Today's 30-second sound-bite explaining why the market did what it did seems to be, "It's Jackson Hole" which Janet Yellen will debut this Friday (it runs from Aug 21-23) at 10:00 a.m. EDT speaking on the topic, "Labor Markets", which considering her recent comments about "Slack" and the fact there are more Americans working part-time who want full time jobs than the entire population of Washington state. It seem to be attracting a lot of attention as to what she might say, perhaps a "Bernanke moment" in which QE was foretold... I think consensus is that she won't be discussing policy, but every word will be scrutinized looking for any hint of whether the punchbowl may stay on the table a bit longer or perhaps when the first rate hike since 2006 will hit the market.
Beyond what we already knew by the close Friday, I suspect the de-escalation/fabrication of the Russian Convoy destruction story turning out to be nothing, at least nothing involving Russian military units, was certainly a relief. Of course today the information/disinformation war continued with Kiev and the rebels each accusing the other of attacking a bus-load of refugees killing many.
The averages retraced and surpassed the "Convoy " story/fabrication from Friday today...
Friday 5 of 9 S&P sectors closed green with Energy and the safe haven "Utilities" leading while Financials were the biggest laggard.
Today we had 8 of 9 S&P sectors green with only the safe haven trade being unwound in "Utilities" as the worst performer today.
Of the 239 Morningstar Industry/Subindustry groups I follow, an amazing 227 of 239 were green, getting close to a short term overbought condition as far as breadth goes.
Today's Dominant Price/Volume Relationship (there's not always a consistent or dominant P/V relationship) was Close Up /Volume Down which is the most bearish of the 4 possible relationships and the second most likely to cause a 1-day overbought event with the market closing lower the next day. "Close Up / Volume Up", the most bullish relationship is actually the most likely to create a 1-day overbought event with the next day closing lower.
As we are talking about volume, all last week S&P Futures were at least -40% below average volume and as much as -55% below average, today S&P futes were -40% below average volume so our market bounce is a melt-up on pathetic volume. Any robust move higher should be accompanied by increasing volume, while it hasn't mattered under the "Bernanke Put" regime, as Q/E unwinds and accommodative policy slips out the back-door, understanding price/volume behavior will be paramount and likely largely overlooked by the "Buy the Dip / This time it's different " crowd who have grown up as traders in this ginger-bread, liquidity fueled sugar rush environment, this is not normal, it will revert back to meaningful analysis of volume.
Also last week, there was a small inflow of funds ($0.71 bn) in to HY Credit, the measurement period aligns almost perfectly with the start of the bounce which is something I mentioned before as I believe smart money are making small "Piggy-Back" trades just as we like to do with solid bounces with decent signals.
However, European HY Credit ETF's/Mutual funds saw another huge outflow from HY credit and equities, about $7 billion the last 2 weeks. European Equity Funds saw the largest outflow since August of 2011, some of you may remember the period with a nearly -20% market decline (a time that was very good to us trading the choppy market from August to the start of October).
Many of you have seen this chart of Net buyer/sellers from BoFA/ML...
Here's an updated chart of Institutional outflows...
As mentioned re: HY Credit ETF's/Mutual Funds...
Here's the massive outflow. The market cannot stay up with HY credit falling, thus the saying, "Credit leads, stocks follow". You can see the tiny inflow last week for the bounce.
As far as the "REAL" buyers of stock, they are none other than Corporate share buybacks, this mostly on borrowed money/debt, but it's one way they can keep their share price elevated, at least for a bit until they run out of debt capacity to buy back shares.
Here's another look at Corporate buybacks.
In this market, especially given the recent S&P Futures volume, liquidity is a double edged knife, it pushes stocks higher and when you least want it as a seller and liquidity dries up, it sends them much lower. Between Corp. buybacks, the outflow of funds and HFT's ability to just step aside and not participate after having taken over the role of liquidity provider from traditional market makers and specialists, it's a bit scary to think about what might happen, especially given the apparent fragility of the system as demonstrated today by BATS-Y.
From 10 a.m. to approx. 11:50 a.m., suddenly instead of reporting trades as they happened, it sent them all through at once at 11:50 a.m. causing numerous mini-flash crashes in NASDAQ symbols like AAPL...
AAPL Flash Crashes on a malfunctioning BATS... It will be interesting to see what happens when a real panic starts.
As for the averages today, the NDX broke our minimum target and psychological magnet of $4k which wasn't that far away. The SPX took out one of our bounce targets around 1968 where there was a gap in the SPY, the Dow broke above one of our targets at a hammer support/resistance zone from 6/26/2014 and has retraced 61.9% of the July decline and the Russell 2000 finally broke a heavy resistance area where the 50/100 and 200 day moving averages all converged (some simple, some expo).
The R2K has now "ALMOST" moved to green for the year...
Gold dropped below $1300, i'm still anticipating a pullback there and more-so in GDX, but there are some very short term noisy signals that looks like a little bounce is probable, although not a nice looking trade set up.
Crude dropped today and allowed Transports to make a nice gain of +1.71%.
As for some other odds and ends...
Since there's a lot of interest in NFLX, I figured I'd post a few charts...
I wanted to leave you with a few excerpts from John Hussman as they are right along the lines of everything I've been saying, well at least I connected with it...
"The stock market is presently a roulette wheel with dimes on black and dynamite on red."-John Hussman
"If one reviews market action surrounding major pre-crash peaks such as 1929, 1972, 1987, 2000 and 2007, you’ll observe a sort of “resilience” in the major indices on a day-to-day and week-to-week basis even after market internals had already corroded. In 2000, the market actually experienced a series of 10-12% corrections and recoveries before a final high in September that was followed by a loss of half the market’s value. In 2007, the initial break in mid-summer was fully recovered, with the market registering a fresh nominal high in early October that marked the end of the bull market and the start of a 55% market collapse."
"we continue to view, along with 1929 and 2000, as one of the three most reckless equity bubbles in the historical record."
"We don’t observe any investment merit in equities, and with market internals deteriorating, any remaining speculative merit has also receded quickly."
