Markets – Macro – Technicals

Manufactured Mirage

MirageThe game continues unabated. Last night CSCO reported earnings with a slight beat and another announcement of layoffs. 6,000 to be precise. These are not burger flippers, but high skill jobs. Must save money. Really? Well yes they are probably saving between $500-$700 million a year by throwing these people out. Yet knowing that the same company spent $1.5 BILLION in the same QUARTER on buybacks that supposed cost savings narrative reeks more of an insult.

Social responsibility? None. The cumulative picture is even worse: $21.9B in buybacks since 2011 with 21,000 people eliminated. All courtesy ZIRP with debt financing. The continued impact on the social psyche? Nobody is safe, everybody is expandable. Duck and hope for the best.

I’ve witnessed a couple of corporate mass layoffs myself so I know the game well, not pretty and the one line headlines are masking the stress real families have to contend with in re-adjusting to a new reality, finding a new job, possibly moving, ripping kids out of school, etc.

$MSFT recently announced it was laying off 18,000, Broadcom 2,500, IBM/Catepillar are all about buybacks, I could go on. But as long as buybacks continue unabated I suppose the mirage can continue.

The larger issue of course remains rooted in the ineffectiveness of the QE and debt driven manufacturing process that fails to yield even a nice looking mirage. The results this week:

US retail sales = 0%, Germany GDP = -0.2%, Japan GDP= -6.8%, China home prices = -29%, Eurozone industrial production = -3% and Ukraine, Iraq, Gaza, Ebola all unsolved.

Stocks up.

The dichotomy continues as price discovery remains a liquidity and process driven self fulfilling prophecy. We benefited nicely from playing the game this week, but I’m looking to scale out completely either today or tomorrow and look to flip short.

The plain fact remains: All positive projections about growth have been off the mark. Stocks rallied with yields weakening again. There is no organic growth.

As QE is winding down we are seeing the pricing in of the withdrawal of liquidity and my view remains that we are just at the very beginning of this process. Yet price may disagree with me so I know where I’m wrong in the thesis from a trading perspective and that is 1970 on $SPX.

My strategy is to establish sell positions into the key resistance zones of this renewed low volume price levitation:

SPY daily

Now as I pointed out previously this could be a really tricky process here into next week. OPEX week has clearly decided to be bullish per the January script. The minimum goal was always to get to the 50MA. We are very close & I wouldn’t be surprised to see the tag today. January/February then just continued higher. But seasonally that was not a surprise and we are not in February.

Next week is Jackson Hole. Huge. It is there where we are likely to hear a lot more about the Fed’s path forward. Seasonality for next week?

August Seasonality

Mixed bag really, but not very strong. In my mind a short sell strategy with a specific stop target in mind is pursuable, but the chart picture is filled with conflicting signals.

$USHL: The high/low ratio shows that this bounce has been weak so far:

USHL

We’ve seen key indexes just bounce against basic MAs or fib retrace levels.

$TRAN:

TRAN

$XLF:

XLF

$SPX weekly: Moved right into the weekly 5EMA. 8MA next?

SPX weekly

The 8MA certainly would match up with the sell zone I have indicated. Yet it has been tech that has led this bounce courtesy of the high beta chasers no doubt and with its strong bounce the $NASI has issued a buy signal:

NASI

And to be sure the $NDX chart leaves open the possibility of further upside for a retest of its upper trend line:

NDX

In summary: There is room to the upside no doubt and hence this is a tricky set-up. Yet think how quickly fear is replaced by complacency. The $VIX got smashed into a 12 handle again last night bringing it very close to my 50MA target already:

VIX

Last week never happened it seems and whatever the concerns they are gone now. My view: Nonsense. They are still there and CNN’s money & fear index seems to agree:

CNN

Odd no? Also notice the $TRIN was RISING yesterday despite markets moving higher. Usually it rises on down days:

TRIN

So some things are acting funny here.

Overnight futures initially dropped on the bad German GDP print, but no worries the weakness was quickly bought and the $ES was pushed into its 61.8% retrace target. Did I not mention they would do this overnight?

ES

Oh the games. So all is well in progress. I closed my remaining $ES long on the pop and will look to close the remaining $SPY calls as well and then be on the hunt for sells. I’ll be using wide scales with patience into Friday. My target zone remains as I have outlined for the past week:

RM

Good luck!

New weekend charts here!

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Categorised in: Daily Market Brief, Market Analysis

3 Responses »

  1. Don’t hate the player, hate the game. Our economy has been so corrupted by central planning influences, particularly of the money supply, that folks are just doing what is inevitable: playing the crony game and being very short term oriented. It’s all very tragic.

  2. To make it clear, I also very much hate most of the players that dominate in this game too, but they’re only there because of the game laid out. In a free market they would either be forced to actually innovate and provide value, or they’d be pushed aside.

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