Personally, I don't think the risk is worth it right now.
7 years ago
Tuesday, February 17, 2015
MCP Alert
I think it may be time to take some or all of MCP off the table for now.
On a daily chart, the last few daily closing candles have had high upper wicks, meaining higher prices have been rejected/resistance and on volume which is usually indicative of churning which is often seen at a reversal, I'm not getting in to what type of reversal, whether a pullback or something else and I'd love to see MCP move much higher and it may, I just don't like the probabilities here and would prefer to sit back and see what happens and then decide whether to get back in after this move of +270% off the 1/23 lows.
The 2 min intraday chart is showing a recent negative divegrence forming, it's more of a timing divergence, it's not screaming, but it's there and others are there.
This is the 3 min chart from positive to leading negative.
As well as the 5 min chart with the exact same signals.
The 30 min chart looks like there's a lot more gas in the tank, but also that a pullback is likely here, at least a pullback.
And the same holds true for the 60 min chart. After a nearly 300% move, it wouldn't be surprising.
The Daily Trend Channel stop is at $.70, the 60 min which has held two of these momentum moves is at $1.00 even right now.
Personally, I don't think the risk is worth it right now.
Personally, I don't think the risk is worth it right now.
High Yield Corp. Credit (HYG)
There are some interesting HY credit charts out there, Energy, Financials, but the main HY Credit chart we use just because it's used so often and has had such a good track record and is widely available with liquidity is HYG.
Considering it just went red on the day, I thought I'd take a look at it. One thing to keep in mind is that there have been 3 small accumulation areas for small cycles, they are what has largely made up the bulk of the range-driven action through January, a time when the market is usually on a tear due to the January Effect of new money coming in to the market and the seasonal adjustment macro-data beats.
The base areas were Jan. 6, Jan 14-16 and Jan. 29- Feb 2nd, this is where we saw small accumulation in advance for the moves that followed. You might keep those dates in mind when looking at the HYG charts around those same time periods as HYG as a leading indicator is one of the better early warning indicators.
Additionally, last week's market momentum which was expected as the concept of a head fake move through a very obvious support or resistance zone in a popular asset is very high, in almost all cases no matter the asset , timeframe or liquidity, we see head fake moves about 80% of the time just preceding a reversal, the stronger those features mentioned above, the more likely a head fake move. Last week's was pulled off not on accumulation, but on a VIX smack-down at a time when there were a record number of net spec long VIX positions, kind of like pulling a short squeeze when short interest is the highest. Additionally a short squeeze was pulled, but as posted earlier today, the AII bear percentage is now at record lows, not much left to squeeze. So also pay attention to the signals through all of last week in HYG as those two forces were at work in the market (they gave HYG longs cover to move out).
This is HYG's daily chart, through late 2013 to mid 2014 it was in line with the SPX during the period, but on a longer scale it was in leading negative position (price) as the Q2 2013 decline put it at a lower relative level on a larger scale than this chart.
Since there have been a series of lower highs and lower lows in HYG, which is important because Credit tends to lead the market and equities tend to follow.
1 min HYG through last week, the trend should be clear.
2 min HYG with a deeper leading negative today.
And the same 2 min chart in perspective with a larger view.
The 3 min chart leading negative especially through last week.
And the 5 min chart with the Jan 14-16th base and a positive HYG divegrence, then what comes next should be clear as a leading negative divergence.
The 15 min chart with the next SPX base of 1/29-2/2 and what has happened since , especially through last week specifically.
Ad the longer term 2 hour HYG trend with lower highs and lower lows, with distribution at each of the pivot highs.
Considering it just went red on the day, I thought I'd take a look at it. One thing to keep in mind is that there have been 3 small accumulation areas for small cycles, they are what has largely made up the bulk of the range-driven action through January, a time when the market is usually on a tear due to the January Effect of new money coming in to the market and the seasonal adjustment macro-data beats.
The base areas were Jan. 6, Jan 14-16 and Jan. 29- Feb 2nd, this is where we saw small accumulation in advance for the moves that followed. You might keep those dates in mind when looking at the HYG charts around those same time periods as HYG as a leading indicator is one of the better early warning indicators.
Additionally, last week's market momentum which was expected as the concept of a head fake move through a very obvious support or resistance zone in a popular asset is very high, in almost all cases no matter the asset , timeframe or liquidity, we see head fake moves about 80% of the time just preceding a reversal, the stronger those features mentioned above, the more likely a head fake move. Last week's was pulled off not on accumulation, but on a VIX smack-down at a time when there were a record number of net spec long VIX positions, kind of like pulling a short squeeze when short interest is the highest. Additionally a short squeeze was pulled, but as posted earlier today, the AII bear percentage is now at record lows, not much left to squeeze. So also pay attention to the signals through all of last week in HYG as those two forces were at work in the market (they gave HYG longs cover to move out).
Since there have been a series of lower highs and lower lows in HYG, which is important because Credit tends to lead the market and equities tend to follow.
Leading Indicators Update
Well the second of the 2 weekend wild cards has failed, that being Greece (1) which has some ridiculous rumor that Syriza will ask for a bailout extension and (2) the Ukraine cease-fire (part 2), which looked to have failed since the day it was announced, in to the cease-fire, during the cease-fire and now the deadline for Kiev to remove heavy artillery/weapons has come and gone with no movement as they are using the ongoing attacks by Pro-Russian forces as their reasoning , bottom line is neither side has abided by a truce that it seems was never going to work (Minsk summit). The situation is now escalating as fighting is getting heavier.
As for Leading Indicators, there are some interesting, sharp moves. I mentioned in the last update some SPY puts here may be an interesting though, not so much because I think the SPY looks the worst, but the Q's are at break even and the IWM looks like it's going to fade faster than the SPY.
The SPX:RUT Ratio , although on a percentage terms basis are not far off (SPY +0.15% and IWM +0.12% today with QQQ now in the red on the day), is showing a pretty strong non-confirmation signal.
