Don’t let new highs on Nasdaq fool you. It’s still a bear market and I can prove it.
First let’s acknowledge they are have and continue to throw the kitchen sink at this: Historic monetary and fiscal stimulus with more to come apparently as the powers that be are discussing another trillion dollar stimulus package on top of the $3 trillion they’ve already thrown at this and of course the Fed’s historic balance sheet expansion.
The latest round of stimulus talk again sparking another overnight rally in the US. But note the Fed’s balance sheet expansion has for now peaked in the 2nd week of June tor so, and magically did the S&P 500:
Fed balance sheet peaked during the 2nd week of June.
So did the S&P 500.
To keep history alive: All highs into Q4 and Q1 also came on balance sheet expansion. pic.twitter.com/gaD3NMljGh
— Sven Henrich (@NorthmanTrader) June 22, 2020
Coincidence? I’ll leave that up to the reader to decide.
What is factual is that we are witnessing the greatest debt explosion of our lifetimes:
While all this is advertised as consequence free and the ingredients of a new bull market let me suggest that this is not how the broader market sees it. Not at all.
This entire market remains a tech affair while the rest of the market is indeed in a major bear market.
Equal weight tells the truth. Here $XVG versus $NDX:
$NDX making new all time highs on futures in overnight while the rest of the market in equal weight sits below the December 2018 lows when $SPX was trading at 2350.
Here’s the monthly big picture:
Tech is entirely decoupled from the rest of the market similar to the year 2000, and by tech we are of course looking at the historic distortion created by handful of mega cap stocks.
Looking at new highs on $NDX the underlying $BPNDX tells a story of weakening:
What’s propelling $NDX to new highs are of course the usual suspects. I’ll highlight 3 companies, $AMZN, $MSFT and $AAPL, their market cap now exceeding $4.35 trillion equal to 20% of US GDP. Not bad with their employee base being equivalent to 0.34% of the US population.
Forgive me for showing linear charts, but the yearly charts have to be appreciated for the risk appetite that has investors chasing these stocks far above their yearly 5 EMAs and Bollinger bands:
The narrowest and most concentrated market cap risk ever. In the middle of a major global economic recession.
Yet the larger market says something completely different.
Look at $NYSE, the broader index, it’s a big fat rising wedge with an island reversal to boot:
MACD is down and it’s barely hanging on with an island reversal to boot. This is bearish full stop.
And we see similar charts on other indices:
Fact remains markets are tethering at major trend line support see also $DJIA:
And ironically all this is happening in context of this $QQQ chart:
$QQQ close to hitting a 10 year trend line while printing a massive negative divergence, a classic warning sign, especially in context of the historic extension we see in the yearly charts above.
So from my perch: Don’t be fooled by all this bull talk. The larger economy and markets are in major trouble. With all this intervention they’ve produced the largest asset bubble concentrated in a few stocks ever, a massive imbalance all of which bears major reversion risk.
If they lose tech for any reason it’s all over. Every fund on the planet is exposed to big cap tech, they’re all hiding in it from the SNB on down.
Bubbles defy reason and this historic set of liquidity injections have created the illusion we can print ourselves out of the current mess and as long as the liquidity equation retains control the asset bubble can grow, grow to become ever more of a risk to the economy’s long term health for nothing good comes out of a bubble bursting.
For now tech is in a liquidity driven bull market driven by a few stocks. The broader market is not:
Equal weight this:
Index performances YTD:$SPX: -3.61%$IWM: -13.81%$NYSE: -13.57%$BKX: -30.75%$NDX:+15.65% pic.twitter.com/dXh6OntN7i
— Sven Henrich (@NorthmanTrader) June 22, 2020
Ignore the message of the broader market, and the banks in particular at your own risk. Their message: We’re still in a bear market.
All content is provided as information only and should not be taken as investment or trading advice. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. For further details please refer to the disclaimer.
Categories: Market Analysis
Great article Sven. I hope it will be interpreted by readers,traders and investors alike as what it is.
All that chart technique stuff currently happens on QE infinity. In the past there wasn’t even a normal QE. So for me the big question is: Who will win? Chart technique that reproduce things from the past or the central banks?
The biggest bubble ever…during a recession. Unbelievable….
