Market Analysis

Breakout

Like the mini Iran crisis earlier in the month the coronavirus is already ignored as markets are once again rallying hard today and in process are crushing all volatility. Gap, ramp and camp, the standard script.Another mini dip soon to be forgotten? Or a dead cat bounce?

Markets became short term oversold and a bounce makes sense.
Notable that after 3 months of rallying the first serious down day has prompted immediate calls for Fed soothing and reassurances:

Yes, these are the markets we have. They can’t handle a single down day without running to their sugar daddy.

Likewise the PBOC will flood markets with liquidity when Chinese markets open again.

That’s how fragile and dependent financial markets have become. Expecting and receiving constant intervention help to avoid and minimize any downside. The lender of last resort has become the primary driver of markets always eager to please and hence market participants do not even worry about any sustained downside knowing the Fed will always be there:

“The market sell-off could reach 10%, but most analysts expect much less because of Fed backstop”

Be that as it may yesterday’s sell off has produced something we cautioned in $VIX 46: A breakout in the $VIX:

Zoom in on the chart and you can see how clean the breakout has been:

Today’s rally then is about retesting this breakout. The forces of intervention in their fanatical mission to contain and control all market volatility under the auspice to “calm markets” will aim to get $VIX back into its controlled state, i.e back inside the pattern zone.

Tonight we have $AAPL earnings and then the soothing Fed meeting tomorrow. The results of both will likely drive the next direction in volatility.

For a proper technical correction to sustain itself sellers will want to see the trend line defended and then for the $VIX to gain strength.

While markets had a quick pullback that made them short term oversold today’s rally is starting to alleviate these short term oversold conditions and is levitating markets back toward broken resistance.

A dead cat bounce? We’ll know more after $AAPL’s earnings and following the Fed meeting. For now the $VIX has had a break out and investors are on notice. Should the efforts to control and contain volatility fail then lots more volatility is coming our way.


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Categories: Market Analysis

9 replies »

  1. Fed will cut rates, hence the reason for the Silver ( Achilles heel ) smackdown. Expect silver to go back up to $18 in the next few days but not much more.

  2. CNBC article today had a poll which stated 77% of americans are currently anxious about their financial situation:
    https://www.cnbc.com/select/how-to-take-control-of-your-finances/

    How can 77% of Americans be financially anxious, yet consumer confidence released today states Americans are highly confident? I understand why the top 20% may be confident as they own almost all the market assets, yet how is the bottom 80% so confident, yet anxious? Seems to me we have peak “anxiety-confidence”, scared yet brave?

  3. You’re late. If you followed VIX Futures, you would learn that BREAKOUT occured on January 20, 2020. Not yesterday.

  4. Another volatile day, while they try to kill the VIX….When it finally breaks, the VIX may well explode higher. Insanity continues

  5. Thanks Jeremy Powell and previous US central bank feds, your actions have consequences beyond simply enriching the top 1%. Hope you like the alternative to capitalism and democracy…

    Global dissatisfaction with democracy has reached a record high, research claims per https://www.cnbc.com/2020/01/28/global-dissatisfaction-with-democracy-at-a-record-high-research-says.html

    The proportion of people who said they were dissatisfied with democracy over the last year hit 57.5%, according to the report, with researchers saying 2019 marked “the highest level of democratic discontent” on record.

    Authors noted that over the last 25 years, the number of individuals dissatisfied with democratic politics around the world rose from a third to more than half.

    Shifts in satisfaction levels were often a response to “objective circumstances and events” such as economic shocks and corruption scandals, the report said.

    Following the financial crisis in 2008, for example, global dissatisfaction with the functioning of democracy jumped by around 6.5%.

    Many large democracies, including the U.S., Australia, U.K. and Brazil, were now at their highest-ever level of dissatisfaction with democracy.

    According to the report, the U.S. in particular had seen a “dramatic and unexpected” decline in satisfaction with democracy.

    • Indeed, we live in a system that only works for the psychopaths at the top of the pyramid (oligarchy), while it destroys our beautiful planet.

  6. Cornoavirus infection growth is following a geometric progression of 53% increase a day, as shown by Bianco Research https://www.biancoresearch.com/coronavirus-growth-rates-and-market-reactions-2/

    While possible, yet not necessarily probable, that could mean 138 million infected by February 20, 2020. I hope the infection rate levels out much sooner than that, but keep an eye on the daily numbers as there is a lot of risk China is hiding the truth once again, like occurred with the 2003 SARS virus. We really need to get the CDC on the ground in China (no allowed yet), we really need to shut down all flights from US to China (not done yet), and we really need to invest much more money and time into a vaccine, so perhaps the treasury and fed should start printing some CDC money instead of hedge fund bailouts. Contrary to popular myth of a vaccine in a couple of months, a vaccine can be produced in 3 to 6 months, yet human trials are necessary which push out a vaccine release date to one year. And there could be a mutation by one year, in which the vaccine is not as effective (which happens with the common flu vaccines). Time to take this pandemic serious, time for WHO to forget politics and global GDP and declare a global pandemic. Once they do, the UN releases millions of dollars globally to fight the effort (Gates foundation already released $5 million to China), and the governments of the world are forced to work together to contain the virus via protocols. Point being, who will care about their 409ks when the world around them is in chaos. “All is not well”, at least not yet. I have hope this can be contained, but only if we take it serious on a global scale. Good luck in all your investments.

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