SPX:RUT Ratio (red) vs SPX (green) and no confirmation.
Then at the ramp which is largely JPY fueled surprisingly considering the rumor was a Euro rumor , Pro sentiment sees a sharp decline as the SPX is ramping, I had to check to make sure I didn't have the chart pricing inverted.
(here's EUR futures / 6e)...
Which barely moved on the rumor...
The VIX is unusually strong, remember it was at CFTC record spec net long levels going in to last week, so hammering the VIX to lift the market was sort of like a short squeeze, just in reverse, but since the VIX is outperforming the SPX by a wide margin (SPX prices in green are inverted to see the normal correlation).
Here's the VIX v SPX today, you can see the sudden strong jump in relative performance.
VIX Futures are showing intraday positives as well.
As are VIX short term futures (VXX)
And UVXY, which are already in good overall position on a longer basis...
Here's the accumulation and distribution at the market's 1/29 through 2/2 base and the leading positive divegrence in UVXY (2x long Short term VIX futures) now...
Here's USD/JPY with a negative divegrence like EUR/USD earlier today...
EUR/USD, again barely moved since the rumor because this is largely JPY driven.
If you invert JPY or rather FXY (ETF) in orange vs the SPY in green, this is what you get...
FXY/Yen vs SPX.
Strange that a Euro rumor would produce a JPY fueled spike.
In any case, some strange activities while NYSE TICK falls out of a tree...
NYSE TICK intraday.
This is why I thought a SPY POut, given the small gain and need to leverage it, might be worth a look.
As for Leading Indicators, there are some interesting, sharp moves. I mentioned in the last update some SPY puts here may be an interesting though, not so much because I think the SPY looks the worst, but the Q's are at break even and the IWM looks like it's going to fade faster than the SPY.
The SPX:RUT Ratio , although on a percentage terms basis are not far off (SPY +0.15% and IWM +0.12% today with QQQ now in the red on the day), is showing a pretty strong non-confirmation signal.
(here's EUR futures / 6e)...
If you invert JPY or rather FXY (ETF) in orange vs the SPY in green, this is what you get...
Strange that a Euro rumor would produce a JPY fueled spike.
In any case, some strange activities while NYSE TICK falls out of a tree...
This is why I thought a SPY POut, given the small gain and need to leverage it, might be worth a look.
Market Update
What an amazing news ramp, the amazing part is not the ramp, but the news that Greece will ask for an extension on the current program, the one they have said would "Complete the Euthanasia" of Greece.
Pretty hard to believe, pretty hard to believe the market would believe it, but as we have seen and commented on numerous times, it's not the news, it's the reaction or the tone that sets the perception, move the market and people believe it until the denial comes out.
In any case, NQ looks to be the worst right now, NASDAQ futures, this is probably because of the way AAPL is acting today.
NQ / NASDAQ 100 intraday futures...
However, small caps in TF/ Russell 2000 futures aren't far behind the NDX as worst looking on the day.
TF intraday futures...
The move is quite parabolic, it would be a great short squeeze, but as you saw earlier, the AAII sentiment survey is not showing much in the way of bears to squeeze.
This looks like it might be an interesting place for a SPY put.
Pretty hard to believe, pretty hard to believe the market would believe it, but as we have seen and commented on numerous times, it's not the news, it's the reaction or the tone that sets the perception, move the market and people believe it until the denial comes out.
In any case, NQ looks to be the worst right now, NASDAQ futures, this is probably because of the way AAPL is acting today.
However, small caps in TF/ Russell 2000 futures aren't far behind the NDX as worst looking on the day.
The move is quite parabolic, it would be a great short squeeze, but as you saw earlier, the AAII sentiment survey is not showing much in the way of bears to squeeze.
This looks like it might be an interesting place for a SPY put.
AAPL Update
I think this post is interesting for two reasons, first as you know 3C shows us what's happening below the surface, until this week no one knew that David Tepper's Appaloosa Fund had sold ALL of their AAPL position in Q4 of 2014, as I often say, we see the signals in 3C now, but only find out why later.
While I wouldn't say that all action in AAPL is due to 1 large fund liquidating an entire position of 1.16 mn shares sometime in Q4, that would be ludicrous, I do find AAPL's set up including a head fake move in to Q4, very conducive to selling and this is one of the primary reasons for head fake moves, creating enough demand to dump a large chunk of shares on the market without pushing price against your position.
Note the 60 min AAPL positive divergence going in to Q4 2014, when Appaloosa run by Tepper, a manager who ranked #1 in income in 2012 with $2.2bn pay check and again #1 in 2013 with a $3.5bn pay day (we'll see about 2014 soon) was getting ready to sell. There's a head fake/stop run just before an accumulated position to send AAPL higher and give probably several large funds other than Appaloosa alone, the ability to sell in to higher prices. The head fake move then as now (only in reverse now) is an important part of the momentum that proceeds it. Also note the 3C distribution in to Q4 of 2014 and it's inability to recover since.
I also find this smaller version on a 1 min chart interesting as well as Tepper's positions would be released 45 days after the filing, meaning this littel accumulation area and pop higher in to a head fake zone and distribution, would be one of the last chances for smart money to sell before the Tepper news comes out .
This isn't like a Cramer sell signal, when someone as big as Tepper or Appaloosa sells, there's a reason and it isn't they think the stock is going higher. Whoever ran this little cycle that we just posted Trade Idea: Short Term Options) AAPL Puts on Thursday in to with the accompanying charts, AAPL Charts Follow Up, knew that this is smart money handing off shares to dumb money, maybe not at the exact top, but as such, AAPL just lost some of the institutional support it had which makes it less stable and it changes the sentiment toward AAPL, for example, "What does Tepper, the best paid Hedge Fund manager know that I don't?".
