Panicky peddling pummeling prices . . persistently pressured prices before Friday, especially in NASDAQ 'former' momentum favorites. As a combination of factors we've specifically outlined in recent days revealed the nature of this market's delusional optimism, prices started unraveling, basically on schedule.
I say it thusly; as only the S&P had held on, aided by defensive reallocation's; while the mo-mo stocks (typically the type leverage players would utilize) had been declining as noted for some time. That's a masked decline; so those who now talk of being 'protective' omit recognizing most are already down 10-20%; or even more. That leverage is a killer in a decline. You don't need to be cut in half; then need 100% gain to recover; as the way to view it is: that players with as much as 80-90% leverage in the Indexes would be wiped-out with just a day or two more like Friday. Hence they evacuate what I called a 'keyhole exit'.
I hear no pundits or analysts explaining the 'hook' the record margin creates; in addition to how it can as this unravels in stages, accelerate downward action; a reason we outlined via video the stages and trader responses likely ahead. (An interesting S&P overlay chart suggests one 'algorithmic' liquidation possibility.) I emphasized in the last two weeks why members should focus intently on the meaning of the expected early April upside 'relief' rally; and what came within the two ensuring weeks. (That's also why I urged guest visitors to join us; as no doubt we've had a handle calling nuances of almost each swing all year so far.)
Two weeks ago - we staunchly embraced these prospects: 1) that there would be an effort to extend the S&P above the 'double-top' in early April as a result of Quarterly Re-balancing being out of the way (relief rally of sorts), and also a bit of support from the last vestiges of 'seasonal reinvestment funds flowing in'; 2) the 'shift' from 'already faltering' momentum stock leaders into 'laggards', as so many pundits urged, along with buying of energy stocks, would 'cover' what already was an internally-topped broad stock market; 3) some of it occurs as mutual funds are not allowed to short or have a high liquidity percentage; so it's their shifting to be as defensive as they can, that reflects this characteristic (it's not a conspiracy but we called it a 'rearranging of the Titanic deckchairs' due to this required behavior of many money managers); 4) such behavior historically correlates with either the end, or near the end, of an uptrend; 5) that the equity market would 'not' survive April / May without a meaningful shakeout or worse; and finally 6) that ideally the ensuing two weeks (now ending) would complete this activity; setting-up the Averages to reflect the ongoing internal distribution.
(This week I just shared lots more than I fairly should; to give visitors a feeling of what objectively was forecast -based on facts not delusion- to occur over the week just past; and where it, by implication, leads the market. Subscribers had a heads-up both to look for a post-Quarter upside pop and then a flop; and very specifically were advised to expect the market to rally and immediately fail with no regard to whether Friday's Jobs number were good or bad. This proactive approach of course requires adjustments along the way, as it's anticipatory, not reactive. Our creed is always to take the risk of being a bit early rather than a bit late; as particularly in the technology stocks, our warning of their topping a few weeks ago in early March, and that they would do so ahead of the big-cap S&P, was terribly important as contrasted to those figuring it out only now. We genuinely invite to to become a member, as we are not only on-top of all of this, but will further curtail courtesy highlights content in the volatile weeks ahead in fairness to our regular members. If you find our thinking useful; join us please.)
Here's a chart of the 'most shorted' stocks that we suspected would lead brief upside last week, and interestingly, also lead the same week's downturn panic.
During the preceding year's advance, 'monetary policy' has been doing virtually all the heavy lifting. The profitability outside a handful of technology leaders or financial firms (made our point; balance redacted as well as Baltic Dry Index and it's implications for global economic activity... it's not just weather is it.)
That fiscal policy did not follow the initially-required Fed stimulus (or bail-outs), and that structural (large segment redacted) activity. Further, belief that High Frequency Trading, regardless of legality, was 'draining' capital that might go into normal investing, and since it mostly involved high-volume front-running; contributed nothing to liquidity (portion redacted) hence there's no redeeming value (trading with no function that benefits maintenance of stable markets). (Now an interesting chart of forward P/E's relative to prior market inflection.)
Bottom-line: with the absence of the 'Fed having their back', and seasonal flow of funds into the market behind; this market was projected to top in early April; after a preceding decline and choppy struggle to new highs indicated to follow the Quarter's end, but only briefly. Record margin is a further initiator of selling as this unwinds, with the pattern likely to follow that outlined via the video.
Also stripping-bare the real economic progress (or lack of imaginary growth), both in Europe and America as well as Asia, contributed as well. ECB's Draghi statement was candid and sobering; and preceded imaginary US strength. (In the following Volatility Index (VIX) chart you will see our view about the degree of correction seen; plus what it will take to challenge primary trends.)
For many years I've striven to objectively assess what probabilities are for market moves. 'Spin' out there about what's occurring is amazing; so I'm going to share (what I believe will clarify the market standing and its risk to investors) by leaving the 'Midday' Friday video as a live link. If it's useful in putting what's going on in perspective; simply subscribe now.
Weekend video (live second video link):
Daily Briefing (final) MarketCast
Midday (intraday) MarketCast
Daily action - was decidedly turbulent in the hour leading into and after NYSE trading began on Friday. While like 'trench-warfare'; it conformed to Thursday's call here, for the market to rally on the 'Employment Report', whether above or below consensus (our view was a bit below, and that's in fact what it was). But we believed the pundits would 'spin it bullish' regardless (balance reserved as are all other charts and Oscillators, with embedded technical analysis).
In any event; we nailed the behavior and thankfully got a rebound with market hours; so that we could establish what was both an intraday and position-short guideline short-sale from the E-mini / June S&P 1890 level. We place a fixed mental stop at the 1893 level, and it was never challenged. Our ideal pattern call for the day was the upward response struggle; then down; bounce; fail; as we headed toward a probable outside-down Friday key reversal session.
Prior highlights follow:
Calamity - is the single word to describe the financial mess potentially looming that eludes objective consideration by most analysts; because the ability of the market(s) to deflect even reasonable corrective price behavior, tends to allow a marginalizing of analysis based on real underlying fundamental issues. (Chart below indicating 'risk off' and potential 'panic', provided at last week's start.)
Forex markets are at the heart of this; whether directly or indirectly. While there are numerous issues that can derail markets' underpinnings (totally redacted).
Forex concerns aren't directly related to HFT; but to 'currency trading rigging'.
The London Whale case did get wide coverage; but the wider issue didn't; and one might wonder why that was. Then one might return to (fully redacted).
I'd like to believe the FBI (and Scotland Yard) have been quietly investigating this discrepancy between (fully redacted).
A period of overly-optimistic lunacy - has set-up problematic circumstances for the stock market, the credit arena, and even the Federal Reserve itself. All are reflective of (redacted; but here's the global perspective chart).
Note: the www.ingerletter.com website & companion 'mobile site' is an ideal way for new members to join. Referred traders & investors may also join and (we'd appreciate it) 'like us' on Facebook, which shares a few highlights too.
The Inger Letter Facebook page shares a few charts; providing historical background of overall U.S. and global views about developing economic conditions. To see these; please click 'like us' on the welcome page.
P.S. Not a Facebook member? No matter; daily analysis is via email only.
There are lots of hard challenges ahead; and this time, there must be sobriety in geopolitics & fiscal policies; beyond monetary shell games.
Enjoy the weekend!
Gene Inger,
Publisher
Current Services Offered by Inger & Co:
Gene Inger's Daily Briefing - $ 159 Quarterly via email text & video
Gene Inger's MarketCast - $ 390 Quarterly via email video
Visit our web site for range of Inger & Co. services: http://www.ingerletter.com
