Market analysis and commentary from a trader's perspective

Thursday, October 27, 2016

Thursday -- Ties Widening, Flip Or Flip Anger, Mercedes Pickup Truck, Euro Bond Yields

S&P E-mini Futures:
Up nicely but not looking too excited.

Hat tip to my friend @edwardrooster for noting that ties are widening.

J. Crew dropped the news in its October catalog, “We widened our ties by ¼” to keep up with today’s changing proportions.”

Today's changing proportions mean bearish mood is creeping in beneath the peaking positive mood.

Even the return of the house flipping craze is creating anger and distrust as house flipping "students" are encouraged to max out their credit cards to pay for "training" that can run as much as $54,000:

Widening ties are simply a hemline indicator for men.

Relax though. A generational buying opportunity probably won't occur until J. Crew's ties are well over 4" wide and suit lapels are closer to the shoulder than the neck. With J.Crew's news ties at 2.75" we've got plenty of time.

Bonds might be on borrowed time, however. This morning's take from Deutsche Bank was ominous, especially since one wrong move could cause their trillions of derivatives to go poof overnight:

"Bond yields continue to rise like an oven baked Victoria sponge at the moment. Yesterday’s selloff started in Europe where yields were up anywhere from 5bps to 7bps with 10y BTP’s in particular finishing up 7.5bps at 1.457% and the highest yield since June 27th. The finger of blame was pointed at the busy day for new issuance with auctions for Gilts, Bunds and BTP’s in particular contributing, while a busy day for corporate issuance including the announcement of a near €4bn deal for Verizon also played a part. That weakness spread to Treasuries where 10y yields ended the day up 3.7bps and near the top end of the recent range at 1.794%. It’s continued this morning in Asia too where yields in the antipodeans are up 4-5bps, while 10y JGB’s have crept up a basis point too."

Something to keep an eye on.

Speaking of Germany, things sound like peaking positive mood there too. Mercedes just announced a deluxe pickup truck.

"Mercedes-Benz is building pickups with nubuck-leather seats and oak trim, in a bet that double-cab trucks will reel in wealthy parents and sailboat owners the same way off-road SUVs did a few decades ago." (Bloomberg)

Wealthy parents and sailboat owners . . .

When ties start widening in Germany, things will get much worse for Deutsche Bank.

CHF still stronger. See Euro bond yields above.

Still no bounce. See Euro bond yields above.

WTI crude's decline is looking messy which may set it up for more of a bounce or rally. NG's impressive pop is due to contract rollover. Needs more trade for a clearer picture.

Nicely higher but with palladium up the least.

S&P Outlook:
Noticing some stuff that is not cool.

This is a weekly chart of NYSE advancers (white) with a 13-day simple moving average (yellow) which has showed divergence at every major turn since 2009.

It's now below the 2016 lows. Breadth has collapsed.

And is that a building head & shoulders pattern on the weekly A/D line?

Granted, the weekly A/D line is far more important to me than the 13-day SMA of advancers above, and it's showing epic strength. I still think we'll see new record highs in the S&P at some point. But something is not right.

Still, unless 2130.09 breaks, there is ample room for higher prices to be tested. And the gap at 2063.66 remains.

Wednesday, October 26, 2016

Wednesday -- Now No Confidence

S&P E-mini Futures:
Continued gloom from yesterday's trading.

My apologies: missed a huge confidence message yesterday.

The S&P CoreLogic Case-Shiller 20-City index reported strong gains, up 5.1% vs a year ago. Marketwatch said, "A closely watched price tracker shows no evidence of home prices succumbing to housing headwinds." That's confidence.

Today, not so much. CNBC: "Total mortgage application volume fell 4.1 percent seasonally adjusted for the week ending October 21st, compared to the previous week, according to the Mortgage Bankers Association (MBA)."

Nor are earnings anything but confident. 3M and Caterpillar got hammered, never a good sign. Under Armour showed that consumers really don't need to buy their stuff when feeling pinched.

Probably the worst message was from Apple where annual revenues declined for the first time since 2001, as did selling prices for iPhones. The horror.

An overdue USD pullback. Otherwise a mishmash of cross currents: CHF stronger while JPY weaker. CAD weaker while AUD stronger.

Credit is not happy once again.

WTI crude is down but looks a lot less of a mess than NG. Both may try to bounce. Crude may have formed a corrective decline while NG may have traced out an impulse. More time needed to develop.