I don't endorse trading from SEC filings that are 45 days old by the time you get them, that's not the point, the point is the psychological damage it does to perception and someone obviously was taking advantage of that with what looks like a clear head fake move or distribution in to the small 1 min positive divegrence/cycle higher knowing the SEC regulatory filings were coming out the end of the week, which is not the reason I posted AAPL Charts Follow Up on Thursday, it was the charts.
Here's today's intraday 1 min for AAPL
Worse is the 3 min intraday, more of those strong leading divergences seen lately.
AAPL may be one of the cleanest dirty shirts in the hamper, in fact I was a little surprised to hear Tepper had reduced equity holdings by 40% and closed positions like AAPL entirely, but when a tide rises it lifts all boats, when a tide ebbs it lowers all boats, regardless of whether they are the cleanest dirty shirt.
From a daily 3C chart, it looks like the 2012 losses of -45% needed to be made up as everyone in AAPL got smacked on that move, in 2013 there's a pretty clear stage 1 base, but the stage 2 mark-up period doesn't hold confirmation very long before leading negative and the most recent parabolic move, which you already know I believe is a head fake move and now I think I understand why, is hardly an endorsement for this market.
While I wouldn't say that all action in AAPL is due to 1 large fund liquidating an entire position of 1.16 mn shares sometime in Q4, that would be ludicrous, I do find AAPL's set up including a head fake move in to Q4, very conducive to selling and this is one of the primary reasons for head fake moves, creating enough demand to dump a large chunk of shares on the market without pushing price against your position.
I also find this smaller version on a 1 min chart interesting as well as Tepper's positions would be released 45 days after the filing, meaning this littel accumulation area and pop higher in to a head fake zone and distribution, would be one of the last chances for smart money to sell before the Tepper news comes out .
This isn't like a Cramer sell signal, when someone as big as Tepper or Appaloosa sells, there's a reason and it isn't they think the stock is going higher. Whoever ran this little cycle that we just posted Trade Idea: Short Term Options) AAPL Puts on Thursday in to with the accompanying charts, AAPL Charts Follow Up, knew that this is smart money handing off shares to dumb money, maybe not at the exact top, but as such, AAPL just lost some of the institutional support it had which makes it less stable and it changes the sentiment toward AAPL, for example, "What does Tepper, the best paid Hedge Fund manager know that I don't?".
I don't endorse trading from SEC filings that are 45 days old by the time you get them, that's not the point, the point is the psychological damage it does to perception and someone obviously was taking advantage of that with what looks like a clear head fake move or distribution in to the small 1 min positive divegrence/cycle higher knowing the SEC regulatory filings were coming out the end of the week, which is not the reason I posted AAPL Charts Follow Up on Thursday, it was the charts.
AAPL may be one of the cleanest dirty shirts in the hamper, in fact I was a little surprised to hear Tepper had reduced equity holdings by 40% and closed positions like AAPL entirely, but when a tide rises it lifts all boats, when a tide ebbs it lowers all boats, regardless of whether they are the cleanest dirty shirt.
Global Update
Bernard Baruch is one of the few investors who knew to get out of the market before the 1929 meltdown, like all bubbles he recognized the, "This time it's different narrative" and got out keeping his fortune intact.
While the Crash of 1929 came as a shock to most people, it was fairly well known something was wrong in advance among smart money as evidenced by this chart. I suspect the feeling that the 1929 crash came out of almost nowhere had a lot to do with the fact everyone and their shoeshine boy (non-professionals) were in the market, chasing prices higher, but the evidence was there that smart money like Bernard Baruch knew and took action well before the crash to safe-guard their fortunes...
3C daily confirming the uptrend until late 1928 and in to the 1929 top, it wasn't as big of a surprise obviously to smart money, dumb money felt it like a drop off a cliff as everyone chased risk higher, including the proverbial shoe-shine boy.
There are some pretty wild, "This time it's different" stories out there, some pretty believable ones as well. I'll admit that even though I knew the Tech bubble was a bubble, I though tech which changed our lives (because of digital convergence would you dare leave home without your cellphone now?) would wring you the excesses and continue to lead the market because of the fact it is the biggest revolution since the Industrial revolution in the US, it seemed it would last more than just one bull market cycle, much like many of the rationalizations now including one convincingly sounding, well written and credible one that says HFT's in the shadow banking system (which in itself is a massive liability even the F_E_D is more than aware of) will continue to drive the market higher, the problem is there's no sound fundamental reason , macro data is collapsing at a time of seasonal adjustments that easily goal seek whatever print is needed to squeeze out a beat, at least for the first quarter (at least that's what we have seen for the last 5 years)...
US Macro data has strangely collapsed since the end of QE 3, not Q3, QE (as in Quantitative Easing). This is very interesting although I'm not sure what exactly to make of it, but I do know the last 5 years this was the time (Q1) when seasonal adjustments made every bit of macro data beat and then it fell off a cliff after the seasonal adjustment period ended just after Q1.
However without going in to point/counter point, the easiest way to see through the argument of "HFT's are secretly working in Dark Pool exchanged to push market price up perpetually", which is just another form of, "This time it's different", is to recognize what drove the market since 2009... Quantitative Easing and Accommodative F_E_D Policy, however if the HFT argument holds, there's a simple way to test it, the market correlation to the F_E_D's balance sheet.
Under QE, the F_E_D essentially dumped money in to banks to buy treasuries and MBS who were forced to dump that money in to the market since we have been at ZIRP (Zero Interest Rate Policy) since the start of the crisis, there's no other place to earn a yield other than the market, so what happens when the F_E_D ends/ended QE to the S&P which was correlated to the size of the F_E_D's balance sheet expansion which is simple to understand (the more money the F_E_D dumped in to QE, the more was dumped in to the market)...
This is the 13 week Rate of Change (ROC) of the F_E_D's balance sheet (remember it's ROC declined because it bought fewer and fewer bonds as the taper began and eventually ended and the 13 week ROC of the SPX...
