Markets – Macro – Technicals

Weekend Charts: Circus Freak Show

evil clown circusThat’s indeed all it was. While futures accepted the April 3rd NFP induced futures prices all of Sunday night and during the Monday morning pre-market session they were reversed quickly on dovish Fed comments. The jobs report had scared an already worried Fed and the dovish drumbeat put a flood under the market and proved a rallying cry for higher prices. After all the message is crystal clear: The clown posse is worried about a market correction and doesn’t want it to happen and every single time the market is close to breaking down they will show up to support it turning the market into a circus freakshow.

Think I’m exaggerating? Here’s just this week:

freak show

The message in short: If markets go down we won’t hike rates. If markets go down we may bring back QE.

Hence the autopilot program continues for now and support becomes eternal and lows are fake outs, whether on longer time frames:

TRAN

and shorter time frames:

Still, despite all this dovish Fed talk, markets struggled to break out all week even with international markets crashing vertically upwards as we outlined in Global Melt.

Example: China flew up 12% in 2 days on renewed stimulus talk:

FXI

Germany has been on a vertical tear on its own resulting in a historic disconnect from basic moving averages as yields are pushed to record lows by the ECB QE program:

DAX Q

The US market breakout was reserved for Friday on the heels of GE’s massive $50B buyback announcement sending the stock on its own vertical slope:

GE

As a Dow component $GE then helped break the index through the resistance of the week:

$DJIA

And that’s how it’s done folks. Notice, no mention of growing earnings, revenues, or an expanding economy. Easy central banks and related financial engineering continue to drive price globally.

Principally this means new highs are again a distinct possibility, but markets still face some serious hurdles and are increasingly vulnerable to a global risk event as all global markets are extremely stretched to the upside.

Just in time for OPEX the $VIX has been again hammered into the ground:

VIX

Note further downside is possible for the $VIX which in turn could translate into new market highs. Yet establishing new long positions with the $VIX in the 10-12 range has historically not played well. Rather it tends to be a time to sell.

First the $SPX has to contend with upper resistance here:

spx d

A breakthrough here could be quite powerful as $NYA closed the week right at major resistance:

NYA

How powerful of a breakout? The $SPX autopilot program suggests a visit to the upper trend line and Bollinger band near 2170 and could push as high as 2200:

SPX M

Whether any such breakout occurs this week is speculative of course. Stretched and complacent markets can reverse extremely quickly.  For fans of structures: In April 2000 $SPX bounced into April 10 similar to now and then had a horrible week:

2000 OPEX

Whether such a replay is in the offing we can’t say yet, but a down Monday this week certainly would leave that possibility open.

In 2015 markets have offered a price range bound chop but no extreme buy or sell signals yet. And this chop is precisely what ultimately led to a serious breakdown in the 2000:

2000

Whether this market will play out in similar fashion remains to be seen. But note the $SPX is stretched without any serious correction since 2011 with global markets widely disconnected from all moving averages and structurally looks to seek some sort of resolution:

SPX 14

This structure clearly permits for new highs, but also outlines a lot of empty space to the downside should something break.

This coming week will then likely be a key pivot and bank earnings may be a deciding factor. If banks can avert this bear flag then new market highs seem a given, but if not, even the clown posse may not be enough to avert a market trend line break:

XLF

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3 Responses »

  1. You wrote: long Vix in the 10-12 range does not usually play well historically. Is this 10-12 the calendar date (like 4/10-4/12 for this month?) or the 10-12th trading day in the month (4/15-17, Wednesday to Friday in the OPEX week) or you mean 10-12 for Vix level (currently 12.5)?

    Sent from my iPhone

    >

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