EOD

Well there's a lot to show in many ways and there's not a lot to talk about in many ways, it's going to be a challenge to write tonight's "Daily Wrap".

I think the biggest surprise of the day is how bullish retail "Knit-Twits" remain; it's a case of "Pavlov's Dog Experiment". I'm serious!

AAPL was a great example of the Pavlov's Dog Experiment, AAPL does one thing for so long and traders actually lose their objectivity and fall in love with a stock. I say, "Fall in love with your spouse, Fall in love with Ben and Jerry's Strawberry Shortcake Ice-cream, but never fall in love with a stock".

Once we are conditioned to expect certain behavior from a stock or a market, we are in real trouble and while I think this is normal for people, I expect more from traders. I can't believe how many are still Uber-bullish on this market and even crazier still is some of the justifications and feelings about what happened not only yesterday, but overnight as well.

We know that Japanese JGB (Japanese Bonds) futures were halted just after their open as the JGB futures went limit down on the open! The USD/JPY lost over 200 pips overnight, the Nikkei had a 9% range-losing 9% off the intraday highs and closing down -7.32% after an even crazier parabolic run than the US has seen.


 As ForexLive notes, the striking correlation between the current rampage in the Japanese stock market and that of 1987 is stunning. In 1987, the index had a remarkably smooth 89% rally that began in early November, lasted 186 days, and was followed by a 9.1% correction. Currently, the Nikkei 225 has had a remarkably smooth 85% rally that began in late October and has lasted 191 days culminating with last night's 9% correction. That was a true correction, I believe history rhythms, but doesn't repeat as Mark Twain said, this is a much different market, in fact this is a market with no historical precedent, not even close. 

We have the most globally connected economy with most of the developed world either in recession, coming out of one or going in to one, many are double and triple dipping. We have unprecedented Central bank action across the globe, not to mention the U.S. In fact, from 2007 to the start of May, we've had 512 Central bank interest rate cuts across the globe!

If Hank Paulson had a Bazooka, Japan's P.M., Abe, has an early release of the new Gerald R. Ford Class U.S. Aircraft Carrier. After more than 2 decades of rampant deflation in Japan (remember in the 1980's it seemed like Japan owned the United States?) Abe and the BOJ embarked on the largest, most out of control QE the world has ever seen. Yes, out of control, this is like a squirrelly 1967 Hemi-Cuda with a Posi-rear axle and a nitrous kit, they literally don't know if it will run off the road. Oh, and by the way, this is the world's third largest economy.

While the BOJ is actively (it's a secret though) buying JGB's trying to stabilize the rising yields, it's just not working. In fact after all of Japan's recent volatility and last night's 7.32% close down (now that's a move-not these +0.27% moves everyone gets so worked up about in the U.S.), CME just hiked just about every Nikkei related future's margin by 33%, so sorry if you are 100% leveraged and need to come up with another 33% in margin. Watch the Nikkei tonight because I guarantee after the super-parabolic move due to the world's largest QE ever, Nikkei traders are likely more than 100% in, with full leverage so between margin calls and the added 1/3 margin hike tonight, things could get interesting tonight.

Japanese traders, take a hint from the U.S. traders and just keep buying the dip, a 7.32% decline is a nice dip, BUY IT!

Most Asian markets were down on average about -2.5%, China's PMI data showing their manufacturing sector has contracted again which last happened in 2012, certainly didn't help,  ESPECIALLY GIVEN THE ENTIRE WORLD BELIEVES CHINA SHINES UP THEIR DATA TO LOOK A LOT BETTER THAN IT IS.

The European BE--500 closed down 2% for the biggest 1-day loss in 10 months and that was with a closing ramp higher!

So while we fully expected as of yesterday the market would not only run out any new momentum chasing shorts that latched on yesterday, at the same time it should continue to blow Pavlov's whistle and keep conditioning retail traders to buy the dip, no matter what because they did the first time (today) and that worked out great. What? A bigger dip you say? Well just add more leverage/margin and buy that too and so on until you are buying dips that have retraced 50% of the 2009 lows to 2013 highs, then panic and watch the market slice through the 2009 lows!

I'd say, that's roughly the game plan.

I'll be back with some charts and anything interesting I find, honestly I saw a lot of potential opportunities today, but the market action itself wasn't interesting, it was expected, but then again, so was the break in the market and yesterday is not really the break I'm talikng about, I mean the break that fulfills this divergence.