Market Analysis

Stretched

I’ve been saying it for a while: The extremes are becoming ever more extreme, to the upside as well as to the downside. Last year I kept highlighting multiple warning signs in markets leading into the 35% crash ( example: Never go full retard) and now I feel like I’m repeating the same exercise again. People forget tops are processes and bottoms are events and as processes take time to unfold, but when things crack they tend to move quickly.

Indeed markets seemingly keep repeating the same cycle:

While the crash is now long forgotten it was nevertheless real and while I never call for crashes I certainly will want to continue highlight risk issues I see, especially now we are staring at the largest valuations and technical disconnects ever.

In fact we are seeing stocks and some indices behaving in ways we haven’t seen since the year 2000 tech bubble. There simply is no history in how smalls caps are behaving at the moment for example:

Vertical price moves have consequences. And as stretched as small caps and the rest of the market was during the peak of the crash in March of 2020 (hence the bullish call at the lows) as stretched charts are now to the upside.

Indeed the technical stretches are so vast they themselves are screaming danger as the charts are practically begging for rebalancing and reconnects.

Just to highlight a select few charts using the 5 EMA, the exponential moving average on longer term time frames, consider:

$NDX quarterly:

While 5 EMA disconnects can persist they always happen and times of extreme reconnect tend to make reconnects more violent. See 2000, see 2018 and even in early 2020.

Now $NDX has begun this quarter with a near 15% disconnect from the 5 EMA as $NDX surpassed the 13,000 level.

The message is even more dramatic on the yearly chart:

Don’t @ me because I’m using linear charts here, versus log charts, it makes no difference in the math or the size of the disconnect.

With $NDX at 13,000 that’s a near 30% disconnect from the yearly 5 EMA. That’s a lot of runaway optimism to want to sustain or to want to bet on sustained further upside.

$IWM quarterly, same message of course:

And here’s $SPX on a yearly basis:

I can’t predict the when and where, but yearly 5 EMA reconnects or at least approaches toward them are common market history, that’s just a fact and hence suggestive that this market has technical reversion risk in its future.

Ironically the $SPX yearly 5 EMA sits right at 3255 at the moment. Why ironic? Because tagging it would imply filling all the open gaps from November:

Now at this stage it would likely take a trigger event to bring about such a move, be it the yield curve or the dollar (see also Freak Show, The Alternative View, or something else) but a reconnect would check technical tick boxes and fill a bunch of open gaps and satisfy a lot of technical misgivings about the current market stretch. Time will tell. But the risk of technical reconnects, be it on the quarterly or yearly charts, is very real as it was last year (see $NDX check). And when and if reconnects  happen they may present tradable long entry opportunities. But we’ll cross that path when we get to it.


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Categories: Market Analysis

45 replies »

  1. Jeremy Siegel recommends not being in cash or bonds.

    Time to take money out of your banks.

    Back in February, everyone i know was taking cash out of the banks. And how did the Federal Reserve respond – they printed more money.

    so you better get your cash out of the bank now before the billionaires sell their stocks and cash out.

  2. Thanks Sven, you hace good intentions, but Is not a fair game with the Fed manipulating markets without any punishment for their bribery.

    With Biden-Powell-Yellen will be more of the same circus game.
    More robbering for politicians-corporations with cheap talk.
    Now GS is the new cheerleader.
    And Trump got his 4 years distraction, and got alsoJerusalem for His bosses .
    Welcome the new King, the same as the last 4

    • Technical analysis no longer works. All these chart lines are just another distraction.

      As long as the FED continues their policy of QE and corporate bond purchases, the stock market will continue up.

  3. A march at the Federal Reserve Member Board needs to take place to expose Powell and the Federal Reserve steal

    #stoptheFedsteal
    #draintheFedswamp

  4. all,

    focus on the Federal Reserve steal and forget about any other thing you hear on FOX, CNN or any other news channel or online as to the reason you should be angered or afraid about something being taken away from you.

    the most critical steal going on right now is the Federal Reserve steal which is making the rich…richer

  5. THGTR (The Hitchikers Guide To Reality) episode 2: financialisation and securitisation

    These are neat little tricks invented by humans back in their 1970s AD to convince everyone that the only thing that matters is money. The illusion was dispelled about 50 years later when a few smart folks realised that there was far too much money for the number of things, something Austrians – a mountain dwelling human sub-species (and I don’t mean that derogatorly) – had been warning about for centuries. The large preponderance of less smart humans continued to chase the money and got very angry when it became clear that it had no currency. Unfortunately, since money had become mostly digital by then, they couldn’t even burn it to keep warm and cook food. The ensuing conflicts reduced the human population by 80% and those neat little tricks became utterly verboten and punishable by death.