If the HFT's buying in dark pools to prop up the market in perpetuity, because this time really is different, then why is there such a strong correlation between the ROC in the F_E_D's balance sheet and the SPX? Shouldn't HFT's be driving the SPX's ROC higher independently of the F_E_D's Rate of Change in its Balance Sheet?
I won't go through every scenario out there that states, "This time is different", but going back to the 1600's, I studied and put out a 5-part video series on all of the bubbles since the Dutch Tulip Craze right up to the Housing Bubble and everyone is characterized by the psychology that this market can't possibly turn down because this time is different. In my view, if the Tech revolution couldn't hold a second bull market in which things really were different (there was no internet just before the Tech revolution), than what can really be so different as to void this centuries old concept?
I just wanted to touch on this aspect briefly being mass psychology changes so quickly, for example from the October lows which were a notable break and the first major lower low to now. What economically has changed? What has changed in F_E_D policy? More often than not, one's stance is dictated by emotion more than objective evidence.
Remember the sell off from September's head fake move at it's stage 3 top to the decline leading to the October lows?
The October lows above broke the market's trend. However, despite my longer term analysis, here are some excerpts from that time period dealing with mass psychology and or forecasts from there...
As far back as October 2nd, which was here...
October 2nd at the white arrow...
Despite my own views on the market's eventual direction, this post was published, Daily Wrap- Get Your Contrairian Hat...
"I'd say about a week or so ago I said, "I don't like it when too many people are calling for a top at once", bear markets surprise, often they decline sharply on what is otherwise good news, a testament to how important market breadth is as even good news can't sop the rot that has set in from turning to an all out collapse....
In other words, there are too many people bearish right now and that includes even retail. Since I've had an intense interest in the psychology of bear markets and how investors that made a killing on the way up so often lose it all on the way down...
Last Friday I was thinking about the number of bear market calls and uneasy...yet this doesn't change any of the bearish realities of the market, just perceptions of when and where"
At the actual October 15th low...
This is the October 15th low at the white arrow, the lowest low of the decline and at that time (and before), this was posted...
Important Update:
"As I've recently been saying, I have a feeling we are going to see a sharp reversal that happens quickly with a strong upside move, this isn't a change in the underlying bearish trend as I believe 99% that as soon as it's done, we make a severe new lower low, however there are a lot of indications piling up now that make this scenario look more and more probable."
If I had more time, I would find and post all of the sentiment posts from that time period when even the "Buy the Dip" crowd went to all time record lows in sentiment (as bearish as it gets), as usual, at the exact wrong time because that's truly the point of the post, well of this portion of the post.
What I really wanted to cover was everything else going on over the weekend.
The wild card (fundamental) event which was the Greek/Euro-Group meeting in which the EU's February 16th deadline for Greece to apply for an aide extension to their current loan program came and went and negotiations couldn't be further apart.
As posted yesterday, President's Day Mini Update, this isn't about finding common ground to start as a negotiating place, this is about "each side is working toward a completely different goal, there's no common ground, what one side wants is diametrically opposed to what the other side wants, how do you negotiate that?"
It turns out this morning, "The Day After", Germany's Finance Minister Schauble has issued a new ultimatum, even though the Greeks completely ignored the last one, but this time "Germany is REALLY serious".
Greece has to apply for an extension to the BAILOUT program by Feb. 27, 10-days, but once again Germany is issuing an ultimatum that Greece apply for something it has been absolutely clear that it does NOT want. Some other tid-bits were thrown in there as well, such as "Greece must decide whether it wants a program", which it clearly has said it didn't, not the program the Germans are talking about and if Greece wants to "Keep the Euro". Suddenly Greek exits probabilities have been doubled by nearly every investment bank's analysis departments.
One story that hasn't caught a lot of traction yet, but is more than likely one of the biggest EU/German fears in dealing with Greece and why they don't want to or even can't back down from their position (the one Greece has outright rejected since Syriza was campaigning before the election and every day since), is that Syriza may be the start of an EU revolution against the status quo. Syriza itself has said one of its goals is to dismantle the Troika, the EU finance/political power arm. There are left wing groups in just about every EU nation similar to Syriza, whether looking to buck the EU or looking for autonomy for their own regions such as in Spain, I believe one of the motivating forces behind the German/EU position is the fear these other groups will gain in popularity like Syriza and things will really get out of hand for the EU, thus their position of not negotiating, but showing they can keep an uppity left wing Greek political part in check lest all of the smaller left wing splinter groups become mainstream.
In other important events and perhaps one of the most important for the global economy is the continued decline of the Baltic Dry Index because it is one of the few Indices that has not become bastardized by financialization, in other words, it's a pure number and it's not tradable. The actual definition of the Baltic Dry Index is the following:
"The Baltic Dry Index (BDI) is a number (in USD) issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulkcarriers carrying a range of commodities including coal, iron ore and grain"
The BDI has just hit a new all time record low at 522, this is the 53rd of 55 days it has traded down.
The effects of low energy prices are showing up in Initial claims with the Shale oil producing states seeing some of the largest lay-offs as Energy giants like Baker Hughes, Haliburton and others not only shut down rig after rig, week after week, but are engaging in mass lay-offs of 6500+ a pop. Much the same way, the collapse in shipping prices is starting to effect the industry beyond earnings.
Yesterday China's COSCO shipping line released their financials and the news that they scrapped 8 of their ships (3 bulk-carriers and 5 container-ships), here are two of the scrapped ships , disassembled and sold for scrap metal...
The XIN HUI Container ship which was dismantled in January and...
The Peng Jie Bulk-Carrier, two of 8 ships dismantled by China's COSCO shipping company.
To give you an idea of what it cost to dismantle the ships vs what their scrap sold for, the dismantling cost 182.24mm RMB, the scrap of all eight fetched 82.2 mm RMB or in other words, about 2x more to scrap them than what they received for the scrap which just goes to show how expensive it is to keep these ships in a time when the shipping costs have evaporated to record lows, better to take the 100mm RMB loss than to keep these ships in commission and this is likely just the start as the BDI continues to plummet.
