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Gene Inger: The Inger Letter - August 18, 2014

Gene Inger

Gene Inger


It didn't happen' - was Friday's ultimate response from Russia's Foreign Ministry, to the multiple confirmations of Thursday's reports we shared from 'The Guardian', before virtually any US media (they mentioned it only 'after' an upward opening in Friday's stock market; hours after it was confirmed by Reuter's; by AFP; by Kiev; and by London). (Ed note: and on Saturday Kiev says 3 heavy rocket launchers crossed the Russian border into Ukraine.)


The market of course plunged when NATO confirmed the 'incursion' and the defensive artillery assault by Ukraine (fortunately we had it on the morning's report, which as hoped for Thursday, gave us the chance to get-off a great intraday short-sale guideline at the Sept. S&P (or E-mini) 1960 price level.

I was surprised the market ignored the early Reuters artillery attack story on the Russian armored column; but again it was a fortuitous delayed reaction. It also took place right as the S&P popped a hair over 1960 resistance; just perfect for an up-and-then-down reversal actually. Now what happens next may relate to whether or not (balance of topical discussion).

Now you have Russia claiming the whole thing was fabricated to allow EU extensions to their border and NATO presence too. Absurd. I still think this is a set-up so a 'magnanimous' Putin can gracefully defuse tensions; so the West will pipe-down about his annexation of Crimea, believing war avoided.

In sum: after preparing Thursday's report, I pondered if I emphasized what was going on in Russia/Ukraine too much. Obviously I did not. The markets in Europe tanked, and did not come back like the US. Intraday Friday when the Berlin meeting was announced, I felt there was a comeback prospect so tightened stops accordingly for intraday traders (to assume homerun gains). 

Also there is a lot more on this market's plate than just Europe, the Middle East or even Ebola (notice that vanished from focus even as cases 'spike'). The European situation (and maybe threats to regions nervous but not yet impacted by Islamist's war on civilization) has contributed to 'flight safety' fund movement to the 'least messed-up' market; aka the U.S.A. 

And I say Islamist's war, not just ISIS, because we have learned there is a likely plan to put more pressure on Lebanon; not just Syria and Iraq. Only if Hezbollah ironically takes-on ISIS, can that have a chance to be swayed. Also, while a few analysts 'think' nothing matters but Russia; others 'think' it's global central bank monetary policies -in part it certainly is- the speech given this week by David Cameron, UK Prime Minister, cuts to the chase of rchallenges Western countries face, largely because of complacency; of an understandable fatigue; and a failure to have comprehensive policies to address this enemy; which cannot be dealt with diplomatically or rationally.

This can be a major impediment for markets; not just an excuse for analysts (overly optimistic) to find cover for their failure to manage responsibly. Being nimble and focusing on the economic prospects does not mean lacking any focus on technical analysis; as charts are confirming everything we've said in regards to this overall market. That's why we had such an awesome trade on the downside again (40-50 S&P handles is huge) and the rebound that's challenging a key point almost now, as I'll describe in the days just ahead.  

The most important realization is how money shifted into strengthening the bond market again; driving yields again ridiculously but predictably, lower. It is not just Europe; not just the U.S.; but global slowing which persists, even as many try to proclaim the opposite. I think St. Louis Fed President Bullard captures it best, when he says 'the market (he means bonds) don't realize the extent to which they are going against Federal Reserved intentions'. 

He's right; but perhaps he doesn't appreciate the 'panic' to buy Treasuries has correlation with world events, combined with reticence to buy stocks at absurd valuation levels. This results in logical people worrying (properly) still a lot more about the 'return of their money, than the return on their money'.  

Bottom-line: everything is the same as outlined all week aside the shocker in Ukraine, which was unfolding at press-time Thursday night, confirmed by our first comment Friday morning; ironically just minutes ahead of the highs. From a trading standpoint it went great; from a global viewpoint, it's fluid. In a technical sense, should the market falter (as outlined to our members; of course please understand this is what I do; so I can't share everything like specific level expectations for the E-mini / Sept. S&P and VIX that follow).   


Daily action - noted an upward move (redacted) S&P 1960 level; was struggling and primarily Expiration-related; plus some flux related to the low yields and incredibly yield decline persisting in German Bunds. Allowed the awesome intraday short-sale guidline (and later our weekend guidelines).  

The Ukrainian tensions, claims and counterclaims, roiled the markets most of Friday; (balance for regular members).

The bond yield declines in Europe and America also reflect a reticence to go into equities; and in a sense shows money coming here; but not into stocks. I believe St. Louis Fed President Bullard's comments about traders ignoring the Fed shifts are right on; they just omit the 'flight-to-safety' flow aspects.

People are buying Treasuries less 'because' of financial engineering but just perhaps because they want a form of liquidity without the risk of the markets in a continuing lethargic recovery. Foreign money would rather park in U.S. paper than stocks; and basically be positioned for U.S. equity buys 'when' a sense of value is restored. That a market holds up against debt stories and other factors (like Velocity of Money) is a warning; not new solace.             

As the 'on-hold' market - with an upward tilt toward nominal Expiration in these last couple days of the week persists; perhaps we should consider a few prospects for the near-term; as well as speculative geopolitical risks. 

The most notable statement Wednesday was probably Defense Secretary Hagel's, speaking at Camp Pendleton, California, when a Marine asked him about the 'mission capabilities' now that Washington is 'pivoting' over to the Pacific (great timing of the 'pivot', might be the inferred question). Secretary Hegel responded that we can indeed fulfill missions everywhere necessary; as we can't help that 'The World is Exploding Everywhere'.

Lots of challenges ahead. Increasing awareness needed in geopolitics & fiscal policies; beyond financially-engineered or defensive strategies; and beyond heavy shakeouts followed by delusional optimism.
           
Enjoy the trading week! 
   
Gene
 
Gene Inger
www.ingerletter.com