Market analysis and commentary from a trader

Friday, December 9, 2016

Friday -- Victory Lap On The Victory Tour: Rally In Danger

S&P E-mini Futures:
Slightly higher from shallow overnight correction.

Trump rally in danger: Trump just took a victory lap for the stock market rally on his victory tour.

I don't have the exact quote, and couldn't find the clip on CNBC where I heard him say it, but it was something to the effect that, "they love the stock market rally we've given them."

Never ever mess with the market. Take what it gives and be grateful.

The innocent comment is made even more dangerous by the fact that Trump was just chosen Time Magazine's Man Of The Year.

Yale professor of economics and Nobel laureate told CNBC this morning, "Once people start to believe that it's a new era, it could go on for a while, even if it's unfounded," since "it's about human psychology, and it's what they call self-fulfilling prophesy."

In this way, "Trump does magic," Shiller said. "Maybe it will be black magic sometime, but he's an amazing phenomenon."

And there's this:

It’s Official=> Trump’s Stock Market Rally Is Historic – Has Never Occurred in 110 Years!

And, of course, the Pantone® Color of the Year for 2017: GREENERY

"Greenery bursts forth in 2017 to provide us the reassurance we yearn for in a tumultuous social and political environment."

"Greenery is symbolic of new beginnings."
Enjoy the ride.

Risk On as USD rallies and EUR is weaker, an odd set up.

Still trying to rally but not going far.

WTI crude rallying and looking more impulsive in structure than its chop fest correction.

NG fresh rally highs.

Gold broke 1167.20, looking like new lows to follow soon. Silver and platinum confirming. Copper and palladium higher.

S&P Outlook:
There is a definite path for the market to continue higher, no doubt.

Social mood cues are not reason for blind action. They merely serve as guide posts.

A move back to the 2230-2235 area could make a good buy. The caution is that it would still take down to 2209.42 to break the wave structure.

Buying puts at a new high if internals allow. Looking like they will.

Thursday, December 8, 2016

Thursday -- ECB Taper, The Rally & The Valuations

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

The ECB announced it will taper its asset purchases from €80 billion to €60 billion per month in April 2017 and will continue until the end of 2017, "or beyond, if necessary."

Yields higher throughout much of the world amid green equities, ex-China.

As noted back in September, Goldman Sachs recently repeated, as of November 28th:

"S&P 500 valuation is stretched relative to history on nearly every fundamental metric. At the aggregate level, the S&P 500 index trades at the 85th percentile of historical valuation relative to the past 40 years. For portfolio managers, the more important fact is that the median S&P 500 company trades at the 98th percentile of historical valuation."

Median stock historical valuations:

P/E to growth 100%
EV/Sales 100%
Price/Book 98%
Forward P/E 94%

Yesterday's rally stretched even further into Daedalus and Icarus territory.

EUR still digesting ECB decision. Spiked higher then weaker. USD firming on the news.

Prices lower once again. Bearish engulfing candles on daily charts.

WTI crude had a wild, choppy ride yesterday. Wave structure still unclear but tilting toward not being impulsive down, hence higher prices possible at some point.

Also, NG's three-wave decline from recent rally highs opens door to higher highs at some point as well.

Precious metals down post-ECB. Copper higher.

S&P Outlook:
What a day yesterday. An impressive rally by any standard, and another great example why markets need to be respected both up and down.

To echo yesterday's comments here regarding Trump Time magazine Person Of The Year cover, the rally was "probably about as good as it's gonna get right now for social mood and the markets."

Price extended so far that it would have to come all the way back to below 2209.42 to break the impulse structure.

Loved this comment from Ayako Sera, a strategist at Sumitomo Mitsui, who told Bloomberg that globally, “we’re seeing a euphoric state continue, and investors will also be heading into the Christmas break soon, so we’re seeing some final moves to get into the market or close off positions.”

A weird heads up was the fact that while the S&P was up over 1% Thursday, VIX was up 3.65%.

VIX hugging the lower Bollinger band is not an equity buy signal.

Wednesday, December 7, 2016

Wednesday -- Trump Time Cover, $10 Starbucks, Crosshairs

S&P E-mini Futures:

A Paul Montgomery Magazine Cover Indicator Alert for Trump. Socionomically, it's bad news. In other words, probably about as good as it's gonna get right now for social mood and the markets.

