Pro-Inflation? Anti-USD?

As posted at

This is the opening segment from the May 15 edition of Notes From the Rabbit Hole, NFTRH 395.  I am releasing it for public viewing because it seems, the title’s question has come roaring to the forefront this week.  So the information (including the charts) is slightly dated, but becoming intensely relevant as of now.

We anticipated an ‘inflation trade’ or Anti-USD asset market bounce and this has been going on since mid-February. That was when silver wrestled leadership from the first mover, gold (which bottomed in December and turned up in January), and a whole host of other global asset markets began to rise persistently.

gold and other markets

So why again did the US stock market react negatively to good economic data on Friday?



Continue reading Pro-Inflation? Anti-USD?

History Says a Big Move is Coming for Stocks

By Chris Ciovacco

What Can We Learn From Last Three Years?

The chart of the NYSE Composite Stock Index below shows equities have been indecisive since the second half of 2013.

stock market: NYSE comp

The lack of sustained progress in either direction tells us the battle between the bulls and bears has been fairly evenly matched.

1993-1995 Bullish Example

A similar indecisive period took place in the mid-1990s.

Continue reading History Says a Big Move is Coming for Stocks

Ominous Portents

By Doug Noland

Credit Bubble Bulletin: The downshift of Credit and “hot money” flows helps explain the weakness in both corporate profits and the overall stock market

Friday headlines from Bloomberg: “Retail Sales Rise Most in a Year, Marking U.S. Consumer Comeback” and “Consumers Turn Out to Be U.S. Growth Lifeline After All.” Ironically, U.S. retail stocks (SPDR S&P Retail ETF) were slammed 4.3% this week, trading back to almost three-month lows. Poor earnings were the culprit. Macy’s sank 15% on Wednesday’s earnings disappointment. Kohl’s missed, along with Nordstrom and JC Penney.

It may be subtle, yet it’s turning pervasive. Support for the burst global Bubble thesis mounts by the week. With stated U.S. unemployment at 5.0% and consumer confidence at this point still in decent shape, spending has enjoyed somewhat of a tailwind. Yet the overall U.S. economy has begun to succumb to a general Credit slowdown. Despite the bounce in crude, the energy sector bust continues to gather momentum. The tech and biotech Bubbles have peaked. Cracks have quickly surfaced in fintech. There are as well indications that some overheated real estate markets across the country have cooled. Whether it is from China or Latin America or Europe, the rush of “hot money” into U.S. real estate and securities markets has slowed meaningfully.

The downshift of Credit and “hot money” flows helps explain the weakness in both corporate profits and the overall stock market. And with stock prices down year-on-year, Household Net Worth has essentially stagnated. Keep in mind that Net Worth inflated from $56.5 TN at year-end 2008 to a record $86.8 TN to close 2015. Over the past six years, Net Worth increased on average $4.76 TN annually. Such extraordinary inflation in household perceived wealth supported spending – which bolstered profits and underpinned asset price inflation and more spending.

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Strong Summation Index Promises Higher Highs

By Tom McCellan

Strong Summation Index Promises Higher Highs

Ratio-Adjusted McClellan Summation Index, stock market
May 13, 2016

The strong breadth numbers which produced a new all-time high for the A-D Line this year also produced a really high reading for the Ratio-Adjusted Summation Index (RASI), the highest since 2012.  And that action conveys to us the promise of higher price highs.

But it does not preclude a meaningful correction first, and we appear to be in the midst of that right now.  The RASI is falling, as it typically does during corrective periods.

The basic point is that after a correction like we saw earlier this year, with the Feb. 11, 2016 price bottom, the RASI shows a strong market by rising well up above the +500 level.  When the RASI can do that, we like to say that it signals that the new rally has demonstrated “escape velocity”, like a rocket trying to leave Earth’s gravity, and thus the price averages do not need to fall back down to test the prior low.  More importantly, while the RASI may top out and lead to a corrective period, we are promised a higher high after that correction.

