By Kevin Muir
Too many market participants believe rising stock market volatility can only occur in down markets. It might be true that rising volatility is considerably more likely to occur in times of market stress, but it’s nowhere near as certain as most pundits believe.
While there can be no denying that stock markets often take the escalator up and the elevator down, this generalization is far from a law of nature. Volatility is the measure of the variability of price returns. There is nothing written in the finance books saying that stocks cannot go up just as quickly as they go down.
Don’t believe me?
Continue reading Higher Volatility Does Not Have to Equal Lower Stocks
By Tim Knight
As you might guess, today (Monday) was pretty much the opposite of last Friday for me. Friday was awesome. Today sucked. But as a swing trader, I’m not going to cover all my positions willy-nilly. As I so often say, the individual stops need to take care of themselves. As such, I’ve retreated from 71 positions down to 61. Of those, 51 remain profitable, and the other 10 have small losses. Average of the winners is 3.27%, and the average of the losers is negative 0.26%.
This bounce could have more life to it (and, for me, more pain). Looking at the charts, it seems to be the key is the gap between last Wednesday and Thursday. Take a look below, and you’ll see an interesting correlation between the 100 day moving average and the Wed/Thurs price gap. It seems to me, that makes a sensible bounce target. (Side note: I took this snapshots about an hour before the close, so the price moves were even higher).
Continue reading Bouncing Toward the Gap and MA
Regular readers know we’re not big fans of gold outside of the hedging benefits it can provide in a portfolio.
The fact is, it’s just a piece of metal. It has no intrinsic value and ironically, it will be even more inherently worthless in an armageddon scenario than it is now.
As we’re fond of putting it, the only thing gold will be good for if we all find ourselves living out Cormac McCarthy’s The Road is as a weapon to bludgeon the cannibals with when you run out of bullets. You can’t burn gold for fuel and you can’t eat gold, so I’m not sure why anyone thinks they need a personal safe full of it to guard against the nuclear apocalypse.
With that out of the way, obviously it can serve a purpose in the portfolio context and given the very real possibility that there’s an acute, indiscriminate risk-off episode in everyone’s future that might not be tied to the Fed (i.e. a risk-off episode that doesn’t result from some hawkish lean somewhere and thus isn’t accompanied by rising real rates), it’s probably worth considering whether allocating more to carefully polished yellow doorstops would be a prudent move.
We’re not going to spend a ton of time on this because frankly we don’t find it very interesting (if you want to own some pretty paperweights, well then by all means stock up, we don’t give a shit), but it’s worth noting that Goldman is out with something new. We’ll just hit the high points. They start by noting the decoupling with real rates:
Continue reading Buying Gold Wouldn’t Be The Worst Idea Right Now, Goldman Reckons
By Anthony B. Sanders
$300 Billion Of T-bill and T-notes To Be Auctioned This Week
Which kind of bear is best? The one where the LIBOR-OIS spread doesn’t keep rising!
(Bloomberg) — The recent drop in yields will be tested by a surge in borrowing by the U.S. government and a ballooning budget deficit.
The bond bears had a good run. The benchmark Bloomberg Barclays U.S. Treasury index declined as much 3.67 percent between early September and late September. Lately, though, they seem to have lost some of their resolve as yields on intermediate-term Treasuries fell back from their highest levels since 2010. If anything, they should be more bearish.
Continue reading The Bear Market In Bonds Is Just Getting Started
By Callum Thomas
Just a quick global equity breadth check here. As a reminder, these breadth models are looking at breadth across countries i.e. the main benchmark stock index for each of the countries we monitor (70 countries in total). Looking at breadth in this fashion for global equities can help flag early warning signs if certain pockets of the globe are coming under pressure, or indeed trigger timing signals when global markets succumb to panic selling and broad capitulation.
As you might expect, and following on from the article last week which looked specifically at 50-day moving average breadth for global equities, most measures of breadth have broken down markedly. At this point it’s tempting to call global equities oversold, and that would be my bias, that said it’s a risky juncture.
The main points from the charts on global equity breadth are:
-200-day moving average breadth is breaking down.
-52-week New Highs minus New Lows shows significant downward momentum, yet is also in the oversold zone.
-The number of countries trading at new 52-week lows reached 9 (out of 70).
1. 200-day Moving Average Breadth: This time looking at 200-day moving average breadth across countries, you can see a notable breakdown here. In previous episodes there has basically been two types of breakdown in this indicator: i. Oversold markets; and ii. Trend changes. We can only truly know what it is after the fact, but we’re truly seeing a significant reset here and that could create an interesting setup.
Continue reading Global Equity Breadth Check: New Lows
By Keith Weiner
Picture, if you will, a group of slaves owned by a cruel man. Most of them are content, but one says to the others, “I will defy the Master.” While his statement would superficially appear to yearn towards freedom, it does not. It betrays that this slave, just like the others, thinks of the man who beats them as their “Master” (note the capital M). This slave does not seek freedom, but merely a small gesture of disloyalty. Of course, he will not get his liberty (but maybe a beating).