Hi Sven: Great article, as always! If we are in a real bear market, how do you suggest we capitalize on it? Should we SPX or SPY puts?
check out these tickers SQQQ, SOXS, TECS, SPXS, SDOW, UVXY. But these are all very risky and the market is just going to keep making new highs.
Why was there so much pessimism and doubt about the effectiveness of the Fed’s bond purchases all this time while stocks just kept going up? Who has been propagating such a narrative? Did the billionaires propagate it? What an effective tactic it has been.
Sven, imagine for a minute that we are in a bear market. That means it’s time to start spreading the narrative on how positive the market looks and that the market will rebound to make new highs all the while shorting the market. That’s what they did during the 5 year drop in gold from 2011 to 2015.
Sven, is it possible that all your analysis (as well as from others that are shared on twitter and every other social media platform) is actually helping the Fed? Maybe it’s time to take your fight of the Fed underground. Let’s see if the fed and the media could figure stocks out on their own.
When one looks at the individual charts of the FAANGM….then frankly, TULIPS is the definition. This is simply unreal….
July earnings !! the ( future value ) has factored from March to ( present value ) expect climax intraday reversal with GAP downs !
America is broke LOOK 👀 https://www.usdebtclock.org/
The fed is probably following your analysis about how the Dow is tethering on trend support and about to buy stocks right now.
You see Sven, they bought your tethering bottom support line.
Even without all these charts. The fact that investors are pricing stocks in like its 2019 is called denial and happens to every market after the pop. An elliot wave technician would call this latest rally a wave two with the third wave coming shortly. Fall time will be interesting just before elections. Also if you think the fed can just buy etf’s and stocks to support the market is ludacris. Not only are they counterfeiting currency…they are using it now to buy stocks assets. Hilarious…this will go down in flames. SPX, XLK puts anyone? On top of all currency creation…it will fuel crypto and catch everyone off guard and chasing price just like last time. That top will occur late 2021 or early 2022 according to time signatures i found.
Drop all pessimistic views about the market. Time to talk optimistic about a rebound to higher highs all the while shorting stocks.
It all comes down to the dollar. The market believes the Fed will get the DXY far below 90. That’s why the market is up today – the dollar is down. The big players have already called Powell and know how much he’s going to print and probably when yield curve control commences. So it’s a no risk game for them. Powell has Trump’s permission to print as much as he wants, that we know.
So, Sven, although I agree the market is overvalued vs history, can you say it’s over-valued with regard to treasuries? Probably not. So investors have to choose up or down for the markets. They are siding with the man with the printing press.
The Venezuelan stock market is now strong because of a worthless currency, despite famine, riots and universal poverty. My point is that you would be a fool to short the Venezuelan stock market.
Sven, if the DOW is tethering at the bottom of a major trend line support, then why are you so negative? You just pointed out a buying opportunity. Buy low sell high. Thank you very much.
According to Sven’s index comparison chart, it looks like the DOW, SPX, NYSE, IWM, BKX have some catching up to do to the QQQ. Play the catch up trade. Why the negative spin Sven?
Sven, you’re still looking at it negatively. Equal weight is telling us to find those stocks with good technical charts that have been forgotten based on the FAANGM trade. The chart of CVS is increasingly appearing constructive.
SOXS double bottom with positive divergence
Absolutely correct analysis, Sven. In a couple of days or weeks or months (it will be before end Sept 2020) there will be mass shakking o’ heeds over the current silliness as the wondering turns to: will SPX 2500 hold, will 1800?
Watch AAPL, when it turns down the bottom falls out. A cratering USD might provide some temporary support, but as the ultimate implications of that sink into thick skulls…
Check out the huge amount of weekly volume on all the inverse ETFs like SOXS, SQQQ, SDOW, TECS, LABD, SPXS.
A lot of selling but the correct question is: who has been buying on the way down and stealing shares of these ETF’s away from the holders that are capitulating. Time to jump on board with the billionaires before they buy up all the supply.
Maybe the billionaires are behaving like Robinhood traders? Besides, they have a very vested interest in blowing the bubble bigger (works if they get out in time). I would be interested in reading a decent analysis of the inverse ETFs’ recent behavior if you know of one.
