Lots of interesting things going on today, whether it be the EU's Lehman moment with wildfire like contagion or Ms. Yellen's 180 reversal which as I suspected, she sent Bullard out on the "Market is Wrong" tour.
I showed you earlier the reasons I think we have a bounce coming or really it already started as we expected it this week as posted most of last week and on Friday in, THE WEEK AHEAD.
There are some VERY interesting signals I haven't seen since the 2007 top and that just adds to my suspicion that we are at the market top (bounce and all) and further reinforces my decision to let core shorts stand and not to get too fancy trying to trade around them,
First, yesterday we closed what was only a piggy back trade, not the real destination which is the pullback and re-entry of GDX/NUGT long, but we needed a pullback first. I suspected the breakout in GDX above the base was a head fake move as volume and 3C was totally off, yesterday I closed the DUST long, Closing Friday's DUST Long For Now for an 8% gain thinking (as we saw some positive divergences) that GDX would see a 1-day bounce off support of the base and GLD a 1-day bounce off support of the 100-day moving average and that's what 3C was showing, a short term bounce for maybe a day before these two continued the pullback we've been expecting. Some of you wondered what happened as DUST headed higher today and GDX and GLD, here's what happened...
Now there are differing opinions as to why this happened, but at the same time as the GDX and GLD break, someone sold 17,000 gold futures contracts at a notional value of $2.3 Billion dollars, that's what sent GDX down and DUST up, there's no way we could have known that yesterday as most institutional investors don't want you to see their cards, this one did, this was a purposeful trade as no one would trade that many contracts at once as it drives price against your position.
This was done for a different reason, whether to try to rescue the market from the Yellen decline or to break support of GLD and GDX and kick start the pullback we have had strong signals for, who knows, but it was intentional and the cause of the GLD/GDX and thus DUST moves today.
Remember, DUST was just a piggy back ride to make some extra cheese and we did okay with +8% for a day, but that's not the trade we are looking for.
The reason I went with IWM calls today and left the Core Short in IWM (SRTY) alone, is because of the incredible market weakness, not just since we called for a bounce and the weakness started right with the bounce yesterday, but because of many reasons I've been highlighting and I have a new one to show you in a bit.
For now, Yellen...
Unbelievably, Yellen, "Ms. The market valuations are fine" actually came out and spanked the momentum crew.
We were proven correct again... Remember when Jim Bullard of the St. Louis F_E_D came out on Fox Business News a few weeks back and said, "The market is wrong" and interest rates may rise as soon as Q1 2015, back then this was TOTALLY at odds with everything Yellen had said at the post F_O_M_C press conference. At the time I said, "There's no way a regional F_E_D president comes out and says things like that without Yellen's approval". Later we saw the F_O_M_C minutes and sure enough, they were more hawkish than Yellen's press conference, but there's more starting today at her Congressional testimony and this is what I've been saying the market has been reacting very negatively to since the F_O_M_C, and in particular, SINCE THE END OF Q2 WINDOW DRESSING STARTING 7/1 AS I HAVE POINTED OUT NUMEROUS TIMES IN NUMEROUS ASSETS.
Did you catch it today? In Yellen's testimony (the very same woman who made the market feel like interest rates would not be hiked until LATE 2015 or 2016 if she had her way), is obviously feeling the pressure of inflation as she said today to Congress... This is exactly what we've been saying since CPT came out a day before the F_O_M_C.