Today we do not have slavery, but we are shackled nevertheless. Savers are forced to use the government’s debt paper as if it were money. Most are content, but one says “gold will go up.” He does not expect a beating (but maybe a price suppression).
The slave cannot escape from his bondage, until he stops thinking of the brute as “Master” with a capital M. Freedom does not come from a little show of resentment. So long as malcontent slaves are content to limit themselves to petty disobedience, the Master is content that his rule is absolute. Freedom first takes an act of thinking. One must see the brute for what he is.
Today’s investor cannot escape from the bondage of the Federal Reserve, until he stops thinking of the dollar as “Money” with a capital M. So long as malcontent investors are content to limit themselves to betting on the dollar-price of gold, the Federal Reserve is content that its rule is absolute. Freedom takes an act of thinking. One must see the dollar for what it is.
Continue reading Slaves to Government Debt Paper
By Rob Hanna
Over the weekend, I decided to run some new studies based on the Quantifiable Edges Capitulative Breadth Indicator (CBI). As I tweeted out near the close, the CBI reached 9 on Friday. Historically, I have viewed 10+ as the level that really gets me excited about a potential bounce. I decided to examine market performance other times the SPX closed at a 20-day low and the CBI reached a level of X of higher. In the study below I hold the market position until the CBI returns to 3 or lower.
As you can see, results when it hits anywhere 7 or higher are fairly reliable. I have highlighted 9 above since that is the current setup. I also generated a profit curve using 9+ as the entry trigger.
Continue reading A CBI of 9 & SPX at a 20-day Low
By Tim Knight
The Central Bank Bull Market ended on January 26, 2018. The new bear market began the same day. It seems almost impossible to believe, but it was only nine trading days ago that the NASDAQ, the last holdout, was at its highest level in human history.
What everyone’s waiting for, of course, is what happens on Monday. Will we bounce? Will we crash? Search me. I’ve offered my own ideas to PLUS members, who keep this blog running.
But the market has utterly changed. Just compare the kind of market we had early in the year (left circle, with absolutely no daily range and no volatility) to what we have now (right circle, utter, unchecked pandemonium). Let’s just say I prefer the latter. A lot.
Continue reading Saint Crispin’s Day
By Anthony B. Sanders
New home sales for February fell a meager -0.6% MoM (essentially flat) to 618k units SAAR.
It is the third straight month of MoM new home sales.
Continue reading New Home Sales Flat In February (-0.6% MoM), Back To 1995 Levels Despite Population Growth
By Doug Noland
Deutsche Bank (DB) dropped 13% this week to a 15-month low. DB is now down 28% y-t-d. European banks (STOXX) sank 5.0% this week. Hong Kong (Hang Seng) Financials were down 4.9%. Japan’s TOPIX Bank index fell 3.3%. In the U.S., banks (BKX) were slammed 8.0%, the “worst loss in two years.” The Broker/Dealers (XLF) fell 7.3%.
It was also an active week in Washington. The Powel Federal Reserve raised short-term interest rates, and the new Chairman completed his first news conference. President Trump announced trade sanctions against China. There was more shuffling within the administration, including John Bolton replacing National Security Advisor H.R. McMaster.
Let’s start with the FOMC meeting. Analysts – along with the markets – were somewhat split between “hawkish” and “dovish.” As expected, the Fed boosted short rates 25 bps. On the dovish side, the Fed’s “dot plot” showed a median expectation of three rate increases in 2018 versus pre-meeting average market expectations of 3.5 – and fears of four hikes. The Fed upgraded its view of GDP prospects and lowered its forecast of the expected unemployment rate. Steady as she blows for normalization – markets not so much.
Continue reading Regime Change
By Kevin Muir
[biiwii comment: not only is Keith my favorite git fiddler of all time, but he’s one of my favorite people. Bravo Macro Tourist; you’ve outdone yourself!]
I am going to break from regular market commentary to step back and think about the big picture as it relates to debt and inflation. Let’s call it philosophical Friday. But don’t worry, there will be no bearded left-wing rants. This will definitely be a market-based exploration of the bigger forces that affect our economy.
One of the greatest debates within the financial community centres around debt and its effect on inflation and economic prosperity. The common narrative is that government deficits (and the ensuing debt) are bad. It steals from future generations and merely brings forward future consumption. In the long run, it creates distortions, and the quicker we return to balancing our books, the better off we will all be.
Continue reading High Debt Levels Rant
By Tim Knight
As I wrote earlier, yesterday was completely bizarre for me, because soaring bonds and weakening interest rates really put the chill on my day (until the end, when it all worked out). Even though, as of this moment, the ES is green (OK, just barely) and the NQ has done about a 100 point about-face from the downside, I’m just as excited about today as I was yesterday at this time, simply because my positions are so interest-dependent. It seems to me bonds are offering great respect to that trendline I’ve drawn, having bounced off it twice.
Continue reading Banging Bonds