I’m buying inverse ETFs as it looks like they’re being thrown away. Someone has been happy to buy them up and take them off the holders hands. Could it be big money firms buying up all these inverse ETFs while the holders capitulate? As far as analysis i’m keeping my eye out for divergences.
Could be a smart move. Should be liquid in most situations, maybe cash out half when doubled your money? / while you still can.
Taken a closer look. They do generally look to be at silly low prices, hard to see them getting much lower. A 10%+ decline in stocks could easily give 2x upwards returns on these inverse ETFs. A very good bet I would say.
A couple of weeks ago I said in response to Sven’s Crash #2 post: “US covid19 cases are increasing again and that rate of increase is likely to accelerate near term, at least.” That has become very apparent in the last week and there have been minimal state or federal actions to mitigate, thus it will worsen. I don’t know what happens next, it might stabilise, it might keep increasing, it’s not going to turn down much without significant action – by states, by federal govt, or by folks running scared. If it continues to worsen significantly over the next 2-6 weeks I think Amendment 25 happens.
Don’t count on 25th Amendment… America will only do the right thing when it has run out of options…
Living in UK I certainly don’t count on it. Maybe US folks should, it’s beyond reasonable time in any sane world and I see no better logical options for USA or Republican party – unless both prefer serious decline.
Great close for the bears. Tops in?
Agree. Check out the last two hours of trading on the inverse ETFs TECS, SQQQ, SPXS, SDOW. Above average buying volume at the end of the day. Price closed inside the morning gap. 5 day moving average crossing over 10 day. all good signs.
Bulls are waiting for Astrazeneca to release its vaccine results in the next week or so. I’d wait until that news is released before proclaiming a top. Hordes of millenial day traders will buy that like mindless zombies. Each has a $1200 check + $1200 margin. Then more fiscal once July starts, so you’re really betting on the fact that AZN’s results are bad, unless the news is sold. But all that being said, volumes are pathetic, which means the market can swing wildly up or down on news.
That’s exactly the kind of narrative the Bears need…bulls to buy on the dip while waiting for the vaccine results -Only to be shocked that the results are already priced in. I’m going to be on the look out for positive market narratives that the billionaires are going to float out there periodically to lure in the bulls to buy each bounce and then pull the rug from underneath as they did to the bears during this bull run. Stocks went up due to buybacks that took out stock supply. Now they are scooping up all the supply of the inverse ETF’s.
MrMarket: Yo Jay, how ya hangin’?
JP: Fine, M, fine. You happy?
M: Doing nicely Jay, thanks for the bond thing.
J: Glad you liked it, good to see Naz at records, keeps MrP off my back.
M: Heh heh, my orange golem can be a bitch at times, bro.
J: Well, he even said nice things about me the other day.
M: I still have some control of the beast, Jay.
J: Earnings coming up, prolly won’t be too pretty, will you be OK with things?
M: Glad you mentioned that Jay.
J: Why so?
M: You remember that rubicon thing?
J: Um, don’t think so?
M: You know, buying the shit.
M: Well you gotta do it bro, else we’re gonna puke.
J: OK, I’ll see what I can do.
M: No, Jay, I’ll see what you can do, you just do, OK.
Very much appreciate your gifts. Thank you!
Your charts looks good but sadly the logic is flawed. Markets don’t agree on your assessment and thesis, why should the readers?
Watching out for charts in the future that show declining volume in the inverse ETF’s. That will be the Billionaires attempt to get holders to sell early and to shake the tree for weak hands and scare holders out of their inverse ETF positions and steal their shares. As soon as the inverse ETF’s begin to take off i’m expecting to see an increase in buying volume. Then over the coming weeks and months i’m expecting the inverse ETF’s to continue their upward trend with declining volume. The Billionaires will still be holding during this phase due to greed thereby creating a lack of supply and as a result it shouldn’t take much buying volume to keep the price trending upward.
Newbie here- in your thesis, the declining volume on the uptrend means billionaires are not selling but prices are rising cause the market is taking a beating? Any inverse ETFs you like? Thanks
Yes markets will be declining and late comers will be buying inverse ETFs. SOXS is beginning to look constructive.
Here we go, calling the tops – DOW 40,000, SPX 4000 and Nasdaq 15,000. Nice rounded numbers. Of course, Sven will never publicly call the top as his reputation is wholeheartedly on the line.
