I think the most entertaining thing I heard all weekend was one of those local radio Financial shows in which the "Wealth Management" host went on and on about how Greece was already discounted by the market and shouldn't cause any adverse reaction. I almost wanted to call in and ask how he knew that, "Was it his vast experience with monetary unions falling apart?". Obviously Greece was not "fully" discounted. It's obvious that China's bubble is not "fully" discounted if at all. Then there's the F_E_D and rate hikes. I don't think we've ever had a Chinese stop bubble in which nearly anyone from a grandma to a farmer to a street corner fruits vendor has been so vastly involved in something they know nothing about. The government controlled media suggested the PBoC's double rate cut overnight brought tears to investors eyes as the socialist government provides for all of your needs, that was until the PBoC knee jerk bounce on the rate cuts failed.
I don't think we've ever had a monetary union that is falling apart and could get much worse with Spanish elections and who knows what with a Greek default.
I know we've had one instance of QE in the 1920's, but that didn't end well with the Crash of 1929 and the following Great Depression, however we've never had a market this goosed by well over 500 individual central bank actions globally and unprecedented F_E_D intervention to this extent for this long so no one knows how any of these events are going to unwind, but if Lehman has taught us anything or nothing at all, it is always been the lack of imagination and the feeling that all is under control and at times, it has seemed to be until it wasn't.
Add to that inexperienced traders, whether illiterate Chinese farmers or 1/3 rd of professional traders on Wall Street who have never seen rate hike and as such, have never seen a bear market. How is it possible that we can have 1/3rd of professional traders with so little experience? I think it's safe to say, you can pretty much ignore anything that comes out of these people's mouths like, "Greece is priced in" or "The F_E_D won't let rate hikes effect the market" or the People's Bank of China will provide for the socialist, government reliant, illiterate traders. If there's one thing the talking heads have proved to us over and over again it's that they have no imagination and when it's the most dangerous time in the market, they are whistling past the graveyard as if it's business as usual.
Today that wishful thinking was shattered when a double Rate cut from the PBoC failed to revive the Chinese stock markets, in fact failed to even get a respectable bounce or any bounce at all (that would hold). It was shattered when the "Greek-Exit" won't effect much meme, suddenly effected the market quite a bit and as the F_E_D reminded us again today (in case you were thinking the Greek situation would derail or delay their rate hikes), a September Rate Hike is very much in play.
The Nikkei has lost over 700 points since Friday's close ...
As for China, Bloomberg may have summarized it best,
"The truth is that the plunge in Chinese stocks was long overdue. China’s longest-ever bull market was government-driven, fueled by central bank liquidity and a public-relations bonanza. The question now is whether Beijing's policy apparatus has lost its ability to impose its will on stock prices. And there's good reason to think it has."
Hmm... You could take out "Chinese" , "China" and "Beijing" and be equally convinced Bloomberg was talking about the US markets.
Despite the SNB Central Bank stick save this morning in European stocks, the DAX still closed down -3.56%, the CAC-40 down -3.41% and the FTSE 100 -1.97% and this AFTER the Swiss National Bank intervened on the open and send European stocks up from their gap down for the rest of the session.
However the greatest fear many believe the Trokia has is not a Greek default, but the leftist, "Syria-like" anti-austerity movements in countries that could sink the European Union such as recent elections in Denmark with the Anti-Immigration "Danish People's Party" finished second in just concluded general elections. The French far-right "National Front" is polling second place for upcoming elections with Marine Le Pen looking to take France out of the austerity driven European Union and Spain's leftist, anti-austerity "Podemos" party is at double digit support. The EU probably would have worked with Greece and done whatever was necessary to avoid the current situation if they were not afraid of any such compromises emboldening the above parties and destroying the EU from inside.
Perhaps that's why bond risk in European peripherals and core countries alike such as Spain, France, Italy, Belgium , Austria and Portugal hit 7 year highs today. It could be over contagion Greek fears, but a fair number of countries that saw risk explode in their bonds/yields today, were also countries that had strong separatist or anti-austerity/anti-EU movements.
Greek 10 year yields are over 15%with over a 400 basis point move today.
As posted earlier today, right now it's not looking so sure that the Swiss National Banks' earlier intervention is going to hold.
INTRADAY 1 MIN EURO FUTURES leading negative despite the SNB intervention putting a bid under the euro, it looks like the larger intermediate charts of all last week suggesting a lower EUR/USD specifically in response to negative Greek outcomes, is coming roaring back-central bank intervention or not.
