Canaries chirping away - have been ignored by markets, 'as if' the birdies were in a coal mine; rather than screaming warnings about disconnects and divergences, that threaten the overall trend, if not carrying systemic risk too.
The average Russell 2000 stock is - 20% under it's 52 week high
The financial press generally disdains questioning the underpinnings of the market; though they're starting to come-around just a little (they have to with a large number of stocks 10-20% off their highs, and with Goldman primarily their leader, having contracted their optimism, this is the normal follow-on).
High-Yield has been flashing warnings; the response today was short-lived as suspected likely; and the Fed remains betwixt a rock & hard place; as we discuss in 'video 2' tonight; so the market is reacting somewhat similarly. As to the historical prospect of the market having corrected internally; so more isn't required; that could be valid at a lower level; totally not at these levels.
If the market follows the A/D Line; or VIX; or the Russell 2000; there is not a logical reason immaginable why analysts, especially technicians who see all this, would argue higher market levels pending -at minimum- bigger decline.
Also (discussion redacted of certain financial risks), it was Brookley Born's failed efforts to regulate or bring transparency to the secretive derivatives market, that first highlighted a continuing resistance to reform. I recall Born sounding this warning: "I think we will have continuing danger from these markets and that we will have repeats of the financial crisis - may differ in details but there will be significant financial downturns or disasters attributed to this regulatory gap, over and over, until we learn from experience."
By chance is any of this shaping up presently?
Conclusion: the entire month of July is working-out as projected; choppy June with a rally into early-mid July; rocky at times; preceding significant weakness in July's second-half, clearly evidenced all month by the Russell 2000 (again no reason for anyone not to have noticed). Our position short sale basis E-mini / Sept. S&P from 1985 continued; as well as this week's (for traders who played the rebound then need to short anew) from 1975.
I've already said this could turn into a 50-100 handle downside implosion in the very short-term; based on the proximity to breaking short-term 'support' (which we expected to give-way this week, and is); then lower as outlined in the videos. Conditions remain ripe for a significant downside market move.
(Editors note: this was essentially stated every day this week; and just if you are curious, on Wednesday and Thursday we advised against playing rallies intraday; as we thought it important to hold-on to short bearish positions. We have been proactive and profitable all month (nailing the pattern too); so for sure no need to get defensive as the herd reacts as anticipated. We've also outlined where we might harvest gains and look for a rebound ahead; with a preliminary indication of how potent it will or won't be, and what's thereafter.)
Note: tonight's 'credit market' comments aren't intended to expect a replay of 2007-2008; but a (redacted) decline evaluated as it continues evolving (I say continues, as this has internally rotated for a while now). Hence that is why I say it's ludicrous for analysts to simply say 'stay fully invested; (more).
Enjoy the evening:
Gene
Gene Inger
