Each mania has unique characteristics yet each mania has common elements. The single most defining element of a mania are the attempts at rationalizing its existence and the denial of its presence. Not to offend anyone in particular but the nonsense that I see propagated these days among the financial market conscious is almost nauseating in its stupefying self aggrandizing demeanor and lack of intellectual basis. My favorites include comments that proclaim the chances of corrections to be 0%, that this rally is based on fundamentals, that now presents a good risk/reward opportunity to invest new money or that nothing matters anymore.
Admittedly someone like myself urging caution in times of a mania looks the fool and will find himself quickly mocked by the lower characters that invariably spring up in any mania. Hence the appearances of anyone bearish on channels such as CNBC has shrunk to 0 and barely anyone wants to even dare mention to take some money of the table. Yet this behavior is another common element of a mania. Nothing new.
What is new is that this rally is defying multiple historic precedences of past manias which is starting to put this bubble in its own class. The internet bubble was followed be the real estate/credit bubble while this mania is built upon a central bank liquidity bubble. This week saw Mario Draghi making a mockery of himself pushing overnight rates into negative territory as if that somehow magically would make banks start lending more. It won’t, yet it surely will punish retirees and savers even more. Force money into riskier assets at all time high prices. Genius.
The plain truth remains: Central Banks have created a monster and they can’t leave and they know it. For all her taper talk does anyone really doubt that Janet Yellen wouldn’t freeze the taper if stocks suddenly corrected more than 10%?
But talks of a correction seem silly now. Heck we don’t even have down days anymore:
Many will tell you that volume, negative divergences or 7 year low $VIX figures do not matter. I humbly will stand my ground and state emphatically that yes they do and will. I’ve been in the correction camp only because I’m of the view it would be a healthy thing for the market to create a fundamental reason to buy as opposed to just short covering and chasing, but now the market is increasingly creating conditions that lay the ground work for something much more sinister than a run of the mill correction (which hasn’t happened in a very long time).
Since nobody else will tell you how far off the rocker this market really is I’ll give you a rundown of my current favorites:
$SPX monthly chart. A stunning singularity unmatched in history in its unchallenged ascent:
$SPY weekly chart. If you ignore the historically unprecedented deviation from its 100MA and the massive negative RSI divergence it’s just a great safe buy for all retirees and the risk unconscious:
Speaking of negative RSI divergences. I can see them, they are everywhere, they don’t even know they are dead. Can you spot them?
Since concepts such as resistance no longer matter either the $SPX 100 just breezed through its all time highs dating back to the age of the internet bubble:
Speaking of the internet bubble: We are right back in the thick of it. Monthly RSIs screaming in the mid 70s. In the past 15 years these levels meant selling was a good idea.:
Friday saw the public execution of the $VIX. Its historic lows are just below the current level and while much has been made that the $VIX is at its lowest level in 7 years one subtle fact has been lacking: The $VIX has never, ever been this low in the month of June. Ever. June, the seasonally weakest month. June the month that sees selling during each mid term election year. See nothing matters anymore:
It doesn’t matter that the CPC ratio is residing at its lowest range in the past several years. Or does it?
If it does then the current daily RSI reading of over 73 will result in a pullback similar to all previous readings of a similar level. If nothing matters than a test of the 1870-1900 zone will provide another bounce and keep the monthly 5EMA intact. For all eternity perhaps. If history matters at all than such a test may prove to be wake-up call for many, but maybe a welcome and way overdue visit of the 200MA as this rally has now set another record for the longest rally ever without a touch of its 200MA. June may surprise yet:
Categories: Market Analysis