Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
One nice thing about Twitter is it is another tool to guage the sentiment of the “marketplace”, albeit a small sliver of it. Combined with the action in the charts you can get a good mix of retail + institutional ‘feelings’. Intermediate term there is continued distribution going on, that is obvious. The bounce from the previous 2 weeks is now totally negated and was clearly the dead cat variety we spoke about. That said trying to figure out when that dead cat bounce begins and how far it goes is always guesswork.
I’d consider the action this morning only the 2nd or 3rd day of “panic selling” we’ve seen over the past 2 months of this correction. Yes it’s been about 2 months now. Quite a few high quality names were/are sold/selling off 4-7%. Of course quality does not matter when people just want out or are forced out via liquidation/margin clerk. What makes me still feel wary is almost everyone is assuming intervention …and soon. While it most assuredly is coming at some point, guessing when is pure gambling. Of course that day the market will surge – maybe 2%. But for those not heeding the dangerous aspect of the market that 2% day will just get them back to even from the losses of a day like today (thus far). I will keep repeating it, but any sustainable move will be weeks in the making and the only people catching the meat of the first day will be those who have taken a shellacking on the way down.
Technically, the S&P 500 has been supported (not surpisingly) by the Pavlov dog buying at the 200 day moving average thus far today. Isn’t that too easy? And only today did the 38.2% retrace of the entire Oct-Apr move occur. You can see where the 50% retrace would take the index – down there below 1250. Even falling that far and holding it would be intermediate term fine for the structure of the market. A 61.8% retrace, while not preferable, is another 80 points down.
Bonds are parabolic and look a bit like silver did last year before they reversed sharply but the markets are a bit different – silver is tiny in the big picture and the U.S. bond market might be the largest financial market in the world. That said, RSI is over 80 on the TLT ETF which a buddy of mine online has found only a handful of occurences since inception of said instrument. We’re talking 2008-2009 Lehman/AIG period type of stuff in all but one instance. So when this reverses the highly correlated market should reverse with it. But bigger picture, U.S. bonds are doing to those who bet against them the same as their Japanese cousins have been doing for 20 years. Kyle Bass take note.
The dollar is finally getting punked (relatively!) and gold surging today – this is clearly a heightened belief now the Fed is coming in with a new program. Of course I’ve been calling for a new program (and non stop programs to be happening) continuously even as the economic data was ‘rosy’ this winter. As for trying to figure out these currencies – it is increasingly difficult to figure out with all the actions by authorities. Nearly every major continent/country is doing everything in it’s will to devalue. Is a Fed program for the States > Eurogaddon? Today yes.
So yes we all know a “rip your face” off rally is coming at some point – just as we knew it was overdue 2 weeks ago. But if you were a day or two early almost all gains in that fleeting rally of 5-6 days simply went to offset losses of being a day or two early. That said, outside the vacuum of the mess that is the globe, some high quality secular growth stories are looking more attractive by the day. Unfortunately they too exist within this vacuum!
Food for thought, the market is just barely down about 10% from peak and already the cries for intervention. Moral hazard and Pavlovian demands run amuck. I understand the cries from the “Europe’s structure doesn’t work” perspective, but of course many doing the calling have more specific interests in mind … “get this market up”. That said, history repeats itself and authorities always ‘respond’ so it’s not easy for bears the lower the markets go.
On the bright side the S&P 500 is still slightly up for the year …
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