Market Analysis

Straight Talk #8

An eventful week in markets and the economy as the month and quarter are coming to a close next week.

The broader market peaked on June 8th on the heels of unprecedented central bank intervention but has since failed to make new highs other than the Nasdaq. Any subsequent efforts by the Fed to stave off any market sell off via the announcement of individual corporate bond buying 2 weeks ago or this week’s announcement to relax the Volcker rule for banks have produced nothing but short lived bounces in markets leading to lower highs and further selling in equities.

Fundamentals and reality are making their presence felt. The reopening of the US economy is hampered by violent spikes in coronavirus infections in some part of the US leading to delayed reopening in some cases raising questions about the veracity of any V shape recovery in the economy as lay off announcements keep mounting globally.

The realization that jobs will not come back to anywhere near February levels may take time to sink in as does perhaps the inconvenient truth that the Fed’s intervention efforts may be hitting a point of diminishing returns.

In this week’s episode of Straight Talk we discuss the market’s technical battle line for control, the state of the banks and their message to markets, the gnawing threats on big cap tech, specifically on Facebook as advertisers are pulling out in droves in the midst of political backlash, the going forward political risk of big cap tech having reached quasi monopoly status in their respective fields, the ongoing threat of the virus resurgence to the V shape recovery narrative, the political risks to markets due the upcoming presidential election and possible impacts of tax policy and much more:

For reference a couple of charts relating to what we discussed in the video above:

$SPX, following peaking June 8th when it tagged a key trend line has now reversed lower and has closed the week below its weekly 5 EMA for the first time since the March lows following the break of the rally trend earlier in the month:

This could be signaling a trend shift. But also note $SPX closed right at its weekly 50MA and just below its daily 200MA:

Note also the consecutive breakouts in volatility since the June 8th peak.

Put in context the horrid action in the banking sector, even this week’s loosening of the Volcker rule lead the resulting bounce to be sold. Worse for banks potentially here is that the chart suggests a potential head and shoulders pattern that could signal much lower prices ahead in context of the 10 year again dropping lower as well:

Since the June peak, $SPX is down 7%, small caps are down over 10% and the banking index is down over 20%. These are sizable moves to the downside and tech is increasingly under threat as well and its strength came on ever weakening internals.

I’ve outlined the reasons why the historic rally may have been still nothing but a bear market rally fueled to extremes by unprecedented liquidity injections and why the Fed looks increasingly busted in trying to defend this market without being able to prevent what the banks and bond market are already signaling: We’re staring at the prospect of a protracted downturn.

Markets are a journey and the day to day back and forth may well distract from the bigger picture, hence it is critically important to keep a close watch on the technical charts and evolving macro data. My primary view: There are plenty opportunities to trade the long and the short side as the battle between artificial liquidity interventions and the fundamental/valuation picture rages on in the months to come. But be clear: In June the broader market made a lower high and the path to a full economic recovery does not look anything like a clear V at all while valuations remain at unprecedented levels during a recession.

I’ll be posting a separate Market Video focusing on the latest technical implications later today (For those not already signed up for these videos please see link to register).


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Categories: Market Analysis, Opinion

16 replies »

  1. I got aggressive selling 20 contracts10260 -Nasdaq 100 futures when Apple 🍎 PIG 🐖 was selling at 370 analyst target buy of 400 was obscenely absurd — never put buy rating! at 225 or 250 PIG 🐖 trading up over 634 billion on “ pump & dump “ news and estimate earnings of $2.00 for July ..give me a break … cashed in at the close… hahahahaha going fishing 🎣 Sven after riding your prolific undisputed skillful analysis …I realized brilliant money 💰 makes money from smart & stupid money 💰 gracia my profound eternal gratitude

    • Sven, You’re an ok guy, however, you are the weakest Bear I have ever seen. Why don’t you grow some balls? The market is going to CRASH tomorrow! I’m 300% long SZK and SQQQ. I’m 300% short UGE. I’ll make money tomorrow. You’ll be wishing you had at least an ounce of courage to go with analysis. Grow some balls buttercup!

      • BTW, since you have a MSM(paid-off scumbags and liars) presence why not (if you ever grow some balls) call out the thieving private central banksters for what they really are….01% lazy parasites stealing everything that have been mass-murders of the remaining 99.99% since 12/23/1913 thru economic hardship, lack of opportunity, lack of hope, unfair treatment under the laws written for them(called JUST US) by our rotten, paid-off, treasonous, cowardly pos government? If you can’t do that drag me along on your next visit to the cnbc clown show and I’ll do it for you?
        Obviously, the first thing you’ll do instead is delete my post which just means you are really just a paid-off actor in the ongoing dog and pony show. Shame on you!

  2. Great session this week. Really looking forward to how market behaves next week. The FED has stated it has lots more ammunition. It will be interesting to see how FED responds if market has continued negative reactions due to virus & reopening news.

  3. $SPX down 7%??? That sounds like an approaching BTFD buying opportunity. Instead of the negative perspective of a head and shoulders, wouldn’t one more down day make for an A-B-C correction, Sven???

  4. In FED we trust. Regardless of the small pullback last week, Central Banks will not let this get out of hand and a combination of Comments and new nuggets from the Gov and FED will kick the Markets back into and UP trend. New ATHs for SPX and DIA will come before long.

  5. who needs an upcoming $1T stimulus, infrastructure bill, vaccine when you have bullish catalysts like this:
    11am: Fed’s Williams
    11:05am: Fed’s Brainard
    12:30pm: Powell and Mnuchin
    2pm: Fed’s Bostic and Kashkari

  6. Congratulations to you three, you are doing awesomely well. I thought last week’s was the best so far, generally you just keep getting better at talking about the things that (should) matter to the markets.

    USA is now clearly failing to contain COVID-19 whereas most other countries have done measurably better, especially in SE Asia and, to a lesser extent, Europe. Why? I propose it is largely due to people acting ‘for the common good’ rather than in their perceived selfish interest and their personal freedom. It may also be that they perceive the common good as being in their best long term selfish interest.

    Many decades ago I played role playing ‘dungeons and dragons’ games with workmates and used ‘good’,’evil’ and ‘neutral’ characters to explore what was called alignment; we discussed the meaning of these terms, how the differently aligned characters viewed themselves, and how we would objectively define ‘good’ and ‘evil’. Our conclusion: ‘evil’ characters thought and acted in their personal and their cohorts’ self interest largely disregarding the common good whereas good characters considered the common good above their selfish interests. Evil characters did not think themselves evil at all.

    By this definition perhaps USA has more ‘evil’ people, or perhaps its society / culture is more evil. I felt a need to say this, apologies for any offence caused.

  7. Just watching the closing ramp today, nostalgic and coming back it seems. Combine it with the overnight ramp (which seems to have become a regular feature lately) and we have hopium bliss. Meanwhile the real trading days (markets open) are in a total tizz about what they should do. This will continue until it doesn’t (and you know what happens then, folks), unwise to time that but meanwhile you can trade it.

    • I’m keeping an eye out for divergences to be confirmed in all the FAANGM stocks on the daily charts.
      Looks like Apple and Amazon are the last two remaining holdouts. Let’s see if both Apple and Amazon make new highs tomorrow with negative divergence.

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