Stocks historically correlated pretty well - as a 'leading indicator' for the US economy. That is considerably less the case 'now', because of direct or indirect interventions by the U.S. Fed, as well as impacts from foreign central banks. They've generally intruded upon rational price discovery in market ranging from obvious impact (waning for months) of Quantitative Easing; stimulus of various sorts on equities; to impacts on credit, futures, and currency markets as well.
This doesn't throw technical analysis out the door at all; rather it has required a more focused exploration of the factors underlying markets, which continues to impact prices in every sector, beyond anyone's long-term theories. Besides the key to recognizing last year as 'distribution under cover of a firm DJ and S&P; it was essential to identify the retreat of Fed monetarist enthusiasm, and the lack of respect for declining economic and GDP indicators for several Quarters. This is true now as well, as hope springs eternal that this weekend's G20 somehow is going to revive monetarism and inject needed liquidity into illiquid markets. In our view (balance of discussion reserved for our regular daily subscribers).
For our part, besides interpreting the most recent snap-back as a 'bear market' rally (redacted); it was important that we interjected the 'phony' oil story as a causal factor amid our technical work. And while I believed it would carry into the S&P mid-1940-50 or so area (redacted)). I suspected 'front-selling' Monday as indeed a majority were suddenly talking about buying for even higher S&P levels, which I thought ludicrous as you know. Our call was for it to back down.
What gave me the confidence to suspect market failure? Well aside respecting the coming G20 Meeting (risk of liquidity injections), month-end activity, and of course the questionable ceasefire in the Middle East (redacted geopolitics).
Or it's even possible that everyone is standing-down so as to discourage Saudi incursions, which were rumored with an 'exercise' slated late this week too. The timing is just a bit too coincidental; hence bears watching. It's ironic that none of the Western media appears to hone-in on 'why' Russia and the U.S. agreed to a 'cessation of hostilities' without any of the terrorist groups agreeing too (if it could even be coordinated). That's part of why I believe we haven't heard 'the rest of the story' (as radio's late Paul Harvey would say).
Our view has been that any such 'maneuvers' (by all the powers involved) are a distraction to the main point: Oil and currencies. You do not have serious global growth; you don't even have US consumers loosening up (or restaurants would be doing better given cheap gasoline); and you have a domestic political middle class upheaval (slight discussion of implications of these trends).
This is a time of turmoil. In society, and in markets. Ongoing, rather than merely looming, recession (redacted); energy (redacted). Chinese devaluation (more), plus a continued valuation disconnect shows no prospect of quick restoration, except by one method: (specifically noted).
In sum: this market has pivoted around on the back of Oil, to cut to the chase. But that there was 'no' Production cut deal is how we interpreted the 'dropped context' to statements in Tehran, last week and yesterday; well before a denial of cooperation was reiterated by their oil minister during Tuesday's market. The Saudi Oil Minister amplified that in Houston. That validates our interpretation of recent days, before the charts showed it all. We want oil to go up; but hope isn't a strategy; hence we looked at what the oil ministers said; not interpretations.
Conclusion: the markets are not reacting significantly yet; but take a few more points off the S&P, and there will be some algorithmic signals generated. We continue short March S&P / E-mini from 2065; for the remaining 50% of total position; after taking huge 130 & 200 handle gains harvested earlier.
Enjoy the evening;
Gene
Gene Inger
www.ingerletter.com