Starbucks has added some color to its recent news that CEO Howard Schultz will step down as CEO to focus on premiumization of an already premium experience.

Notice the timing. With markets at record valuations (Goldman just reiterated that stock prices remain in the 99th percentile historically), pitching $10 coffee to 20-somethings is a great example of simply extrapolating present mood, which happens to be one of extreme ebullience.

Good luck.

Another calm day in the wake of political upheaval and subsequent calm-inducing ECB infusions.

More ink on the dollar, though. We were discussing dollar shortages here back in 2010. Now it's front page news.

Saw an interesting comment by a trader regarding it, "USD shortage could also be squeezed by repatriation holiday."

The pain, and Trump's gain, can continue for a while until those magazine covers kick in.

Still no real liftoff yet, but trying . . .

WTI crude fresh rally highs -- perhaps the pump set up for the dump to come. NG fresh overnight highs.

Higher in unison.

S&P Outlook:
2214.10 in the crosshairs as expected as the high-volume high gets a retest.

Volume was even lighter yesterday than the meek performance from the day before, which was 50% lighter than the 11/30 high.

No trades here until either a successful new high, or definitive failure to make one.


Tuesday, December 6, 2016

Tuesday -- Pump & Dump, USD Magazine Cover Alert

S&P E-mini Futures:
Higher on follow through from yesterday's rally.

Crude oil pump & dump.

Hearing "91 dead ahead" from the trader I like to fade regarding USD. This time I'm in the correction camp too, but not that low. USD just registered a Paul Montgomery Magazine Cover Indicator Alert.

Today however the USD is rallying. AUD & CAD down, EUR down. CHF & JPY down.

Still no liftoff from deeply oversold.

WTI crude made another rally high at 52.42 on increased Open Interest and high volume. The 60 area is a big opportunity to pass or fail miserably. Continued OPEC pumping (chart shown above) should make for interesting times.

NG fresh rally highs. No volume yet. Momentum fading on longer-term chart.

Gold down, silver flat, platinum and palladium higher, copper down.

S&P Outlook:
Needs new highs above 2214.10 or risks a bull trap and non-confirmation with DJIA.

Yesterday's action poked through the 2207 volume shelf before rolling over, and ended with 50% less NYSE volume than the 11/30 high. Shorts may begin to act soon.

Monday, December 5, 2016

Monday -- NO

S&P E-mini Futures:
Upside overnight reversal.

Italy voted NO to the most extensive constitutional reform in since the end of its monarchy. Renzi stepped down. The future of Italy's place in the EU is now less certain. The future of Europe's oldest bank is even less certain. Markets cheer rather than break down. Risk On.

Maybe the entire globalist message is over.

EUR and GBP higher, USD and JPY weaker. More Risk On.

Prices still not looking right, under pressure.

WTI crude looks like it want to test the 60 area. NG liked its recent highs so much it made new ones.

Gold and silver down vs copper up over 2% -- more Risk On. Platinum and palladium mixed.

S&P Outlook:
Got stopped on the SPY calls Friday.

Once again, like Brexit, equity futures got into an equivalent cash buy area overnight and reversed before the cash market opened. So unless today's rally fades, I won't be able to be a buyer at the 2182 area.

The 2181.90 gap and 2182.30 swing point remain for the potential overlap which would weaken the impulsive scenario higher.

Above, the 2207 area remains a target with a nice volume shelf for the market to shoot for, along with Wednesday's high-volume highs.

If the market rallies on light volume a potential short opportunity could appear.

Friday, December 2, 2016

Friday -- NFP, Peak Caffeine, China Repo Madness, High-Volume Highs

S&P E-mini Futures:
Slightly down after NFP (178K vs 180K expected).

The predictive power of social mood is sometimes amazing.

Wednesday's post, regarding Starbucks:

"Keep your eye on the anti-caffeine category."

Thursday afternoon:

"Starbucks CEO Howard Schultz steps down."

The last time Schultz stepped down was in 2000 at the top of the tech bubble.

He stepped back in after the Lehman crash of 2008.

Now he's stepping down, again, another Fibonacci 8-years later.

