Markets – Macro – Technicals

Weekend Charts: Breaking Bad

Breaking-Bad-HeisenbergIt finally dawned on me. Central banks are playing the part of Walter White in Breaking Bad. No seriously, indulge me for a moment. Both were faced with a massive crisis in 2008: Cancer. Walter White was faced with cancer in the body and central banks were faced with cancer in the financial system. Out of pure desperation both had to do whatever it took to provide for their families: The manufacturing of drugs. Walter White produced meth, central banks printed money. And hence both went breaking bad.

The similarities only begin there. Over the course of 5 years viewers witnessed an amazing transformation from Walter White, the hapless and desperate school teacher, to Heisenberg, the ruthless, calculating cartel leader who forced everyone into submission no matter the consequences. A believer and addict to his own power, arrogant and in denial as to the ultimate consequences of his actions.

The good intentioned school teacher who was in danger became the danger and indispensable to keep the system afloat which would cease to exist without him:

And, like Heisenberg, central banks have become indispensable to keeping the operation that is our global financial system going. They are the ones who knock and remove any obstacles in their way with whatever it takes.

Yet, like Walter White, central banks cannot escape the ultimate conclusion: The cancer is coming back and reality will catch up even with the most ruthless drug hustlers. Size attracts attention.

Hence before we go into charts let’s look briefly at some realities.

Global drug, sorry debt, manufacturing, has increased by $57 trillion since 2007 for a total of $200 trillion by now:

Debt

The cartel is international, involves all central banks and governments. It is simply enormous in historical terms. Everyone is a complete addict.

What are the political spending priorities going forward? The United States is continuing on the same path it has for years no matter the political leadership:

budget

No matter one’s political persuasion this is one reality in front of us. The other reality is the impact of mathematically managing the interest that will be due in time to service the debt:

debt.jpg-large

The clear mathematical consequence of all this: The drug empire will run into serious trouble. Greece has problems servicing its debt now. At some point everybody will. But not yet.

As of this moment the cartel is able to avoid all consequences through ruthless execution rendering reality moot:

central banks

And the success is spectacular. Consider this week as big numbers were hit concurrently across the globe on Friday: $DJIA 18K, Nikkei 18K and the DAX at 11K.

What sparked the breaking upwards in global stocks? Negative retail sales? The rise in jobless claims? Consumer confidence suddenly dropping?

It certainly wasn’t an expansionary view of earnings:

EPS Price

No the answer remains the same: QE and ZIRP induced liquidity which results in cheaply financed buybacks (see also All in Vanity).

Last weekend we discussed the prospect of stocks breaking out and bears rapidly running out of in Something Big is Coming.

They clearly have:

The $RUT broke above its neckline:

RUT

The $NDX seems unstoppable:

NDX D

The bull flag breakout points to old year 2000 bubble highs as a potential target:

NDX M

This breakout target is well supported by the weekly chart structure as well:

NDX

This is precisely the “empty space” technical structure Mella pointed out back on February 4:

Mella

Add to the fact that the $XVG currently shows its highest ever close (month is not over though), bulls have the reigns here:

XVG

Incidentally this price action also renders the 2000 analog finally dead and buried. In fact, so far, February 2015 is playing out pretty much like February 2014:

Feb

The prospect of continued levitation along the 5EMA could well be supported by internals and lack of any serious overbought readings. While on a short term basis markets have expanded into their upper Bollinger bands basic indicators show there is more room to grow:

$NYMO:

NYMO

High/Lows have suddenly expanded:

US HL

The $NYSI remains far from overbought:

NYSI

And the $VXO appears to have put in a double top as the $XVG is breaking out:

VIX

No the case looks pretty clear. Everything and everybody is bullish, the drug empire is winning and expanding as bullish allocations are back to record highs:

SPX BB

What’s the remaining bear case in face of record new QE liquidity entering global markets in March? Until the cancer becomes present there seems to be none. This week markets broke out of their recent price range, but in recent months we have witnesses several fake price breakouts and breakdowns:

SPY D

But if that’s your premise for shorting this market don’t forget who you are fighting here, and be sure to say his name: Heisenberg.

Heisenberg ended up losing his empire when the cancer returned and his efforts to provide for his family ultimately failed. But no doubt, at his peak, he was formidable.

So unless sellers (may they rest in peace) can sustain prices below the breakout lines, and quickly so, they may just need to wait until signals align.

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8 Responses »

  1. Excellent article as always Northy.

    “The other reality is the impact of mathematically managing the interest that will be due in time to service the debt”

    What if……

    What if through QE, ZIRP & NIRP there IS no interest to pay? In other words borrowing becomes free for the Govt (so the scale of debt doesn’t matter) OR becomes an EARNER for the Govt (enabled by QE & NIRP).

    Such a scenario could (in theory) go on & on!

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