Markets – Macro – Technicals

Market Bull

Just before the US election I wrote an article musing about this bull market being a myth and promptly markets dropped lock limit down on the night of the election below November 2014 highs. It seemed my supposition was right on the money, but then, as we all know, markets raced to new highs following the election. Was my assessment completely wrong? Well, I decided to have another look at the data and I got to tell you, I think the original assertion continues to have merit.

Why? Because unless people are exclusively invested in very few specific, high valued, over-owned asset classes they are getting hammered somewhere else. Why do you think hedge funds are struggling? Well, for one because they hedge, they are diversified, they use risk management. And the fact is that if folks are diversified and use any sort of risk management they are likely lagging indices because of underperformance in other sectors.

If you own retail, you are hurting. If you own energy you are hating life right now. Own small caps this year? You’re not happy. But own what the central bank of Switzerland buys and owns and you are likely doing ok, i.e. $AAPL, $FB, etc.

You hedge and buy protection? You’re an idiot, it always expires at zero. Don’t hedge, just buy the top 10 mega caps and buy every tiny dip lower. So what if everyone owns the same thing? Price always comes back. Seriously that’s the message of this market.

Hyperbole on my part? I think not.

Consider: One of the biggest hedge fund launches of all time is shutting down.

Read the carnage and it’s everywhere. Hedge funds are hurting big time. Why? Because they use their brains and this market punishes anyone that uses their brain at one point or another.

Over 1,000 hedge funds closed last year with fewer new ones opening:

Bull market eh? More like Market Bull.

Here’s 2017 so far:

But let’s dig deeper. Remember my chart going back to the May 2015 highs? Look closely.

Retail is down 15%, Energy is down over 10%, and despite the BOJ’s non stop buying of everything the Nikkei is down 6% and the world, well, the world is flat:

Who knew? Well hardly anybody because all the headlines are about record highs. Global markets have gone nowhere since May 2015 while some sectors have gotten hammered and only specific sectors and stocks have vastly outperformed.

True, overall markets have greatly risen since the February 2016 lows. But compared to the May 2015 highs it’s all somewhat selective.

And again I have to ask: What would all this look like without the almost $4 trillion in global central bank intervention since these May 2015 highs injected into global markets?

Let me take a stab at the answer: Worse. Much, much worse.

Market bull indeed.

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