  6. Why are only Sheila Bair, Greg Manarino, and Sven Henrich the only ones talking about the Fed responsibility in creating this bubble, creating inequality and the Federal Reserve steal.

    Why isn’t anyone else covering this?

  7. The 1%, Congress, the Fed Reserve and Corporations are all in it together. Co-conspirators.

    “We have stumbled into very unhealthy co-dependences; co-dependences between central banks and investors, between central banks and debt issuers which are governments and companies, and between central banks and politicians,” El-Erian said.

    Share will all your friends on both sides including liberals and MAGA.

  8. The MAGA folks thought that the liberals were taking their country and bringing socialism when it was the Federal Reserve, Congress, and corporations stealing for the 1%ers. The Federal Reserve killed capitalism.

    Former FDIC chairwoman Sheila Bair was similarly unkind in her assessment of the Fed’s actions in a Wall Street Journal editorial last week.

    “Capitalism doesn’t work unless capital costs something and markets don’t work unless they’re allowed to rise and fall. The corporate facilities may have originally been justified as extraordinary one-off interventions to help companies maintain operations, but they morphed far beyond this purpose, and distorted capital allocation.”

    • The Federal Reserve killed our free market and capitalism and helped the 1%ers only.

      Why didn’t MAGA march for this reason?

      Cuz they were brainwashed into thinking their beef was with the liberals (cuz Trump and the 1%ers led MAGA into thinking the liberals were socialists. When in fact the Fed’s policies (encouraged by Trump) was socialism for the 1%ers). Trump bulled Jay Powell into lowering rates and corporate bond buying.

      MAGA’s real beef should be with Jay Powell and the Federal Reserve.

      • MAGA and main street do not know what is happening, they believe that the president is responsible.
        We must inform main street through written stationery to distribute in the main steet areas reporting the theft by the Fed and Jerome Powell, and how they give money to the rich at 0% to buy shares, and buy back bonds at a lump sum with money from La Fed, while main street suffers with inflation, 20% rates, and taxes.
        Since neither taxes should be paid in the USA since they have the machine to make fake money.-
        The real Socialism for Rich in the US.

          • The bailout and subsidy policies, massive liquidity injections and zero rates adopted by central banks are unequivocally responsible for the sharp increase in inequality.
            The fake money invented since the subprime crisis and more specifically that created during 2020 has been received by a select few, despite actually being a debt for all, while the vast majority of the population has not been directly benefited. The debts created will weigh on the shoulders of all and those of future generations, but the liquidity is being enjoyed by a favored minority.
            The Fed is guilty of criminal robbery against main street, and most be exhibed to Main Street in simple words.
            The Fed is the swamp, a bounch of unelected jw people governing America & the world

  9. Trump, Congress, the federal reserve and the media are all responsible for misleading “the people” including the MAGA base with fake news that the liberal democrats were the problem when all along it was the federal reserve and there socialistic QE, low interest rates and bond buying program that killed our free market and capitalism.

    #stoptgeFEDsteal

  10. This is how it’s happening:

    The fed buys mortgage back securities. Who loans and bundles those securities – the Banks. Who is now authorized by the Fed to begin buying back their stocks – the Banks. When the stock price goes up who is benefitting from those increases – the 1%ers who get stop options. If you work at a bank and are not getting stock options you are getting screwed and left behind.

    #stoptheFEDsteal
    #draintheFedswamp

  11. Another example on how it happens:

    Do you work for a public company whose bonds were bought by the Federal Reserve corporate bond buying program? Does you company buyback stock and issued dividends? If your corporation did not offer you stock options or other forms of equity based compensation (like RSU’s) than you are being scammed by the Federal Reserve and the elite. This practice by the Fed and corporations is directly contributing to the wealth gap and wealth inequality because you did not benefit from the increase in the stock price. Only those that have stock options (the 1%ers) benefitted. The worst part is that corporations are laying workers off but still buying back stock, issuing dividends and paying executive pay and bonuses with the money from the Fed.

