By Bob Hoye
By Bob Hoye
By Bob Hoye
 Aside from the market talk and very real view that declining confidence in centrally planned policy is key to coming market events, this post is for fun. Jeez, lighten up. I know some readers just adore centralized policy making and interest rate manipulation, but the Fed has proven already that it does more harm than good. The “Great Recession” doesn’t happen without the policy excesses that fomented it.
Going on 7 years into an economic recovery/expansion, blaming global sources while seeing deceleration in domestic manufacturing, exports and now, payrolls after not normalizing by even a crappy 1/4 point? Yeh, that’s just peachy. I am all for being bullish if that is what is on tap. Bad policy does not mean stock market bearish on any given time frame. But it seems that Fed apologists have very constricted time frames by which they frame their views. There is a thing called a big picture and it is littered with negative symptoms of centrally planned economies, both in the US and world-wide.
I am not advocating a Luddite-like return to bartering or even the gold standard. I am simply saying that constant policy intervention is a sign that something is not right. This is a global situation, but speaking of the US, which is my home, this chart says all it needs to say. A large distortion has been bred into the market by abnormal policy. This could prove very bearish or hyper bullish. We just don’t know yet. It’s all just prices and asset appreciation, after all.
Thus ends this , which went on 10x longer than anticipated.
Almost as entertaining as the market’s reaction to the event itself is today’s reaction to what a bunch of clowns pretending to be in control of the economy had to say about the economy and by extension their policy supposedly governing same.
Market participants, black boxes and substance abusers alike might want to keep a couple of things in mind; 1) inflammatory news events are fleeting in their effects (and look at how quickly the gold sector, one standing to gain from a weak economic backdrop and its implications for policy, head faked up and reversed down) and 2) after the FOMC Minutes release in September the market cheered and zoomed higher after the Fed punted. It then immediately reversed into a downside leg that became the bottom re-test.
Basically, the same dynamics are in play. The economy is starting to suck wind, rate hike hype is fading and for the moment the market is choosing to see this as positive. Just like it did for the moment in September. Maybe it’ll be different this time. Or maybe not.
Last weekend, I went on a road trip with a friend and her two young sons. The second we left the driveway, the older boy placed a rubber pool noodle in between him and his brother and established the most important ground rule of all sibling driving trips:
“Don’t cross this line or else.”
Impressively, an entire hour passed without incident when my friend spied the younger son teasingly edging his elbow toward the very outskirts of the noodle, baiting his luck.
Anticipating the ensuing reversal of our event-free driving experience, my friend pre-emptively pulled over to the side of the road, when in — 3-2-1! — a small arm crossed the line and a giant tantrum ensued.
Then, it hit me: That rubber pool noodle was to my friend what trendlines are to investors and traders. To wit: If prices edge toward these clearly drawn “lines in the sand” on a market’s price chart, then you can “pull over” in advance of major reversals.
Let’s assess a real-world example of the turn-anticipating utility of trendlines. Here, we come to Elliott Wave International’s August 10 Short Term Update, where clearly defined trendlines were drawn on the near-term price charts of both the Dow Jones Industrial Average and S&P 500. The implications of prices nearing these trendlines was mutually bearish, as Short Term Update makes clear (partial Elliott Wave labels shown):
SPX has popped to resistance at the top of a ‘W’ pattern and halted there. This is a valid termination point. The chart however, has higher levels where the bounce, which was anticipated since before the Tinder Box post, can terminate. The 2000 area, 2040 and a measurement of the ‘W’ to around 2120 are the next levels.
As it is, the bounce has gone high enough to get CNBC and Cramer to start rethinking the well publicized bearishness.
We have been successfully managing an ‘in motion’ market since the August festivities kicked off. It is October and Money Managers (NAAIM), Newsletter Writers (Investors Intelligence) are thoroughly spooked and Small Speculators are thoroughly short the market. It’s a perfect contrarian setup.
Meanwhile, over in Goldbugsville there is a lot going on as well. NFTRH 363 is 30 pages of commentary and in depth analysis on all of this and also gets its geek on (with the aid of FloatingPath.com‘s awesome graphical breakdowns) and gets inside the September Payrolls report in order to flesh out the dynamics in a flagging economy.
NFTRH 363, a very helpful market management report if I do say so myself… out now.
Volatility, volatility, volatility. It’s all the financial world can talk about lately… and, well, for good reason. In the past few months, the world’s stock markets have endured some of the most gut-wrenching price swings since the 2007-2009 financial crisis.
But for many investors, it’s still not clear what this volatility means for the status of the bull market in U.S. stocks.
The reason why said status remains unclear is in large part because the mainstream pundits haven’t exactly been consistent with their punditing. (Note: NOT a real word!)
Take, for example, this summer. Before U.S. stocks fell off the cliff this August, the market was about as volatile as a yoga retreat. The trend was a slow, calm, and steady ascension to a higher self. In fact, the ultimate “fear gauge” known as the CBOE Volatility Index (VIX) had dipped below 12 for the first time since 2014.
Now, according to the usual experts, this extended period of market calm was a bullish sign, as these news items from the time explain:
We have been using the Tinder Box theme in NFTRH lately. As in, stock market sentiment is so bleak, so depressed as to be a Tinder Box with the elements to ignite a flame that bounces the market, to clear the over bearishness at least.
We have successfully followed a plan every step of the way… 1. down from the August breakdown, 2. up on the bounce to SPX 1975 or 2040 (hit 2020) and now 3. down to a test of the October 2014 / August 2015 lows, which is a decision point between a bounce or an entry into a bear market (by making a lower low to October 2014).
We arrive here amid an over bearish sentiment backdrop that is all out of whack with what has actually just been a twitch by the market in the big picture (with bull parameters still intact). So whether this is the bounce, as it seems to be – and we are getting some follow through despite the volatility – or it comes from a lower level, it is going to happen.
There were the small speculators way too short the market and Investors Intelligence data showing newsletter writers having totally abandoned the trend they rode for eons (well, since 2011 anyway). They are now advising extreme bearishness to subscribers. Here’s the latest graphic on that, courtesy of Doctor Ed and the Daily Shot.
We’ve seen it time and again: The investment crowd often hops aboard a financial trend just as it’s about to end.
Government itself is actually a case in point. Here’s what the August 2007 Elliott Wave Financial Forecast said:
[In July], The Elliott Wave Financial Forecast discussed governments’ knack for committing to a trend when it is finally ending. A front page article in the July 24 issue of The Wall Street Journal titled, “Governments Get Bolder in Buying Equity Stakes,” confirms the strength of this very dependable sell signal.
Just two months later (October 2007), the stock market registered its historic high.
Overseas buyers are another major chunk of the investment crowd. That group was also ramping up their purchases of U.S. stocks back in late 2007.
Corporations are likewise part of the herd.
Let’s fast forward to 2015, and read what our August 14 Short Term Update had to say just before the worst part of the recent selloff:
We drew the parallel in NFTRH 362 using a weekly chart like this one. As it happens, the ‘quants’ are on this theme as well. As B.I.G. points out, it’s been one of the longest runs on record (1,326 days) without a 10% correction. Well it is here and it is remarkably similar to 2011’s correction.
Blow the chart up by clicking it. You’ll see a similar price pattern below the EMA 70, which is starting to turn down, similar MACD, over sold RSI and AROON down. A difference is that 2011 had big down volume bars and this one does not have capitulation type volumes yet.
Now, will history repeat? I am certainly open to it. But the very fact that it’s been 1,326 days without a 10% correction is a negative, not a positive. Something about pressure buildups and the like.