Gold, silver, platinum, palladium, and copper currently down or flat.

S&P Outlook:
Regarding yesterday's Nasdaq Composite discussion, the scenario stands until or unless 5414.84 gets exceeded.

Meanwhile the S&P 500 just opened below its 2015 high once again, and did so on very strong downticks: -1400. Nothing's broken yet, but it's early. I still think higher prices could occur Friday on good earnings from AMZN and GOOG, but still think it will be a relief rally.

And if they should disappoint? Watch out. GOOG in particular has been flirting with declining cost-per-clicks for a while now, which could be the first sign that advertisers are pulling in their horns: a leading indicator.

Tuesday, October 25, 2016

Tuesday -- Confidence

S&P E-mini Futures:
Bouncing along the flat line.

Today it's all about confidence.

Germany's IFO business climate survey came out better than expected, the highest level since 2014, after yesterday's better than expected PMI reading. France slipped, however, for yet another example of mixed mood. The US follows at 10 am ET.

The US September Consumer Confidence Index surged to 104.1, the highest since August 2007, so all eyes will be on it.

With confidence running high, it's interesting to find the latest example of it in the consumer space. Never mind San Francisco's $43 martini. In Sweden, beer drinkers can now pair their craft brew with the most expensive potato chip in the world.

How much? Try $11 . . . per chip.

That's peak social mood for you.

Confidence has also trickled into FX today where commodity heavy AUD is up (for the moment, that is) alongside a stronger USD. Also safe havens JPY and CHF are weaker. Risk On.

FX traders sound more and more confident that a December rate hike is reason enough for USD strength, and not EM dollar funding stress.

Too bad EUR is not joining it.

These should bounce and they're having trouble.

WTI crude got its bounce yesterday -- after a scary morning plunge. NG kept plunging.

Gold is still a hard-to-read chop fest, while silver seems to be watching the action in platinum, palladium, and copper, all up over 1% at the moment.

S&P Outlook:
Speaking of confidence, it's the Naz.

The Nasdaq Composite looks like it could be setting up for record highs which would likely be unconfirmed by the Dow, S&P, and Russell. In other words, a bearish indication.

Fresh from the AT&T/Time Warner news with its tech bubble echo from 2000, which we are learning that will be just another massive debt bomb, the current pattern looks more and more like and ending one.

Not to worry. If it did come to pass, the 4200 area would probably represent a huge buy area.

Monday, October 24, 2016

Monday -- Merger Monday

S&P E-mini Futures:
Up strongly overnight.

AT&T to buy Time Warner, TD Ameritrade to buy Scottrade, and Rockwell Collins to buy B/E Aerospace. And it's only Monday.

Hilarious take from Zero Hedge:

Elsewhere, it's all about anarchists, hackers, and libertarians. In Iceland, that is. The Pirate Party, a alternative political party, has become a contender there. The mood shift continues.

And inclusive, positive mood continues right along with it. Bob Dylan, once a counterculture symbol of civil unrest, was just awarded the Nobel Prize in Literature, the first-ever songwriter to do so.

It might be worth noting that Dylan came to fame toward the end of a long bull market before cementing his counterculture appeal during a long bear market. In this context, Dylan's Nobel Prize may come to represent a book end.

Odd day thus far. Mixed USD strength and weakness. EUR stronger with stronger Eurozone PMI readings.

Prices showing some follow though higher from Friday, yet could set up near-term weakness if volume doesn't materialize.

WTI crude looks ready to attempt a bounce after correcting from recent highs. NG has followed through to more downside however.

Gold perked up in the last hour to join silver, platinum, palladium, and even copper in the green.

S&P Outlook:
Perhaps the 2163.66 gap may not be reached yet, but it seems the market may want to try at least the 2149.19 swing point. Should internals weaken, price could create an interesting bearish rising wedge targeting the lower gap at 2126.50.

Still feels like very murky water to be wading around in even though Europe and Asia found reason to buy. Sea Of Green there.

Friday, October 21, 2016

Friday -- Continued Macro Deterioration

S&P E-mini Futures:
Weaker overnight.

Something dark about the latest M&A news potentially creating the world's largest publicly traded tobacco company. Feels like another example of mixed mood: positive mood as seen by the coming together of two powerful brands, BAT and Reynolds, and the negative mood of marketing a known carcinogen.

