CNBC's take: "This is the teflon stock market... nothing has hurt it in the past... maybe this is a buying opportunity"
They are largely correct, past conflicts such as the Arab Spring had almost no effect on the US markets, but that was while the Bernanke Put was in place or QE.
In fact to follow up on the effects of interest rate hikes and the lack of QE which is set to end with $15 billion taper in October, this chart shows how the market reacted between QE programs, not well...
The F_E_D's James Bullard (The markets are wrong) said today that the size of the F_E_D's balance sheet expansion poses Inflationary risks. So yes, they will hike rates sooner than later and inflation is already a problem.
As we saw last week, the market prepared for a bounce this week, since it started Monday it has been nothing but weakness every day, unusual weakness for a Wall St. sponsored bounce.
Leading Indicators have collapsed, Credit has collapsed, the 10-year yields vs the SPX look exactly like they did at the 2007 top and now market breadth as posted Tuesday night has collapsed, again not seen since the top of the market at 2007.
After 65 consecutive days of the SPX not making a move greater (up or down) than 1% ( which at 47 consecutive days was a record not seen since the early 1990's), today the SPX finally closed down more than 1% at -1.20% with the Russell 2000 leading down 1.58%.
All of the signs and signals including those from the F_E_D itself have been there, that's why I have refused to close any long term/core short positions even when there appeared to be a trading opportunity, my core/long term trades are aligned with the underlying long term 3C charts and they paid off well today with SRTY up +4.52% now at an overall double digit gain, SQQQ up 3.97% and FAZ up 3.55% on the day.
We also have nice gains in recent short positions SCTY, Z and HLF, almost all in the double digits already.
10-year yields were down 7 bps today to 2.45% which is almost a 13 month low. I had done a long term market comparison of yields at several major market tops, a bottom and a -20% correction, what I found was the 10 year yield (whether you believe in the yield curve inversion theory which worked 6 of 6 times in the US , but only 1 of 7 times in Japan) or not, has shown clear evidence of falling 10 year rates at major market tops and significant declines which I posted, look a lot like this...
The market and 10-year rates right now look a lot like 2007.
Gold moved up $20 today, which is something we expected in both gold and gold miners yesterday, but I'm sure market events intensified the move. I still anticipate a pullback in both as the base that was formed yesterday for today's move really isn't enough of a base to take the assets very far.
The VIX , which we saw accumulation in this week (VXX/Short term VIX futures) saw its largest range since August of 2011.
Several weeks ago I warned that numerous watchlist components and market averages were all sitting at the top of right shoulders such as the IWM/Russell 2000, for those who wanted shorting opportunities that didn't take them then or for other assets that weren't quite ready, we were looking for a decent bounce this week toward the top of the right shoulder, but unlike bounces of 2014 that have been extreme , sentiment changing events, it appears this one has been the start of a series of lower highs and lower lows as I pointed out this week with a chart of the right side of the IWM H&S.
In other words, while there are still many excellent shorts and will continue to be many excellent opportunities, it does appear that the market top is in.
As pointed out numerous times recently, the Institutional Risk asset of High Yield Credit has been flashing long term warning signals on our leading indicators.
In the F_E_D created "reach for Yield", even High Yield Junk Credit has been bid up, it too has been warning as we have been posting often recently.
Intraday, both of our sentiment indicators were in line with the SPX's downside move.
All nine of our S&P sectors closed red. Of the 239 Morning Star Industry and sub-industry groups I track, 229 of 239 closed red, only 8 closed green (two unchanged) and 2 of the 8 were gold and silver.
While we do have some intraday 1 min positives (relative divergences which are the weakest form) in SPY, QQQ and IWM...
QQQ 1 min
QQQ 15 min leading negative divegrence this week.
Only the IWM is still holding a fairly decent 5 min positive divegrence even though it saw some deterioration today.
IWM 5 min positive, this is why I have the calls in IWM, but refuse to go any further than that.
The USO bounce we were looking for in the post, USO Trade/s Set-up from Monday July 14th, has seen the initial move, which should be setting up the larger trade we are looking for in USO.
The Dominant Price/Volume Relationship was Close Down/Volume up, this is a bearish P/V relationship, but short term often represents a 1-day oversold event and a bounce is not unusual the next day although tomorrow is an options expiration day for standard monthlies.
In after hours we have leading positive intraday (1 min) divergences to the upside in Index Futures, perhaps an oversold bounce for options expiration pin, we get some of the best data for the week the last 2 hours of Friday.
I plan to hold core shorts, add to them when possible and remain patient.
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