Does this project a stock market bottom in 2024 with an 8-year Schultz cycle?

Schultz will stay on as Executive Chairman and, at record highs in the stock market, will focus "all in" on the upscale Reserve Roastery segment mentioned Wednesday.

Social mood wise, it's suggestive of Peak Caffeine.

Going all in on premiumization of a premium brand at a multi-year valuation premium in the stock market is the type of ebullient mood that creates tops.

Therefore, paradoxically, about as anti-caffeine as it gets. Consumers might opt for less caffeine if they don't have to "keep up with" a raging bull market.

Maybe the bull is ready to drink some of that Calm The F*ck Down tea noted on Wednesday.

More evidence of Peak Stocks:

Back in 2010, Norway's wealth fund (actually the government's pension fund for its citizens) bought a huge amount of Greek, Spanish, Italian, and Portuguese bonds.

A year later it had lost $52 billion of the trade.

Now they want to blow $130 billion on stocks.

Elsewhere, China's net weekly reverse repo injection amounted to CNY 70b vs. CNY 40b, almost double. What's up with that.

JPY and CHF providing a warning still.

Trying hard to bottom with Gundlach and Gross chiming in.

WTI crude out of No Man's Land. It's up to follow through now. It either rips above 55 or fails.

NG 5-wave decline from recent rally highs. Watch 'n' wait.

Gold needs to rally or risk deeper correction. Treasury rally should clear the way. If not, well...

Silver higher along with platinum. Palladium and copper quite red.

S&P Outlook:
ES 2184.25 stop on e-minis in pre-market.

Not sure if 2182 will get tested or not. Bot late-day SPY 221 calls yesterday. Want to be a bigger buyer at 2182 area, but wanted something just in case it wasn't hit.

Usually means it will be.

Also watching 2181.90 gap and 2182.30 swing point for potential overlap which would weaken the impulsive scenario higher.

Above, the 2207 area has a nice volume shelf for the market to shoot for, along with those high-volume highs from Wednesday.

Thursday, December 1, 2016

Thursday -- Hot PMI. Cool OPEC, China Pressure, UBS Sentiment Warning

S&P E-mini Futures:
Slightly higher after yesterday's poor close.

Amid all the hot PMI readings from around the globe, a cool new OPEC deal (covering just 40% of the oil market), and the Nikkei ripping higher, China's financial system is under considerable stress

 . . . and its spreading.

"Short-term China repo rates have exploded to 20-month highs, Hong Kong Dollar money-market rates have jumped to the highest since May 2009, and Yen basis swaps are showing the most extreme demand for dollars since Lehman." (courtesy of Zero Hedge)

In just one day, Chinese banks went from paying 2.5% to ensure 2-week liquidity to 6%. A 140% jump. Consequently, CNY is under pressure too, and could spark another devaluation soon.

For context, here's what yen swaps look like, showing the highest demand for USD liquidity since 2008:

Source: Zero Hedge
This as UBS warns that, "it’s been a long time since we had such a relatively clear and one-sided picture on the sentiment side."

UBS notes "significant spikes in our sentiment work and a big decline in the put/call ratio as well as in the market volatility, as the basis for a relatively high SKEW/VIX ratio, which has been moving into a contrarian sell territory" as examples of clear, one-sided excessive bullishness.

AAII bulls are back above 50% while the number of neutral/undecided investors has deteriorated to the lowest level since September 2014.

"Translated, it means that retail investors have a very high conviction, which makes the high bullish consensus to a pure contrarian indicator," UBS wrote.

Risk On -- if you're just looking at USD weakness helping EUR and commodity currencies. But JPY and CHF strength is a warning.

Price continue to like the color red.

WTI crude back above 50 on high volume. NG fresh rally highs.

For all the talk about inflation, metals don't reflect it. Red.

S&P Outlook:
Yesterday volume exploded as price hit record highs and closed on its lows. In Wyckoff terms, that sets up a retest of the high at some point, but there is no time involved.

If the recent 2198.15 swing point is taken out (price closed at 2198.81), the next volume shelf is 2182. That coincides with a shallow Fib retracement at 2183.35.

Not seeing any detrimental impulsive wave structure in the decline, but sentiment has been pretty giddy and might need to be brought back in line.