Market Analysis

Hitting the Gap

I had the pleasure of speaking with Raoul Pal of RealVision a few weeks ago. The interview was recorded in mid July and it was an opportunity have a heart to heart discussion about the key big issues all of us face on some level or another.

We all find ourselves in a rapidly changing world with unprecedented circumstances and we are all trying to make sense of it knowing what we know, recognizing what we don’t know and keeping taps on the possibilities of what could happen.

RealVision just made the interview publicly available on their YouTube channel today and it turns out to be good timing.

From a market direction perspective one of the many issues we discussed was the open gap on $SPX, the February gap in the 3300 zone. 3 weeks later and here we are, $SPX filled that gap today:

I should note that the gap on $ES futures is still slightly higher, but hitting this gap today brings the S&P 500 within an earshot of all time highs, negative earnings growth be damned.

One can’t shake the feeling:

The overpowering force of central bank liquidity continues to dominate the action today. And whether hitting this gap will prove to have any relevance remains to be seen. There are still open gaps higher on other indices, such as the $NYSE which still remains below the June highs:

But also note the multitude of glaring open gaps on $NYSE below. Not all gaps fill or will fill for a long time, but the abundance of open gaps is one of the many technical issues that give pause about the eventual sustainability of this historic liquidity driven rally.

These markets remain a journey, an expensive journey as valuations and forward’s multiples continue to expand.

Are these valuations and multiple expansions justified? I invite you to have a listen to our discussion as Raoul and I try to dissect the big picture issues:


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Categories: Market Analysis, Opinion

10 replies »

  1. Technically it is going higher. I expect all the indexes DOW, RUT, etc to hit all time highs. Tech will lead the charge, but probably correct before the other indexes. Shorting shouldn’t even be an option now.

  2. The fact is this we are in a secular cycle “ technology “ companies can function with less expenses employees can work from home. This where the gross margins ( premium ) stocks markets paying premium because there’s no alternative…

  3. Monsieur Sven , what you failed to discuss is that Gold market knows the federal reserve JP has lost control…this why it’s at historic highs and will trade to 5000 in the years to come. You have been obsessed with the markets that you failed to recognize the Gold markets and Bitcoin is where the money 💴 is stored

  4. Market cap to GDP is at record highs. Stock valuations relative to earnings are at record highs. Invert that, and you get that earnings yield on stocks is at record lows. Interest rates on treasury debt are also at record lows. Stocks are high and going higher because interest rates are low and going lower. Get used to it. It’s the new normal.

  5. TECS has bottomed.

    Expect an inflation surprise tomorrow in the payroll report that crashes the market in everything.

  6. Sometime in September or October, there will be a “Vaccine confirmed” news flash that hits Bloomberg terminal and pushes the SP500 to 3600/3700, just like Goldman’s current prediction released last week. Now it will not matter if the vaccine works, or if it hurts people, or if only 50% of the population get the vaccine, as the story is the relevant event, not the vaccine itself. Now by November/December when the Election is still up in the air due a conflicted election result in which the stable genius will not likely concede, and with a second wave worse than the first in full force by December, that is when Goldman’s prediction of SP500 at 2200 can become the main event, if and only if the Fed allows it to happen. So 10% up from here…maybe…and then 40% down from there…maybe. That would be the best way for the rich to get “moar richer” as the bottom 99% fights for the scraps…as the rich will not settle for just 10% up from here, as they know sooner of later a blue trifecta will be taking 60% of all their paper gains yearly, like suggested this week by team blue. And even if the 40% drop does not happen due to the pandemic this Fall, how wise would the top 1% be if they did not realize that capital gains are going from 23% to 43% for incomes above $1 million in tax year 2021…thus what super wealthy person is not going to cash in their paper gains by EOY 2020??? Just food for thought…

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