The main point being, this is like market breadth, it isn't traded, there's no interpretation, it's hard numbers and the story both market breadth and the BDI are telling are one of not just recession or stagnation in a few countries or a couple of continents, but world-wide.
In addition yesterday, Japanese GDP disappointed and came in lower than expected, you may also recall from last week the Bank of Japan questioning the effectiveness of QE and further asset purchases which caused the CFTC net spec shorts to gain the upper hand in NKD futures for the first time since Abe took office and Abe-enomics was implemented with Japan's massive QE-Zilla which is now in doubt by the central bank that runs it.
Also on the subject of Central Banks, the RBA of Australia released their minutes from the Feb 3rd meeting, which were more hawkish than expected which has held the $AUD up since the release, another CB getting more hawkish.
The second Fundamental-wild card event of the weekend was the Ukraine cease-fire of Sunday, which may not have been a total flop, has heavy fighting in several areas in which Pro-Russian rebel forces have refused to acknowledge any cease-fire, so this is essentially the second verse is the same as the first with the last cease-fire failing to hold any ground.
Also out this morning, Chinese New Home prices just posted the largest annual decline ever with 64 of 70 cities positing lower home prices.
Also of note recently... Appaloosa's David "We've been selling everything not nailed down for 15 months" Tepper's fund, just in case you might be wondering why 3C which shows us underlying activity of smart money has been declining, Tepper's fund has exited all positions in Alibaba, Apple, Broadcom, CBS, Citigroup, Disney, Facebook, Ford, Halliburton, MGM Resorts, Mohawk Industries, Powershares QQQ ETF, Schlumberger, Shire, and Weatherford
It appears even when he was saying the market was still healthy even after admitting selling everything not nailed down for 15 months that the fund hasn't only been reducing exposure, but exiting positions entirely in a lot off momo/high beta names. SEC filings show that their equity holdings were reduced by -40% by the end of late last year including selling all of the following positions:
All of their 1.16 million shares of AAPL and 7.3 million shares of FB. Another 8.3 mn shares of C were sold (he obviously doesn't feel strongly about the future of financials either) , 725k shares of BABA were sold, 2.86 mn shares of CBS corp were sold and 5 mn shares of Haliburton were sold in addition to reducing positions in many others and only increasing 1 position in American Realty.
This on the heels of last week's Soros SEC filing in which his SPY put position was increased by 600% to over $2bn which is Soros largest put position since 2008 along with others such as Icahn.
More recently today and more to the point of the sentiment or emotions of the market which have only been based on where price is, not anything objective as I mentioned, sentiment hit record lows at the October lows when it was obvious to even me weeks before that there were too many calling a top ad we weren't at the top at that moment.
This week's Investor's Intelligence Survey shows sentiment soured, which is not surprising after last week's massive, multi-year short squeeze in addition to a VIX hammering, this is not accumulation of stocks, this is manipulation of the market. Sentiment now looks like this...
Now bears are at record lows, what does this tell you about sentiment when at the October lows when it had been obvious to us for two weeks and specifically at the lows that we'd see a strong rally that EVERYONE was bearish, now at ATH's, everyone is bullish?
The market and market analysis has to be more than changing you're position and analysis depending on which way the wind in blowing. In looking at numerous bubble's and market tops over 400 years, one thing most had in common is that they were at highs or all time highs before they moved to erase everything gains and usually some more just like the 2007 top.
The message of the market is not that hard to hear, it's the emotions that are hard to overcome.
While the Crash of 1929 came as a shock to most people, it was fairly well known something was wrong in advance among smart money as evidenced by this chart. I suspect the feeling that the 1929 crash came out of almost nowhere had a lot to do with the fact everyone and their shoeshine boy (non-professionals) were in the market, chasing prices higher, but the evidence was there that smart money like Bernard Baruch knew and took action well before the crash to safe-guard their fortunes...
There are some pretty wild, "This time it's different" stories out there, some pretty believable ones as well. I'll admit that even though I knew the Tech bubble was a bubble, I though tech which changed our lives (because of digital convergence would you dare leave home without your cellphone now?) would wring you the excesses and continue to lead the market because of the fact it is the biggest revolution since the Industrial revolution in the US, it seemed it would last more than just one bull market cycle, much like many of the rationalizations now including one convincingly sounding, well written and credible one that says HFT's in the shadow banking system (which in itself is a massive liability even the F_E_D is more than aware of) will continue to drive the market higher, the problem is there's no sound fundamental reason , macro data is collapsing at a time of seasonal adjustments that easily goal seek whatever print is needed to squeeze out a beat, at least for the first quarter (at least that's what we have seen for the last 5 years)...
However without going in to point/counter point, the easiest way to see through the argument of "HFT's are secretly working in Dark Pool exchanged to push market price up perpetually", which is just another form of, "This time it's different", is to recognize what drove the market since 2009... Quantitative Easing and Accommodative F_E_D Policy, however if the HFT argument holds, there's a simple way to test it, the market correlation to the F_E_D's balance sheet.
Under QE, the F_E_D essentially dumped money in to banks to buy treasuries and MBS who were forced to dump that money in to the market since we have been at ZIRP (Zero Interest Rate Policy) since the start of the crisis, there's no other place to earn a yield other than the market, so what happens when the F_E_D ends/ended QE to the S&P which was correlated to the size of the F_E_D's balance sheet expansion which is simple to understand (the more money the F_E_D dumped in to QE, the more was dumped in to the market)...
This is the 13 week Rate of Change (ROC) of the F_E_D's balance sheet (remember it's ROC declined because it bought fewer and fewer bonds as the taper began and eventually ended and the 13 week ROC of the SPX...
I won't go through every scenario out there that states, "This time is different", but going back to the 1600's, I studied and put out a 5-part video series on all of the bubbles since the Dutch Tulip Craze right up to the Housing Bubble and everyone is characterized by the psychology that this market can't possibly turn down because this time is different. In my view, if the Tech revolution couldn't hold a second bull market in which things really were different (there was no internet just before the Tech revolution), than what can really be so different as to void this centuries old concept?