Equally dark is this line from The sharing economy is creating a Dickensian world:

"The sharing economy has developed in response to weak economic growth and a depressed labor market. Workers unable to find work or needing supplemental income use these platforms to earn additional income."

Uber is valued in the multi-billions (positive mood) as it provides supplemental income to independent contractors squeezed by a depressed economy (negative mood).

Forgot to comment on the Philippines yesterday: a massive foreign policy blunder to let them run into the arms of Russia and China, a huge strategic loss for the Pacific region during a time of rising tensions, and a result of sheer stupidity, arrogance, and ineptitude.

We need more friends not enemies.

It's all about the USD . . . rallying . . . and freaking out the central planners that would rather see it roll over to keep the Keynesian party going.

It's also about JPY. Even with USD strength, JPY is getting stronger too. That takes a lot of muscle. And it likely means something is deeply wrong under the hood.

Looking a bit indecisive, but prices trying to rally.

WTI crude may have formed am impulsive 5-wave decline from its recent 52.22 high. If so, a trend change may be in the works and should be watched. Applies to NG as well from 3.366.

USD having its expected effect here: mostly red. Palladium especially, which may be signaling auto weakness (used in catalytic converters and hybrid batteries). Gold trying to rally.

S&P Outlook:
Another failure to take out 2149.19 along with the 2148.64 61.8% resistance yesterday.

The break of 2143.63 did complicate things as seen by the wild trading range, yet the market still has its choice of the 2163.66 gap and the larger gap at 2126.50.

Will say it again, however: from a macro sense, it still feels like a Big Fish is somewhere below the surface, stalking the boat. The geo-political situation is deteriorating quickly. The USD is putting pressure on a deteriorating monetary situation. And the levels of the S&P 500 could put pressure on a deteriorating technical situation.

Until 5-waves have formed from the 2016 lows, the potential is for the existing 3-way rally to be entirely taken back.

Thursday, October 20, 2016

Thursday -- Always, Saudi Bonds, Saudi Reserves, Gaps

S&P E-mini Futures:
Bouncing around the flat line.

On the heels of yesterday's odd housing stats, Bloomberg proclaims "It's Better to Buy Than to Rent, and It Probably Always Will Be."

Always. A very misleading word in a cyclical world.

Saudi Arabia's $17.5B bond deal yesterday on top of August's $5.5B offering makes me concerned regarding oil.

Yes, they're hurting because of the plunge in oil prices, and last year's budget deficit was 10% of GDP (about $67B). And yes, their finances are getting further pinched because all those royal princes keep having more and more little princes and princesses that must be lavishly supported. But what could this mean for oil?

What if the Saudi's recent obsession with building an economy for a world beyond oil is proof that the long-held speculation that its oil fields are in decline?

Bond sales might begin to raise alarm.

USD & CHF strength. AUD & CAD weakness.

Rather muted prices once again.

WTI crude continues to correct from yesterday's new rally high. NG flat currently.

Another tepid morning, flat to down, notably palladium down 1%.

S&P Outlook:
2149.19 held for another day, along with the 2148.64 61.8% resistance.

A break of 2143.63 could complicate things for further near-term upside.

Still looks like a long slog to fill the 2163.66 gap.

Maybe the market would rather fill the larger gap at 2126.50.

Wednesday, October 19, 2016

Wednesday -- Housing Starts & Levered Homeowners

S&P E-mini Futures:
Slow build higher from shaky overnight.

Housing news today. With housing starts 9% lower than in August and 11.9% lower than a year ago, Marketwatch ran an interesting story:

Today's figure marked the slowest pace of starts since March 2015.

Starts were slightly offset by a surge in building permits, which reported a 6.3% monthly gain, and single-family housing starts jumped 8.1%, the highest in seven months.

However, starts for buildings with five or more units plunged 39%.

So once again people seem to have levered up just to live in a home that they rent from a bank.

Another possible Risk Off warning from JPY and CHF strength.

Prices got the volume they were looking for yesterday which oddly seems to have spooked buyers thus far this morning.

WTI crude ripping higher as NG craters.

Still odd action. Gold and silver getting love. Red elsewhere.

S&P Outlook:
2149.19 wasn't even challenged yesterday, so it could be a long slog to fill the 2163.66 gap. Dumped the 214 calls. Can only wait for a better set up.