In US markets we saw early Buy the Dip action, there were several smaller intraday 1 min positive divergences, but by the afternoon and in to the close, those were run over.
As we have shown many times, once fear sets in, it's the most powerful of market emotions.
Futures and 3C averages' charts were very clear last week, after Monday's anticipated price strength, the reversal process took over and stage 3 top transitioned top stage 4 decline.
And all of that underlying strength in VIX last week saw a huge surge today...
Interestingly as I said we'd hit a 1-day oversold condition today within internals, our custom VIX inversion buy signal was flashing today.
We haven't had a VIX inverted term structure buy signal since January, but the white bar today tells us the Term Structure in VIX is inverted, a near term buy signal. The Fear and Greed Index has collapsed again to similar lows we saw at the June 15th Fear and Greed sentiment which was extremely bearish and led to the June bounce off the SPX 150-day sma.
Our TLT long from Wednesday, Trade Idea: TLT Long and EDIT-TLT July 17th Calls will be a Strike of $117, NOT $116 with charts, TLT Follow Up saw a nice gain today of nearly +40%
This was largely short squeeze, if we can get to the trendily break as initially planned in the trade set-up, we'll see an insane counter trend rally.
High Yield Corporate Credit was leading to the downside with the SPX today.
Although the overall Pro sentiment has been leading the market lower since May as we have seen every day (almost) since then,
Yields collapsed lower as you saw with TLT's gains today, it's hard to say whether they are still working as a leading indicator, I tend to doubt it as today looked more like rotation in to perceived safe harbor assets.
High Yield Credit has been leading the market lower since May-last week was especially horrible for the leading indicator...
Otherwise though, it would be very difficult for me to say, "Don't expect a 1-day oversold condition", everything suggests there is EXCEPT 3C divergences.
Everything is pointing to a 1-day oversold condition in which a bounce or next day green close is highly probable, however in the current situation, it would seem some small 1-day reversal process such as a Doji or Star candlestick would be in order and perhaps with that, a positive divergence.
I have no plans on changing any trend/core positions, but if we can get a bounce as planned earlier today when closing QQQ puts and VXX calls on momentum, I'd gladly take it as the market is entering primary trend stage 4.
However we are in uncharted waters and there's no historical precedent to look to to gain some knowledge of what the market or psychological reaction is likely to be. We saw the PBoC try to rate cuts last night, there's no reason to think they won't try again even though last night's failed and we saw the SNB in Europe intervene so it would not be out of character to see more central bank intervention to halt the landslide or at least slow it down. There's also no telling how the Greek/EU situation will develop from here. There are simply a lot of short term unknowns thus I'll be looking for objective evidence to base any decisions off rather than probabilities or even concepts at this point because we are off the edge of the map. Bigger picture I believe we have already gone over the falls and any near term price action should be carefully considered with the larger context which is solidly bearish.
As for Futures tonight...
Without more central (European) bank intervention like the SNB's in the early hours of the morning (European open), I don't see how the EUR/USD avoids a collapse as the 3C charts were calling for all last week...
Index Futures...
TF 10 min June cycle and stages and in line.
A LOT OF THE OTHER COMPONENTS NECESSARY FOR AN OVERSOLD BOUNCE ARE IN PLACE, I THINK IT'S THE DIVERGENCES THAT ARE MISSING AND THE REVERSAL PROCESS FROM SUCH A 1-DAY OVERSOLD CONDITION, TOMORROW "COULD" SET UP THOSE DIVERGENCES AND THEY COULD BE USED TO OUR POSITIONING BENEFIT, BUT I WOULD NOT EXPECT ANYMORE THAN THAT NO MATTER WHAT THE INTERVENTION, EVEN ECB Q/E.
THUS THE CHARTS ARE IN PLACE TO PUT IN A SOLID SIGNAL FOR A BOUNCE, I WOULD NOT TRY TO TRADE IT UNLESS THE CHARTS WERE STELLAR, BUT I WOULD USE IT TO ENTER POSITIONS LIKE A NEW QQQ PUT POSITION OR VXX CALL POSITION.
UNTIL THEN, PATIENCE WINS OUT AS WE SAW WITH VXX TODAY, LET THE TRADE COME TO YOU, OTHERWISE, I'D STICK WITH THE PREVAILING TRENDS WHICH ARE SERIOUSLY BEARISH.
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