Exactly when that higher high comes, and how much higher, are not points revealed by the RASI.  We have to turn to other tools to divine those. But the uptrend should be expected to continue until such time as there is a failure by the RASI to climb back up above the +500 level after dropping below it

Still Focused on Crude

By Tim Knight

Happy Friday the 13th, everyone.

I’m still almost completely focused on crude oil for the overall direction of the market. The good news, for me, is that at least it seems to have stalled out: 0513-cr, crude oil

If crude begins to weaken in any meaningful way, I think you’re going to see the high-yield ETF start to crumble again, which could be one of the great trades of 2016.

Continue reading Still Focused on Crude

Navigating During a Period of Extreme Central Bank Intervension

By Chris Ciovacco

How is it possible the worst ten-day start in U.S. stock market history was followed by what Bloomberg termed the sharpest about face in nine decades? While markets never move based on any one factor, the primary answer is central banks. This article examines the following questions:

  1. Just how far have central banks gone in their recent attempt to keep asset prices elevated?
  2. Why are central banks so concerned about keeping things propped up?
  3. What are the shorter-term investment implications and the potential end game?
  4. How can we navigate this period of hyper central bank intervention?

Central Banks Are Buying Corporate Stocks And Bonds

In an April 20 article, we chronicled the Federal Reserve’s 26-day interest guidance shift that occurred between January 6 and February 1, 2016. The Fed’s extreme shift on rates fell into the rare category. Central banks across the globe are starting to tread into much more radical policy waters.

Do you think it would be concerning if the Fed announced they were going to start buying S&P 500 ETFs in an effort to “stimulate” the economy? That is exactly what is happening in Japan. From Bloomberg:

Continue reading Navigating During a Period of Extreme Central Bank Intervension

MSM Hits New Highs… in Stupidity: WTI Golden Cross

By Biiwii

We have shown again and again how when a “Golden Cross” (or Death Cross for that matter) is touted – especially in the greater media – that it is at best a non-factor and at worst a sign that everybody’s got the memo and the market in question will soon take a turn for the worse.

On cue, not only does MarketWatch chime in with some Golden Cross hype this morning but it leverages the idiocy to call crude oil’s Golden Cross a good thing for stocks this summer.  Bulls take note!

If this happens, it could be a fantastic summer to own stocks

Not good, not sensible… Fan effing tastistic!


MSM, always on watch to make up stories to justify market moves or simply inspire peoples’ imaginations hallucinations.

A May-November Relationship

By Tom McClellan

A May-November Relationship

Presidential Cycle Patterns 1st or 2nd term
May 06, 2016

The big mantra the past two weeks is the old Wall Street saying, “Sell in May and go away”.  That became an old saying for mostly good reasons.  But what many do not realize is that it works differently in election years.

Where the May to November period is most reliably weak is in the first two years of a presidential term.  It is even an up year during most 3rd years, except that the big crash of October 1987 pulled down the average in a big way.

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Can the Fed Prop Up Markets Indefinitely?

By Chris Ciovacco

Markets Know Rate Deferrals Cannot Last Forever

As noted on April 20, under the “economy continues to grow” scenario, the Fed cannot indefinitely postpone the next rate hike. From Bloomberg:

When does treading carefully lead to falling behind? Federal Reserve officials signaled last week that they expect to raise interest rates twice this year, while investors see only one move. If economic theory is any guide, even the central bank’s more hawkish outlook would still leave the target for the benchmark policy rate way too low.

Conditions Will Never Be Perfect

At last week’s meeting the markets were not expecting the Fed to raise rates. However, markets were expecting the Fed to send some signals regarding the distinct possibility of a rate hike in June. Instead, the Fed delivered another vague statement regarding the timing of any future interest rate hikes. From CNBC:

Continue reading Can the Fed Prop Up Markets Indefinitely?