s hat to tout economic recovery and disseminate success in the eyes of (delusional) liberal mainstream financial media.

Stay nimble.