Note: This was sent to clients on May 23rd outlining the rationale for selling $1K headlines if/when they came:
I woke up to futures red and news that 22 people (including children) having been killed in a horrific suicide attack in Manchester last night. Dozens injured. The 2nd terror attack in the UK this year. A game changer with an attack specifically targeting young people going to a concert. By the time I had made coffee futures had recovered, by the time I dropped the kid off at school futures were green. Collective shoulder shrug in global markets. Hard not to be cynical in this new world of nothing matters.
Such is the lifecycle of any downside these days, and such is the lifecycle of any terror attacks. I can’t recall the last time a terror attack had more than any temporary red associated with them. Now one can argue it’s all irrelevant in a world where 160,000 people die each day anyways. And perhaps that is true, but the cynicism of it all does leave a bad taste. Of course the hidden reality is simply this: Whenever there is a bad news event central banks open up the liquidity spigots even further. With Brexit they did so openly, with events such as this I’m pretty certain it’s done more quietly. But it’s done nevertheless. And I can’t deny that it continues to work marvelously.
But, to be fair, economic data trumps terror and the data coming out of Germany today was strong:
Yet the ECB keeps tossing money around like we are in the middle of an extistential crisis by running $60B of monthly QE. Soon, within months, they, and the BOJ will actually run out of bonds to buy.
So I ask: Which is it? The global economy is running on a major organic growth kick or we are in an existential crisis?
From my perspective it’s all misdirection. There is no market in the world that has proven to run record highs or sustain such highs without massive central bank intervention. They can’t and none of us have a clue what would happen if they didn’t. And this includes the US Fed for we know their balance sheet remains at record levels and they keep cranking out M1 money supply.
Speaking is misdirection: The political field is as void of any moral compass and attachment to any sort of truth as I have ever seen it.
Forget what they say and watch what they do. And what they do, or at least trying to do, should be crystal clear to everybody by now. I’ve said for a long time that both parties have been presiding over and supporting a structural system that benefits the fewest of people. Wealth inequality is bemoaned but not addressed, institutionalized poverty is the name of the game, and my deep worry is what will happen during the next recession knowing that debt levels have never been higher.
And a system that can only be financed by debt is about to see a vast further acceleration of wealth inequality. Every single policy I see being proposed by the new administration is benefitting the top 1% at the expense of the most vulnerable. Some are decrying social programs, food stamps, health insurance for the sick etc. But I’m telling you, if we keep going down that route we are creating a desperate society in the end. But hey, it is what it is.
But some people recognize what’s going on:
The generational wealth transfer is truly dramatic and seemingly nobody is willing to address it. Nobody wants to risk losing an election.
— Jonathan Ferro (@FerroTV) May 22, 2017
This is about protecting generational wealth for the few. Everything else is just rhetoric. And whether Trump stays or leaves is ultimately a side show. The agenda will remain the same.
For now markets continue to rally and one can’t help but wonder if this is now simply a race for the 1K headlines.
Sure why not. We’re only a few bucks away. May as well tag the 1K numbers and then ring the bell.
With no volume and no participation everything is possible:
It is all a bit intellectually insulting, but it continues to work and one has to respect the tape.
Even junk made a new high:
For now we can observe that indeed they want to fill the gap and in overnight action we have:
I don’t know if the renewed gap will hold this morning, but again it is the overnight action that’s driving everything and the lows are made at night.
Last week’s lows again came on a familiar spot for stocks above their 50MA:
And we bounced off a key trend line on the $ES:
But note this however: The November trend line is broken and the current rally is tagging it from the underbelly which means it has all the potential to be a bearish move for markets still.
And also note: Even if we are making new highs on ES and break above the recent upper trend line the November trend line is so steep it’s going to be a tall order for markets to sustain a move above it. This gives technical comfort to our view that we want to sell strength.
I’m very cognizant of the fact that there are people salivating at the prospect of imminent 1K headlines. $1000 $AMZN $1000 GOOGL. They can’t wait.
We’re selling these headlines when/if they come.
Update June 12:
$AMZN & $GOOGL indeed the 1K zone and then sold off hard: