Uh…uh…uh…a big gap to the upside. What was your guess?
The thought process was that Friday’s reversal off of long term support was A low for now. And now…a HUGE GAP TO THE UPSIDE this morning. We shall leave it at that as there is no way of gaming this except to guess the gap. Need some cards coming out of deck. Go check the intraday action from Friday as well as all of last week.
More as this plays out. Nothing to really report out of earnings this morning.
When we stated that we thought that up to a 2500 point correction could be coming, the thought process was that it would play out over the next quarter or so. The thought was based on the quick internal deterioration from the previous days combined with the MASSIVE, MASSIVE, MASSIVE bullishness, froth, speculation and all that goes with it…combined with how extended the move became off of the January romp. We had no idea it would happen in days but that’s what happens when you have not had a correction in 15 months. That’s what happens when passive investing pervades. That’s what happens when you get such a one-sided trade. That’s what happens when you have record margin. That’s what happens when complacency is about as complacent as it can become. When things turn, all that greed turns into fear quickly, thus the sharp move down both here and around the globe. We now know the geniuses were at it again as a few “products” blew up. We suspect there will be quite a few class action attorneys making a few bucks in the months ahead.
But now what?
Anything is possible. After all, we are being told the Dow moved 20,000+ points in the past week throughout the days. Frankly, not sure we can match some of the moves we saw. 100 point moves in 10 seconds. Not kidding. 300 points moves in a few minutes. 300 points the other way in a few minutes. 500 point moves in 20 minutes. 1,000 point moves in hours. Our motto…DON’T BLINK! But we do have some thoughts from here.
We suspect Friday’s action puts in a low for now. (“Now” could mean hours in this environment!) That was one heck of a late day reversal OFF OF MAJOR SUPPORT AREAS as a few important indices tagged or undercut the longer term 200 day average and powered back up a few. This was the institutional crowd playing defense right where they needed to…and suspect there could be some upside testing. But that is far as we are willing to go right now as there has been a lot of damage done. Everything around the globe had sharp drops through short-term and intermediate-term levels. We have been asked a dozen times whether the worst is over. Our only answer is that it is too early and need to see some cards come out of the deck. Normally we would tell you no way as damage like this does not lend itself to just turn back up but with central banks at the ready, we do not put anything past this market.
So what do we mean by central banks when all the headlines claim we are at the end of the easy money parade? We think those headlines are nuts. Easy money is here to stay. Any headlines are opinions. Here are the facts:
This past week:
Japan said they are not ready to move rates from negative even back to 0%. They also said they will continue to print money and in fact said they stood ready to increase if necessary.
Europe has been teasing a little tightening but remain negative with rates and are still printing money. The latest excuse to not tighten? Draghi all of a sudden, is worried about a strong Euro…so no tightening there…and
We are still at a whopping 1.25% and guess who said this? “Investors really do understand now that we will be there to prevent serious losses!” Drum roll please! That was Jerome Powell, the new fedhead in 2012. Need we say more.
As you know, we write a lot more during bear phases because Wall Street is always bullish. Time will tell but we think there just may be some more time and price once any anticipated bounce hits the wall. Stay tuned. We suspect the action will continue to be wild in the days ahead.
Wow! Wow! We have been the bears since the high and we are startled as to how this is playing out. We will have a gargantuan report over the weekend but just some words to the wise as futures are up today over 1%…of course after another 1,000 point drop.
Pay no attention to Wall street and most pundits. You will hear: DON’T WORRY…MARKET IS CHEAP…AN OPPORTUNITY…A VALUE…OVERDONE…IF YOU LIKED THE MARKET LAST WEEK, YOU LOVE IT NOW…THE ECONOMY SUPPORTS HIGHER PRICES….THE TAX CUTS WILL SUPPORT THE MARKET….THIS IS JUST THE ALGOS…THIS IS JUST THE COMPUTERS…THIS IS JUST THE BUTTON PUSHERS…THINK LONG TERM.
We have news for all this chatter…THE MARKET IS GOING TO DO WHAT IT WANTS TO DO IN SPITE AND DESPITE ALL THAT NOISE. And we can assure you, markets do go down when the economy is in good shape. We can assure you bearish markets do happen (though we were starting to think differently). PAY ATTENTION TO PRICE! Right now, notwithstanding wild swings and gaps to the upside and strong bounces, price has not acted very well.
Pay no attention to the permabears. Many missed the last 10,000-15,000 Dow points but are already coming out to tell you…TOLD YOU SO!