    #stoptheFEDERALRESERVEsteal
    #draintheFEDERALRESERVEswamp

    spell out the Federal Reserve so that mainstreet becomes aware

  12. Sheila Bair
    @SheilaBair2013

    Jan 12
    The mainstream finance world is turning on the Fed for exacerbating inequality

  13. Ultimate irony: With each stimulus headline wealth inequality expands as stock markets react favorably.

    Sven,
    Stimulus checks are just a distraction. $600 $1000 or $2000 doesn’t make a bit of difference.

    It’s the billions and trillions that the Fed is buying from QE and corporate bond purchases.

    Don’t be distracted or made to believe it was anything else that is causing this bubble, wealth inequality and the end of our free market and capitalism.

    #stoptheFEDERALRESERVEsteal

    The coup (steal) of the century.

  14. Folks
    These are all fake narratives and risks created by the the fed, analysts and the media.

    All that matters is the Fed. Don’t be duped.

    Sven Henrich
    @NorthmanTrader
    Markets engaging in relief rally on yields falling as a sign that the ‘there is no alternative trade’ is back on following markets rallying into rising yields as a sign of a recovering economy.

  15. Sven
    Just post what the fed bought today and every day going forward. That’s all that matters.

    Stimulus checks are peanuts to what the fed gives to corporations in bond proceeds.

  16. This is quite the stat, from Brainard: “Federal Reserve staff analysis indicates that unemployment is likely above 20 percent for workers in the bottom wage quartile, while it has fallen below 5 percent for the top wage quartile.”

    Federal Reserve buying corporate bonds so that Corporations could ‘maintain operations’ but in reality the corporations just lay off employees and buy stock back with the bond proceeds from the Federal Reserve.

    #stoptheFEDERALRESERVEsteal

    • Proof that mainstreet (99%ers) are not benefiting from the Fed’s QE program and it’s corporate bond buying program.

      powell must be stopped.

      Why isn’t any media, congress, politicians (including Trump) complaining about the Fed?

  17. THGTR (The Hitchikers Guide To Reality) episode 3: The shining on the hill

    Once upon a time there was a mythical country where all men were free and elected their leaders fairly and decently, and they all lived in peace and happiness.

    I did say mythical.

    At first it only allowed white propertied men to participate in their democracy. Then it graciously allowed non-propertied white men and later even non white men – but it suppressed their votes. Then it allowed the inferior females of the species, but would never allow them real power over the ruling men. But, about 50 years ago all adults were enfrancised, excepting that the suppression of the non white and poorer voters continued, mostly at the hands of one clan of the nobility.

    That clan took umbrage at the loss of one election (probably their fairest and most transparent in 20 years) and attempted to overthrow the government, it failed, and the government chastised that clan’s leader, though he was supported by many of the clan’s followers both within and without the government.

    …to be continued

  18. Oh, Powell just put all our worries aside today, they can handle what ever becomes an obstacle, onward and upward, no fear. Gl all

  19. And tonight Biden will anounce more free money for the poor US corporations, poor congress, AND poor rich people, LOL
    And yes, some money for the US people, that allá the world will pay.
    Finest Robbery

  20. Looked like a handful of bears were having a nosey around in the last 15 minutes of RTH today. The rangers managed to scare them off but I wonder if they might come back tomorrow? Stawks closed at about the day’s lows. Meanwhile US covid data just gets worse, and worse, and worse… The econodata doesn’t look too bright either. Maybe earnings will come to the rescue? If not – hey, Jay…

  21. Were looking at roughly $200-300 billion in stimulus that will go towards individuals/ their children, where is the other $1.6 trillion going?

    • $300 billion for the 99%ers and $120 billion per month for corporations from the federal reserve. Sounds fair.

  22. It’s all over folks. Just put your hands out and take the money their giving. Look after yourselves, sink or swim. We all lose this time. There is nothing anyone can do so save civilization now. Our societies and economies are finished……………it just hasn’t completely collapsed yet. Decline, collapse and final destruction is a process. It took decades for growth and stability to be enjoyed by everyone. Now it’s time for decline and then eventual destruction that will take about 5 to 10 years to play out. You can destroy faster than you can re-build……………and destroying is what is happening everywhere.

  23. Sven will be right one of these days I’m sure……when that time comes, he will say “I told you so”. Story repeats. Boring!!!!!!!!!

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