I have no idea why Sven allows you to keep posting your dickweed bullcrap on here. he must have a reason. Maybe he will use you as an example in future.
I’m going out of my lane on this one. It’s happened again. This time it was CLO’s and their Derivatives. Whatever you want to call it the collateral used as security for overnight inter-bank lending loans has blown-up. In 08/09 it was MBS, Subprime and CDO’s. Now it’s a global greed-fest feeding frenzy. Covid-19 is the cover/distraction to orchestrate the biggest monetary theft in world history. The disease is real, most likely purposely created and then released to cover the theft in progress. Another financial crisis without blaming Covid-19 would never be accepted. When you really think about it…………….the plan is brilliant. All the bankruptcies were going to come because of the over indebtedness everywhere. We just needed something else to blame it on on. Enter Covid-19. The Depression is here. Meticulously planned and created to solve alot of problems at once. We will all be able to point our finger at Covid-19……..that is our enemy. The outcome is still the same………..economic reset and destruction. Good luck everyone.
The lockdown was the key component here. That meant mass unemployment so that people wouldn’t oppose a bailout but instead BEG for one.
The wealth gap is now very obvious and in plain site. The billionaires are using Covid to explain why the wealth gap keeps getting bigger. The fed is using it too. The billionaires are using Covid to distract us from their greed and wealth accumulation. The next wave of protests will be against billionaires, wealth inequality, monopolies, big corporations and greed.
We will see about that. Protests fizzle out quickly. Occupy Wall Street was a joke — didn’t accomplish anything. The sheep will keep electing the crooked who are in bed with the 1%. Jeromme Powell is worth over $150M and parties with Jeff Bezos at this Washington DC mansion. You really think he cares the FED is breaking laws? You really thinks he cares that many understand what the FED is doing to goose the markets? NO, NO!
Things have to get a lot worse before the sheep can enact real change.
There should be an immediate moratorium placed on all buybacks and dividends until the corporation has awarded the same number of stock options or any other form of equity compensation to all employees. And a flat contribution to employee 401k’s should be implemented rather than on a percentage match. Corporations use their cash flow that all employees worked for and the company used that cash flow for Buybacks and dividends that only benefit those employees that receive options from the company. But what about 401k’s you say? What if an employee can’t max out their 401k contribution or can’t afford to contribute up to the company match or have extra earnings to gamble in a 401k. ( a lot of people don’t like stocks cuz of the volitility) Again buybacks and dividends wouldn’t benefit these employees equally either. Until these changes are made the rich will keep getting richer with buybacks and dividends.
The enemy are the billionaires. The 1% are paying themselves in stock and paying the rest of us in worthless cash. And then they increase their value through buybacks and dividends while our cash continues to decline in value. They then accumulate real estate and other assets and inflate asset prices making it impossible for the 99% to enter those markets. And then they create foundations and get to make large donations to distract us from their wealth accumulation. Oh how benevolent they are. If Jeff Bezos donated $160 billion dollars tomorrow he’d still be a billionaire.
How was systemic wealth accumulation allowed to get so concentrated and systematic greed to get so out of control?
Based on no evidence whatsoever, since reality doesn’t currently matter, I expect a 10%+ correction in the next 7 trading days. And it’s more likely to be over 15%.
On the wealth disparity thing. Things changed (in USA, less so most other places) in the 1980s. In the prior 50 years increases in wealth were more equitably shared, but the inequality of distribution has accelerated since then. We’ve probably reached the point where relatively minor corrective actions will be inadequate. Thus a more violent equalisation is probable, or a full reset of the economic system, or both. I know this is quite difficult to contemplate or to see how it will occur, however, it is the most likely path. The overall effect will be for average individual’s wealth to decrease, maybe drastically, but the wealth discrepancy between the average and the richest 1% will reduce by between 10x and 100x.
Today there was above average selling volume in the inverse EFT’s in SQQQ, TECS and SPXS yet they did not make new lows – a sign of weak hands giving up their inverse shares way too early. No selling volume in SOXS – that one is holding tight due to stronger hands and supply already taken up.
One of Sven’s lemmings recently said, “I expect a 10%+ correction in the next 7 trading days. And it’s more likely to be over 15%.”.
Stop going to your local bong shop ya’ hear?