I just wanted to touch on this aspect briefly being mass psychology changes so quickly, for example from the October lows which were a notable break and the first major lower low to now. What economically has changed? What has changed in F_E_D policy? More often than not, one's stance is dictated by emotion more than objective evidence.
Remember the sell off from September's head fake move at it's stage 3 top to the decline leading to the October lows?
As far back as October 2nd, which was here...
Despite my own views on the market's eventual direction, this post was published, Daily Wrap- Get Your Contrairian Hat...
"I'd say about a week or so ago I said, "I don't like it when too many people are calling for a top at once", bear markets surprise, often they decline sharply on what is otherwise good news, a testament to how important market breadth is as even good news can't sop the rot that has set in from turning to an all out collapse....
In other words, there are too many people bearish right now and that includes even retail. Since I've had an intense interest in the psychology of bear markets and how investors that made a killing on the way up so often lose it all on the way down...
Last Friday I was thinking about the number of bear market calls and uneasy...yet this doesn't change any of the bearish realities of the market, just perceptions of when and where"
At the actual October 15th low...
Important Update:
"As I've recently been saying, I have a feeling we are going to see a sharp reversal that happens quickly with a strong upside move, this isn't a change in the underlying bearish trend as I believe 99% that as soon as it's done, we make a severe new lower low, however there are a lot of indications piling up now that make this scenario look more and more probable."
If I had more time, I would find and post all of the sentiment posts from that time period when even the "Buy the Dip" crowd went to all time record lows in sentiment (as bearish as it gets), as usual, at the exact wrong time because that's truly the point of the post, well of this portion of the post.
What I really wanted to cover was everything else going on over the weekend.
The wild card (fundamental) event which was the Greek/Euro-Group meeting in which the EU's February 16th deadline for Greece to apply for an aide extension to their current loan program came and went and negotiations couldn't be further apart.
As posted yesterday, President's Day Mini Update, this isn't about finding common ground to start as a negotiating place, this is about "each side is working toward a completely different goal, there's no common ground, what one side wants is diametrically opposed to what the other side wants, how do you negotiate that?"
It turns out this morning, "The Day After", Germany's Finance Minister Schauble has issued a new ultimatum, even though the Greeks completely ignored the last one, but this time "Germany is REALLY serious".
Greece has to apply for an extension to the BAILOUT program by Feb. 27, 10-days, but once again Germany is issuing an ultimatum that Greece apply for something it has been absolutely clear that it does NOT want. Some other tid-bits were thrown in there as well, such as "Greece must decide whether it wants a program", which it clearly has said it didn't, not the program the Germans are talking about and if Greece wants to "Keep the Euro". Suddenly Greek exits probabilities have been doubled by nearly every investment bank's analysis departments.
One story that hasn't caught a lot of traction yet, but is more than likely one of the biggest EU/German fears in dealing with Greece and why they don't want to or even can't back down from their position (the one Greece has outright rejected since Syriza was campaigning before the election and every day since), is that Syriza may be the start of an EU revolution against the status quo. Syriza itself has said one of its goals is to dismantle the Troika, the EU finance/political power arm. There are left wing groups in just about every EU nation similar to Syriza, whether looking to buck the EU or looking for autonomy for their own regions such as in Spain, I believe one of the motivating forces behind the German/EU position is the fear these other groups will gain in popularity like Syriza and things will really get out of hand for the EU, thus their position of not negotiating, but showing they can keep an uppity left wing Greek political part in check lest all of the smaller left wing splinter groups become mainstream.
In other important events and perhaps one of the most important for the global economy is the continued decline of the Baltic Dry Index because it is one of the few Indices that has not become bastardized by financialization, in other words, it's a pure number and it's not tradable. The actual definition of the Baltic Dry Index is the following:
"The Baltic Dry Index (BDI) is a number (in USD) issued daily by the London-based Baltic Exchange. Not restricted to Baltic Sea countries, the index provides "an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulkcarriers carrying a range of commodities including coal, iron ore and grain"
The BDI has just hit a new all time record low at 522, this is the 53rd of 55 days it has traded down.
The effects of low energy prices are showing up in Initial claims with the Shale oil producing states seeing some of the largest lay-offs as Energy giants like Baker Hughes, Haliburton and others not only shut down rig after rig, week after week, but are engaging in mass lay-offs of 6500+ a pop. Much the same way, the collapse in shipping prices is starting to effect the industry beyond earnings.
Yesterday China's COSCO shipping line released their financials and the news that they scrapped 8 of their ships (3 bulk-carriers and 5 container-ships), here are two of the scrapped ships , disassembled and sold for scrap metal...
To give you an idea of what it cost to dismantle the ships vs what their scrap sold for, the dismantling cost 182.24mm RMB, the scrap of all eight fetched 82.2 mm RMB or in other words, about 2x more to scrap them than what they received for the scrap which just goes to show how expensive it is to keep these ships in a time when the shipping costs have evaporated to record lows, better to take the 100mm RMB loss than to keep these ships in commission and this is likely just the start as the BDI continues to plummet.
The main point being, this is like market breadth, it isn't traded, there's no interpretation, it's hard numbers and the story both market breadth and the BDI are telling are one of not just recession or stagnation in a few countries or a couple of continents, but world-wide.
In addition yesterday, Japanese GDP disappointed and came in lower than expected, you may also recall from last week the Bank of Japan questioning the effectiveness of QE and further asset purchases which caused the CFTC net spec shorts to gain the upper hand in NKD futures for the first time since Abe took office and Abe-enomics was implemented with Japan's massive QE-Zilla which is now in doubt by the central bank that runs it.
Also on the subject of Central Banks, the RBA of Australia released their minutes from the Feb 3rd meeting, which were more hawkish than expected which has held the $AUD up since the release, another CB getting more hawkish.
