Market Analysis

Rejection

And then it happened. Rejection. And with rejection come technical consequences. Perhaps the start of the first correction of 2020, the first correction since the Fed went wild on the intervention front in October.

The confirmation remains outstanding, but technically vastly overbought markets are at high risk of a sizable reversion trade.

One wouldn’t have known from the pre-market action on Friday as $NDX once again made a new all time high following tech earnings and $ES came within 1 handle of making another new high.

But the signs were already there. Suddenly last week more and more indices stopped playing the new highs game and started lagging as reality finally mattered on Friday and even the Fed’s ongoing liquidity machine couldn’t stop the selling.

It is with some irony one can observe that the downside began the same week FOMO articles dominated the news front last weekend, led by Barron’s $DJIA 30,000 hype cover:

Oops, they’ve done it again?

The $DJIA never made a new high and literally peaked the Friday before the weekend when Barron’s published its article:

And while $NDX proceeded to new highs in its ever rising channel….

….that channel got busted a day after we talked about a larger sell signal on $NDX in Black Candle.

Signaling further trouble was the break of the rising wedge on $NYSE:

Yet $SPX held its channel for the moment and $VIX held resistance:

For now, but a break on both fronts suggests more volatility to come and sizable corrective risk.

This next week will be subject to lots of further headline risk. The coronavirus is instilling fears. As one of the risk factors outlines in Lurking Risks the news of more infections appeared to trigger some quick profit taking on Friday. A quick containment can spark a big relief rally, a further spread could inspire much more selling as one would have to assume an at least temporary impact on growth.

Next week also comes with another Fed meeting where the Fed has to give guidance on its future liquidity operations. A slowing in liquidity could be seen as relative tightening which may well be unwelcome for a market that has relied on nothing but artificial liquidity. We’ll also still have to see the earnings reports of major tech stocks such as $AAPL, $AMZN, $MSFT, $TSLA, etc, many of which are vastly overbought (80’s party).

What is the corrective risk, when do bulls lose control, where’s support, what could be corrective risk targets/zones? Join me in this week’s video update:

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9 replies »

  1. Dear Sven, or someone else, what I still don’t get is why the FED started all this “not QE” stuff in such a big way…..is it because they have been pressured by Trump? is it because there is truly a bank or hedge fund on the border of collapse? or do they really have lost ther mind? I am asking, because this is possibly the start of their “undoing”…

  2. Sven, I would love to have yourself and J. Powell in a room and show him all his stupid mistakes He is making. That stupid look he gives to the reporters. And the news media only ask him the lame question. This is why they don’t care. Question I have is— Does J.Powell have a web address? I would like to send him a picture of these charts with my middle finger in the picture. Powell does not want to help the little guy. Thanks great video. I listen to it two or three times. Learning a great deal. Thank You ..

  3. Very insightful. Very logical. I am truly smarter as a result of following your analysis. It is refreshing. It is impossible that the reporters attending the upcoming Wednesday FED press conference will sufficiently press Chairman Powell on the fact the Feds overnight REPOS have caused an asset bubble….. It is not that they do not want too. They do….. They are actually chomping at the bit to play GOTCHA. It is simply that are unable to do so…… I have watched numerous Powell press conferences and it is clear those reporters do not have the knowledge, nor understanding, nor education, to pursue that line of questioning…. They are simply talking heads…… It is what it is.

    • I share you praise of Sven, Elliot , and agree with your view of the ignorance of these reporters – they are indeed talking heads – it’s what they do and will never change IMO:

      “It is the mark of an educated mind to be able to entertain a thought without accepting it.” – Aristotle

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