Weekly Market Brief

Decision Time

The first quarter of 2019 was a smash hit for bulls. Capitulating central banks, record buybacks flushing the system with artificial liquidity, constant jawboning by dovish central bankers and permanent promises of progress on a China trade deal, and a collapsing yield picture bringing back TINA (there is no alternative) all of which produced a relentless 3 month move higher back in equities that rendered any fundamental issues of slowing growth, earnings and even a yield curve inversion irrelevant and erased the losses of a disastrous Q4 of 2018.

Liquidity and central banks rule, nothing else matters. Optimism is back and hope is pervasive that 2019 will replay the earnings recession case of 2016 meaning that all bad news is priced in, any slowdown will be temporary and markets will resume their 10 year bull trend with new highs to come.

Yet, bulls have not proven their case. So far lower highs on all key indices risking major potential topping patterns and hence the upcoming earnings season may serve as a key pivot for markets in the weeks ahead. Dovish central banks have been fully priced in by markets and the liquidity of buybacks will at least temporarily disappear during the buyback blackout window.

Favoring bulls in April is, generally speaking, positive seasonality especially in the early part of the month, but Q1 earnings reports will also serve as a key test of how significant the global slowdown is and how pervasive any spillover may bleed into the next few quarters. As earnings estimates have come down significantly during Q1, companies may even surprise to the upside, but it is the revisions to their outlooks that may serve as a key decision node for investors who have priced in little risk into equities other than a few select sectors.

A China deal and even perhaps a miracle relief on Brexit continue to serve as potential upside triggers to outlooks keeping many sellers on the sidelines as many are expecting a further pop in equities especially if a positive China deal were to come to fruition.

Bears have managed to keep price below the January 2018 highs as well as the long term 2009 trend line, but are also running out of time as a confirmed break above the January 2018 highs could set markets on a path to at least retest the highs or make new highs.

Hence the time period in April into May sets up for decision time for markets.

Risk to markets: The rally off of the December lows remains untested and uncorrected with plenty of open gaps below while indices have formed specific patterns that could be interpreted as bearish. Indeed the rally has been so steep that it will require ever higher prices to avoid a confirmed break of these patterns. Due to the vertical nature of this rally these patterns are at risk of breaking to the downside if markets were to experience just a few days of downside. As these patterns are very large sizable downside and an increase in volatility could emerge on a confirmed break of these patterns.

Timing matters as structurally bulls have not been able to confirm a resumption of the larger bull trend hence April may be a key month and bulls can hardly afford a down month.

I’m discussing technicals and select key charts in the video below:

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25 replies »

  1. If markets or the economy deflate then it’s over for MAGA. Meaning it’s over for America as the leader of the world on every concieveable measure and China wins. Not that China might not falter too but every minute it doesn’t and our markets start to deflate taking the economy with it and adding the prospect of $1.5TN deficits or more would be a stupendous blow to the entirety of our political establishment.

    It’s for all the marbles here. No nattering nabobs of negativism allowed. Look at Powell’s cave this way. Would you like to be blamed for being ‘tight’ while China’s credit markets is expanding at double digit rates? As they continue to build out whole gigantic cities and infrastructure of every kind while our roads and bridges collapse? What exact principal would be defended if the Fed and its central bank friends don’t print another $XXTN? Creating among other things ‘wealth’ in the form of higher stock prices? What possible principal does deflation serve. The answer is none.

    The everything rallly has been done on credit. Speculative credit. Taking up the slack, plus, of the central banks ending liquidity injections.

    • Uh, maybe “just because someone else does it, doesn’t mean you have to do it to”? Does that work?

  2. “I say,” Jadwin observed, “I saw an old fellow outside in your customers’ room just now that put me in mind of Hargus. You remember that deal of his, the one he tried to swing before he died. Oh—how long ago was that? Bless my soul, that must have been fifteen, yes twenty years ago.”

    The deal of which Jadwin spoke was the legendary operation of the Board of Trade—a mammoth corner in September wheat, manipulated by this same Hargus, a millionaire, who had tripled his fortune by the corner, and had lost it by some chicanery on the part of his associate before another year. He had run wheat up to nearly two dollars, had been in his day a king all-powerful. Since then all deals had been spoken of in terms of the Hargus affair. Speculators said, “It was almost as bad as the Hargus deal.” “It was like the Hargus smash.” “It was as big a thing as the Hargus corner.” Hargus had become a sort of creature of legends, mythical, heroic, transfigured in the glory of his millions.

    “Easily twenty years ago,” continued Jadwin. “If Hargus could come to life now, he’d be surprised at the difference in the way we do business these days. Twenty years. Yes, it’s all of that. I declare, Sam, we’re getting old, aren’t we?”

    “I guess that was Hargus you saw out there,” answered the broker. “He’s not dead. Old fellow in a stove-pipe and greasy frock coat? Yes, that’s Hargus.”

    “What!” exclaimed Jadwin. “That Hargus?”

    “Of course it was. He comes ’round every day. The clerks give him a dollar every now and then.”

    “And he’s not dead? And that was Hargus, that wretched, broken—whew! I don’t want to think of it, Sam!” And Jadwin, taken all aback, sat for a moment speechless.

    “Yes, sir,” muttered the broker grimly, “that was Hargus.”

    There was a long silence.

  3. Great work Sven, Much appreciated. Your charts are great and very informative. Enjoyed every minute of it. Thanks

  4. How’s that ‘bear trap’ working out for ya, Sven? 🙂 🙂 What are we? Like 60 points off the peak? Prolly time to fess up, the bull is back 😉


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