So what is the edge here? Don’t overdo it. Look at the close yesterday and look at the open today. Look at the intraday action of the past few days. Just a bunch of random, nonsensical moves. 200 points in less than a minute. 500 points in 15 minutes. 500 point swings in 30 minutes. We do not think there is a manual for this. We have no clue if we go back up 1,000 today or reverse the gap to the upside.
Eventually, this will slow down and become less volatile but eventually is not here yet as we gap up nicely this morning. Just keep in mind that THE NEW CENTRAL BANK FED HEAD ONCE SAID IT WAS THE FED’S JOB TO SAVE MARKETS WHEN THEY ARE IN TURMOIL. (NOT KIDDING!) We would not be surprised if they are in there today buying up the markets. Again…NOT KIDDING.
And lastly, to all those blaming computers for the drop. Do the computers get any credit for the 9 year bull market that took the Dow from the lows of 6500 to the highs of 26,000 recently? Saw a few too many whiners yesterday. Yes those triple futures volatility index products are crap with many sent to the scrap heap but overall, there is nothing wrong with computers.
Another random wild day yesterday. If the market closed at 330 pm, would have said great day for Dow up 260 but NASDAQ lagged being flat…but DOW ended up down and NASDAQ smacked. The drop happened in the last 15 minutes.
Eventually, the volatile days will stop but then what?
Best guess…FOR NOW…that high volume, monstrous reversal from Monday could be A low for now, that is the low of that day. FOR NOW, that’s the thought process but will let more cards come out of the deck. While not thrilled with yesterday’s close, willing to give a little benefit of doubt here…just a little. If we had the market do our bidding, it would back and fill for a few weeks before going higher…if it wants to go higher.
The good news getting some good earnings reactions past couple of days…SNAP big gap and go. And today, TWTR and GRUB gapping strong. This could be a sign. Good gap reactions do not usually happen in bear markets.
But a lot of stuff ugly…go look at OILS…OIH, XLE, XOP…just as an example with many other areas showing some decent short-term tops. We shall know in weeks whether it turns into more.
Be careful of the big bear talk. Be careful of the big bull talk. If you try to get ahead of yourself, you will drive yourself up a wall with the swings. Eventually, market will show its hand and for now, we think Monday is important and like we are seeing strong reactions to earnings…but a lot of technical damage has been done.
Lastly, we cannot believe the mis-reporting on easy money policy. We keep hearing talk about tight policy. Say what/ We are at 1.25%. Europe and Japan are negative and still printing money. Do not believe a word that is said. Deal with facts. They have been easy. They are easy and will continue to be easy because they cannot afford to be anything but easy.
Futures are down but were much worse a few hours ago.
Received all kinds of questions on yesterday’s action and answered them all with an I DON’T KNOW!
As I said, there was no edge yesterday except to take shots. Down 550 on the open, up 350 within an hour, drop back down and trade a few hundred up and down and then at 220 pm, Dow was down 150ish and rallied 600 points within an hour.
Do you think the ugly is over?
I think yesterday’s low, based on the high volume and huge reversal holds. (FOR NOW) But suspect we get some wicked backing and filling here.
Why do you think this move down happened?
Stretched and extended markets, as far as we had seen in ages combined with all the complacency.
What happened with the XIV yesterday? It was down $91 to $7.
Don’t know except to say another attempt at leverage by Wall Street did not work and gather big lawsuits are ahead.
Do you think this is the start of a real bear?
Best guess? No! But cannot rule it out and will be looking at what other cards come out of the deck.
How much technical damage was done?
Lots! Typically, at the very least, there is going to be a decent amount of time repairing the damage before any decent move up.
Could we get a “V’ shaped move back up?
Anything is possible in QE markets but odds favor this may need some time but again, we are open to anything.
Is all this talk about easy money days being over true?
Hell no! I read the same crap in past two days. In fact, there was a headline about it in NY Times this morning. We are still at 1.25% fed funds. Japan and Europe are still negative and still printing money. Last week the Bank of Japan announced they would buy unlimited debt and ease even more in response to any surging rates. So where is the tight money? Yes…the ten year has been moving higher but it is still at a very low 2.75%. AND I GUARANTEE YOU THE NEW FEDHEAD WILL LOWER RATES IF NEED BE.
Do you think there is a plunge protection team that buys up markets when they get in trouble?
Absofreakinglutely! In fact, the new fedhead announced in the past that one of the fed’s jobs is to protect markets. No really! He said it.
WE EXPECT MORE ASSININE VOLATILITY HERE. We are not so sure yesterday’s reversal ends the tough market.
Lastly, we will put out a report tonight on the ridiculous mis-reporting, under-reporting, not reporting, and the outright biased, lying reporting on the markets byt the national media.