Market Analysis

Straight Talk #10

In this week’s edition of Straight Talk Guy, Dan and I are discussing a wide range of issues, tech, $NFLX, $TSLA, $AMZN, the sustainability of the sudden rotation trade, the $VIX, and vaccine optimism and its potential to propel markets even higher.

$SPX closed near the top of the range of the past 7 weeks aided by the machinations of OPEX week, a renewed expanding Fed balance sheet and incessant headlines of vaccine optimism, non stop Fed speakers, hope for fiscal stimulus and hope for a coming rotation trade on the heels of positive bank earnings, banks that benefitted tremendously from the Fed’s helping hand during the crisis.

As such the glaring cliff between Main Street and Wall Street continue to widen. Over 50 million Americans may have been forced to file for unemployment during this crisis but the banks have made out like bandits as have the tech billionaires having seen their stocks skyrocket to a disconnect versus the broader market not seen since the year 2000 bubble.

The rotation trade argument was supported buy a sudden flight from tech as key tech stocks reversed hard from their Monday opening highs and meandered for most of the week at lower levels.

But is the rotation trade a false flag signal? Rather does the tech reversal signal something more ominous in light of some key technical developments? As I highlighted last night:

Note the rotation trade argument has a lot to prove. Take banks and small caps who remain below the June highs with yields continuing to signal no V recovery::

Notable also this week: Several Fed speakers started to signal words of doubt about a V shape recovery and former Fed Chairs Bernanke and Yellen pleaded with Congress to sign off on another massive stimulus package. To not do so would be “catastrophic” according to Janet Yellen who, like Powell, is now declaring that all deficit spending concerns of previous years should now be ignored. Trillion dollar deficits bad, $4 trillion deficits no problem. Don’t worry about it and don’t worry about what we said just last year (Fed Chair Powell: ‘The U.S. federal government is on an unsustainable fiscal path).

However a glimmer of truth made its way into the public sphere. As readers well know I’ve been harping about the historic disconnect between stock markets and the economy for some time. Recessions typically see a cleansing of asset prices, not this time, as markets continue to flirt with historic highs.

On Friday US markets closed at 151.4% market cap to GDP close to all time highs:

This issue was suddenly acknowledged by non other than Fed Vice Chair Quarles:

The message: The Fed knows. The Fed knows markets are sitting on the very disconnect they have brought about with their liquidity injections (but refuse to publicly acknowledge), but the Fed is also trying to cover its butt in case things go astray.

So be aware, we’re in a bubble and the Fed has pretty much just acknowledged it without saying it.

Without further ado, please join us for edition number 10 of our Straight Talk series:

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


For the latest public analysis please visit NorthmanTrader. To subscribe to our market products please visit Services.

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.

23 replies »

  1. Another great video guys…. and Dan, can you get through just ONE episode without mentioning your friend in the White House? We get it. You’re not a Trumper. Hope you’re ready for another four years. Get used to it. Best….

    • There’s more chance of teh Nas holding these highs than Donnie Trumpo squeezing in a second term. Get used to it. Best…

  2. Great discussion..particularly enjoyed VIX portion including different views on how to look @ VIX. Although not a real-time or near term indicator it’s worth monitoring & becomes relevant very quickly. Looking forward to next weekend update and to see where this all goes in July. In coming weeks, in regards to COVID wanted to get more insight as to where the possible breaking point would be to lead us back to lockdowns. Would it be death count #s? Or just state by state..left to each US state governor’s decision? Or you don’t think we would ever go back to lockdowns no matter what happens.
    Thanks again for your insights & views! Cheers!

  3. The current mkt. cap to GDP is 152.8% (32.907T/21.54T). On 7/31 first estimate of Q2 GDP will be released. Currently estimates from NY Fed -14.3%, St. L Fed -32%, and Atl Fed -34.7%, average -27%. If GDP is discounted from 21.54T by 27% it becomes 15.72T. Using current mkt. cap of 32.907T then mkt cap to GDP is 207% (32.907T/15.72T). Whoa WTF! Way overpriced in normal circumstances but throw in corona virus, politics, and global tensions plenty of opportunity for mkt. cap to correct, except for FED. This is why Yellen/Barnake are screaming for fiscal help. For the ratio to become “fair value” or equal weight mkt. cap has to drop ~50%.

  4. The NDX index is THE index to follow closely.

    I do think the NDX is the most important index to chart. Let’s face it, the capitalization of those large tech stocks have simply been driving everything up….they comprise more than + 20% of the spx…a concentration much higher than in 2000!!! Apple’s market cap is larger than the whole German Dax!!!

    And it looks very likely it topped last monday. If the TOP is in….we should fall hard this week and coming weeks.

  5. Sven Henrich
    @NorthmanTrader
    ·
    Jul 18
    The larger message: They will keep rates at zero for many years to come no matter what inflation does.
    That is your classic bubble endorsement.