The second Fundamental-wild card event of the weekend was the Ukraine cease-fire of Sunday, which may not have been a total flop, has heavy fighting in several areas in which Pro-Russian rebel forces have refused to acknowledge any cease-fire, so this is essentially the second verse is the same as the first with the last cease-fire failing to hold any ground.
Also out this morning, Chinese New Home prices just posted the largest annual decline ever with 64 of 70 cities positing lower home prices.
Also of note recently... Appaloosa's David "We've been selling everything not nailed down for 15 months" Tepper's fund, just in case you might be wondering why 3C which shows us underlying activity of smart money has been declining, Tepper's fund has exited all positions in Alibaba, Apple, Broadcom, CBS, Citigroup, Disney, Facebook, Ford, Halliburton, MGM Resorts, Mohawk Industries, Powershares QQQ ETF, Schlumberger, Shire, and Weatherford
It appears even when he was saying the market was still healthy even after admitting selling everything not nailed down for 15 months that the fund hasn't only been reducing exposure, but exiting positions entirely in a lot off momo/high beta names. SEC filings show that their equity holdings were reduced by -40% by the end of late last year including selling all of the following positions:
All of their 1.16 million shares of AAPL and 7.3 million shares of FB. Another 8.3 mn shares of C were sold (he obviously doesn't feel strongly about the future of financials either) , 725k shares of BABA were sold, 2.86 mn shares of CBS corp were sold and 5 mn shares of Haliburton were sold in addition to reducing positions in many others and only increasing 1 position in American Realty.
This on the heels of last week's Soros SEC filing in which his SPY put position was increased by 600% to over $2bn which is Soros largest put position since 2008 along with others such as Icahn.
More recently today and more to the point of the sentiment or emotions of the market which have only been based on where price is, not anything objective as I mentioned, sentiment hit record lows at the October lows when it was obvious to even me weeks before that there were too many calling a top ad we weren't at the top at that moment.
This week's Investor's Intelligence Survey shows sentiment soured, which is not surprising after last week's massive, multi-year short squeeze in addition to a VIX hammering, this is not accumulation of stocks, this is manipulation of the market. Sentiment now looks like this...
Now bears are at record lows, what does this tell you about sentiment when at the October lows when it had been obvious to us for two weeks and specifically at the lows that we'd see a strong rally that EVERYONE was bearish, now at ATH's, everyone is bullish?
The market and market analysis has to be more than changing you're position and analysis depending on which way the wind in blowing. In looking at numerous bubble's and market tops over 400 years, one thing most had in common is that they were at highs or all time highs before they moved to erase everything gains and usually some more just like the 2007 top.
The message of the market is not that hard to hear, it's the emotions that are hard to overcome.
EUR/USD
Interestingly, the market retracing ramp in EUR/USD as the Eurex Derivatives exchange broke just before the European open and by the time it reopened the EUR/GBP tripped up stops at 74 causing a EUR buying spree and lifting Index futures to the levels of yesterday's pre-Greek no deal, have indeed done what the pre-market EUR/USD charts suggested, moved lower...
EUR/USD... closer view than the A.M. Update's larger negative divegrence (seen below) suggesting the pair see downside in to the cash open which is seeing downside in to the cash open.
The A.M. Update chart of EUR/USD with a negative divegrence...
Those same divergences in the EUR/USD are also in the Index futures as well, again, it looks like a weak gap fill which has been a staple of the market since 2009 (filling gaps consistently), whether in extended hours or regular hours and whether gaps up or down.
ES intraday, longer charts look worse.
NQ negative intraday also as they rode EUR/USD's coattails since the EU open.
And Russell 2000 futures.
So far it looks like the Friday Week Ahead, early weakness, "Picking up where we left off" is pretty darn close to right on track, even over a 3-day weekend...
SPY's late Friday negative divergence suggesting we pick up where we left off on a more negative tone early this week as the cash markets open...
The A.M. Update chart of EUR/USD with a negative divegrence...
Those same divergences in the EUR/USD are also in the Index futures as well, again, it looks like a weak gap fill which has been a staple of the market since 2009 (filling gaps consistently), whether in extended hours or regular hours and whether gaps up or down.
So far it looks like the Friday Week Ahead, early weakness, "Picking up where we left off" is pretty darn close to right on track, even over a 3-day weekend...
A.M. Update
I'll be adding a follow up-date because there's so much going on, however yesterday's Greek "No deal" EUR/USD / Index Futures decline has been largely retraced as Europe's largest derivatives market in which Euro-area bonds are traded, Eurex broke shortly before the European open, not allowing traders to capitalize off the EUR/USD decline at the time, since its reopen, most of yesterday's Greek no deal losses have been retraced, but this isn't all that surprising as a gap these days is going to be retraced one way or another, pre-market or regular market, up or down.
Here's what it looked like...
5 min ES chart showing yesterday's sell-off on the no deal at the red arrow, the white arrow is this morning just before the European open when the Eurex market broke as the EUR/USD was heading down.
Since some data from the UK tripped EUR/GBP stops at 74 allowing the Euro to gain ground, and as such, Index futures with it.
The overall bigger picture (TF/R2K futures) on a 10 min chart shows last week's two main drivers, one of the biggest short squeezes in years last week and the VIX slam down with record CFTC spec net longs in VIX, no real accumulation or real buying other than squeezing and tripping stops in VIX, but it got the head fake move over the range done, since things haven't looked great.
This is ES this morning, it kind of does look like we may pick up where we left off when cash markets open with an intraday negative divegrence as well as the others.
a negative divergence in EUR/USD, the currency behind the round trip may be why...
EUR/USD gains since the Eurex break, but also a negative divegrence,
We'll know shortly, otherwise Index futures have looked horrible since Futures trading for the new week has started, more to come on that though and some other interesting events and data from over the weekend including the latest on the Greek drama.
Here's what it looked like...