Yellen today:
"If the labor market continues to improve more quickly than anticipated by the Committee, resulting in faster convergence toward our dual objectives, then increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned,"
Well of course the labor market is going to continue to improve, the F_E_D and BLS found the secret to lowering the unemployment rate, here's how simple it is...
from Zero Hedge
All you do is reduce the number of Americans counted in the Labor Force Participation Rate which as you can see, has crashed. With less unemployed people counted, of course the unemployment rate drops, in fact from 10.1% to the current 6.1%. That's easy, so yes, rate hikes are coming sooner than later just as we have been saying since just before the F_O_M_C when we saw the trend in Core Inflation/CPI. As I said back then, this is the one metric that ties the F_E_D's hands and makes them hike, Yellen is just finally getting around to slow-boiling the frog and letting the market know a little at a time, but when the hikes come, they won't be so easy to hide and Wall St. has known this, look at the size/length of the base in gold and gold miners which are bought on INFLATION EXPECTATIONS.
Lets see... According to Yellen's testimony, the economic outlook has "considerable uncertainty", the housing market has been disappointing, showing "little progress" as interest rates have "edged" higher. So what's the prescription for a weak economy and a weak housing market being hurt by slightly higher interest rates?
A RATE HIKE, sooner and bigger than expected. Nothing will send mortgage rates higher than rate hikes from Zero to 4% and what does that do for the economy, Cap-Ex and consumer spending? Well as bad as it has been, guess what? It will get worse! However, not as bad in the F_E_D's view anyway as rising and out of control inflation.
In fact, Yellen actually managed to turn the whole thing around 180 degrees and said...
"If economic performance is disappointing, then the future path of interest rates likely would be more accommodative than currently anticipated,"
According to Yellen's F_O_M_C press conference, she gave the market the impression that rates were likely to be held "LOWER" for longer and raised in small increments, that was the market's anticipation listening to Yellen who they obviously didn't believe as the SKEW jumped right after. However, now "Current Anticipation" is for larger rate hikes sooner!!!
She didn't even use coconut shells (the shell game)!
Asked about the timing of the first rate hike, Yellen noted that "almost all" participants expected the first rate hike at some time in 2015, and that the median projection for the fed funds rate at the end of 2015 was "around 1%." At the May Joint Economic Committee testimony, she said "most members believe that in 2015 or 2016 normalization would begin under their baseline outlook."
Lets assume 4 rate hikes of 25 basis points each through 2015 and the expectation is for a 1% F_E_D Funds rate at the end of 2015, that puts the first rate hike SIGNIFICANTLY before the market expects, likely Q1 of 2015! That's pretty far from the May statement of beginning normalization in 2015 or 2016!
It seems we may have only been half right about inflation as she noted concerns regarding wage growth failing which would significantly outpace inflation.
In another development, someone in the mainstream financial media has finally pointed out that major red flag I've been highlighting nearly every day since late June...SKEW!!!
Bloomberg: More Costly Protection Seen in S&P 500 Options
"Investors are paying up for protection against a drop in U.S. stocks as they never have before, judging by the performance of an option-based indicator."
The SKEW “is flashing a big warning signal for equity markets right now,” Kevin Cook, a senior stock strategist at Zacks Investment Research Inc.
Speaking of which...
Note SKEW advanced right after the F_O_M_C . It's not just the reading is elevated in the red zone for a market crash, it's how fast the rate of change took place and how long it has been elevated.
Our Leading indicators as recently shown are flashing bright red signals, among them, High Yield Corporate Credit and Junk Credit, "Credit leads, stocks follow.
The bigger picture , again since 7/1
We also suspected our Most shorted Index would be squeezed...
MSI since, you guessed it...
The Dominant Price/Volume Relationship of the major Averages' component stocks today was one that fits with a bounce as envisioned in the IWM today, that is Close Down/Volume Up, this usually is a 1-day oversold signal with the next day closing higher.
However as I was going through my Breadth Indicators, I saw a strange pattern I haven't seen in some time, not like this, take a look.
I knew I recognized this pattern so I looked back...
This is the percentage of NYSE stocks trading 2 standard deviations above their 40 day moving average at the EXACT 2007 top, notice anything about the pattern in the Rate of Change? That's a move of about 22.5% to 4.5%, not too much unlike our current move from 28% to 9%.
Hmmm...
No comments:
Post a Comment