    WRONG!

    • Gold above $1,800 and silver breaking $21. Come on Sven, who really thinks the Fed is going to sit back and do nothing and watch gold and silver take off from here?

  6. *BERNANKE DOESN’T SEE FED POLICY CAUSING UNWANTED INFLATION

    yeah right, just like when Powell used the term auto-pilot.

    Markets are now starting to price in when the Fed will give in to rising inflation and forced to raise rates. Remember: The Fed are followers.

  7. Hey Guys. For next time, does anyone think the market has neglected to price in the outlying possibility of another American Civil War?

    Even if the Donald could not manipulate the system once more or have foreign powers help with the intention of destabilising America by manipulating the social media, compounded once again by the clueless idiot Democratics after not learning from the last mistake by anointing another olden days PC candidate with too much history who should be living a happy retirement by now (had they elected a Fourth Turning candidate like Mayor Pete or Cuomo as his daddy if they still wanted someone older at the helm, with maybe that Atlanta mayor throwin in the mix as a vice they might have had some legitimacy for change…), do you think this fascist narcissistic mad psychopath Trump would ever relinquish power peacefully?

    At the very least we will have months of law suits contesting every result if he is unable to manipulate the ballot again, complete breakdown of civil government. It’s already been set up. The whole postal vote thing is the basis of war in the courts and who knows ultimately what on the streets. Trump is no idiot like his opponents.. He would love this, just as a last laugh as a man of good humour, even if he is not actually the antichriist!

    Of course the commonailty, common poverty and common humanity of the simple everyday people on both sides will be overlooked in a civil war. Perhaps the markets are correctly pricing in that they are all irrelevant anyway. So all time highs it is, either way!

  8. I warn everyone on this board that an “ intraday reversal close “ was imminent Monday was the entry point …the earnings are factored since March 2020 ..caution if the Senate does not extend stimulus then markets are extremely vulnerable ..Powell warn everyone that additional stimulus is needed …

  9. Once again, there will be no Covid-19 vaccine because there has never been a successful Corona virus vaccine EVER created. Secondly, there will be no Corona virus herd immunity because the antibodies created in people who have recovered from the virus wanes. This Corona virus will be with us FOREVER. We will all get it eventually and we will all get it again and again and again until eventually you get old enough and draw the short straw. Lastly, America will be locking down harder than before in August, if not sooner, to try to slow the spread of the virus. When, not if this happens your 2020 election will be POSTPONED. There will be no election this year as a nationwide emergency health lock-down, militarily enforced will be imposed. Your free elections, your freedoms, your liberties, your happiness will be shall we say, “Gone With The Wind”.

    Get on with your lives everybody because time is very short for all of us now.

  10. Dave Portnoy making a call today that there could be a pullback in the market this week. Sven will finally be right along with everyone else that followed him including me.

    • SOXS, TECS, SPXS, SDOW, LABD all lower lows today with positive divergence. The bear train is about to leave the station.

      • SQQQ and TECS up today. Technology and the Nasdaq did not like seeing gold above $1,800 and silver over $21.

  11. Sven take note… ‘Investors should end their obsession with valuation metrics’
    ‘BlackRock Quant Sees Stock Valuation a Mystery Not Worth Solving’

    Exactly what the late great Larry Edelsen said would occur at the top of the market. He also predicted that Dow would hit 30K. RIP

  12. Bernanke and Yellen say the Fed needs to find out why the market broke down in March.

    Yet Robert Kaplan says that this current crisis has made income and wealth inequality worse.

    So was it the coronavirus or hedge funds or some other entity that crashed the market?

    Back in December 2019 Robert Kaplan said that interest rates should stay where they were.

    But in March 2020 the Fed was forced to cut rates. So who created the crash to get lower interest rates and more stimulus in order to eventually get markets to all time highs?

    Will they crash the markets again to get negative rates? Or will inflation force the hand of the Fed to raise rates? Will coronavirus, hedge fund or some other entity crash the market in protest of higher rates?

  13. Trump filling vacant Fed seats with Republicans.
    Lael Brainard might be the only democrat on the committee.

    Sven Henrich@NorthmanTrader – Negative rates before the election?

    Answer: No

    Billionaires will be very disappointed on the next orchestrated correction when the Fed does not go negative because inflation will have risen more than they expected.

  14. Buying inverse ETF’s SOXS, SQQQ, TECS, SPXS, SDOW, LABD. Billionaires are probably buying these up knowing that the Fed will not go negative rates on the next correction. Jumping on board of the bear train.

  15. Silver above $23 now. Let’s see the Fed go to negative rates during the next orchestrated crash…yeah right. The Fed won’t and so many will be left holding the bag. Stocks are bad!

Leave a Reply to Terry Cancel reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.