Since some data from the UK tripped EUR/GBP stops at 74 allowing the Euro to gain ground, and as such, Index futures with it.
a negative divergence in EUR/USD, the currency behind the round trip may be why...
We'll know shortly, otherwise Index futures have looked horrible since Futures trading for the new week has started, more to come on that though and some other interesting events and data from over the weekend including the latest on the Greek drama.
Monday, February 16, 2015
President's Day Mini Update
Happy President's Day, I hope everyone had a peaceful weekend.
While the US markets are closed, the world is still turning and the Fundamental event that retail risk takers didn't pick up on last Friday in to the close as one of the largest short squeezes in years was run with retail chasing it higher in to the close (who do you think was selling to them?), was Greece today as the Euro-group met for a second go-around at trying to find a solution or more appropriately, force their only solution on Greece who has made it clear, they will not accept said solution which is why Syriza was elected in the first place.
So Friday's momo chasers are probably not going to be too happy if they take a look at the EUR/USD and Index futures (although volume is of course light for a holiday/closed US markets.
The fundamental catalyst or wild card... that which cannot be known and you don't want to get caught on the wrong side of when the market is closed...
EU creditors are desperate to keep the loan on the books as is without impairment (losses or write downs), but they very well should have known that Greece would never have been able to pay the loan or live up to the terms so what do they do, they do it again, all to keep the original loan on the books.
From an EU perspective, this is about keeping the loan on the books, not realizing losses, keeping the status quo, not finding a solution that will help Greece right the ship because that would require the EU lenders to take some financial responsibility in making a bad loan that they either knew and expected the status quo would remain or should have known, the Greeks could never escape the tentacles of the loan.
From a Greek perspective, this isn't so much about trying to stiff creditors, but to acknowledge reality which is Greece cannot live up to the terms and ever escape the loans and become a thriving culture under the burden of the loan. While it's easy to blame the Greeks, it's not the Greeks in power who agreed to the terms, they voted against them, but we are past all of that.
The Greeks are looking for a credible way forward, any credible way forward will still be a burden on the Greeks, but it will also mean that the EU creditors that made a loan they knew the Greeks could never escape (unless the puppet regimes stayed in place and kept Greece in perpetual servitude), also accept their share of the responsibility for making a loan that they knew could never be fully put to rest, it's just like the sub-prime loan origination profits and passing risk off, it's unsustainable and the Greeks in this case are much more realistic than the EU, although the EU will do everything it can to keep that loan on the books as is.
The EUR/USD plunged on the news...
EUR/USD 1 min today
And Index futures plunged...
ES futures intraday.
Now will a conciliatory statement be made to help prevent further outflow from Greek banks which are already far beyond the ECB's Emergency Lending (ELA) or will the EU just let that pressure boil the Greeks for a bit and see if it makes them more malleable?
I said I don't see a good ending to this almost two weeks ago and the reason is that each side is working toward a completely different goal, there's no common ground, what one side wants is diametrically opposed to what the other side wants, how do you negotiate that?
While the US markets are closed, the world is still turning and the Fundamental event that retail risk takers didn't pick up on last Friday in to the close as one of the largest short squeezes in years was run with retail chasing it higher in to the close (who do you think was selling to them?), was Greece today as the Euro-group met for a second go-around at trying to find a solution or more appropriately, force their only solution on Greece who has made it clear, they will not accept said solution which is why Syriza was elected in the first place.
So Friday's momo chasers are probably not going to be too happy if they take a look at the EUR/USD and Index futures (although volume is of course light for a holiday/closed US markets.
The fundamental catalyst or wild card... that which cannot be known and you don't want to get caught on the wrong side of when the market is closed...
- GREEK GOVT OFFICIAL SAYS THAT "IN THESE CIRCUMSTANCES, THERE CANNOT BE A DEAL TODAY"
- EUROGROUP DISCUSSED "UNREASONABLE", "UNACCEPTABLE" DRAFT TEXT INSISTING ON EXTENDING BAILOUT
- *GREEK GOVT OFFICIAL SAYS NO AGREEMENT POSSIBLE AT EUROGROUP
- *GREEK GOVT OFFICIAL SAYS EU PROPOSALS `ABSURD,' `UNACCEPTABLE'
EU creditors are desperate to keep the loan on the books as is without impairment (losses or write downs), but they very well should have known that Greece would never have been able to pay the loan or live up to the terms so what do they do, they do it again, all to keep the original loan on the books.
From an EU perspective, this is about keeping the loan on the books, not realizing losses, keeping the status quo, not finding a solution that will help Greece right the ship because that would require the EU lenders to take some financial responsibility in making a bad loan that they either knew and expected the status quo would remain or should have known, the Greeks could never escape the tentacles of the loan.
From a Greek perspective, this isn't so much about trying to stiff creditors, but to acknowledge reality which is Greece cannot live up to the terms and ever escape the loans and become a thriving culture under the burden of the loan. While it's easy to blame the Greeks, it's not the Greeks in power who agreed to the terms, they voted against them, but we are past all of that.
The Greeks are looking for a credible way forward, any credible way forward will still be a burden on the Greeks, but it will also mean that the EU creditors that made a loan they knew the Greeks could never escape (unless the puppet regimes stayed in place and kept Greece in perpetual servitude), also accept their share of the responsibility for making a loan that they knew could never be fully put to rest, it's just like the sub-prime loan origination profits and passing risk off, it's unsustainable and the Greeks in this case are much more realistic than the EU, although the EU will do everything it can to keep that loan on the books as is.
The EUR/USD plunged on the news...
And Index futures plunged...
Now will a conciliatory statement be made to help prevent further outflow from Greek banks which are already far beyond the ECB's Emergency Lending (ELA) or will the EU just let that pressure boil the Greeks for a bit and see if it makes them more malleable?
I said I don't see a good ending to this almost two weeks ago and the reason is that each side is working toward a completely different goal, there's no common ground, what one side wants is diametrically opposed to what the other side wants, how do you negotiate that?
