The collision of global markets and social mood

Thursday, April 10, 2014

Simple Math And Not-So-Simple Psychology

We got the bounce. The market closed above the 1870.57 and just inside the 1872-1874.40 zone I mentioned on Stocktwits/Twitter.

The bounce is on lower volume as usual, but it looks choppy. With such large patterns in play, it now sits in a middle-of-the-page area with roughly equal odds up and down.

Good ol' Janet Yellen helped me out with my long hedges yesterday, but caused an implosion in UVXY which needs watching. Rather than act impulsively, I prefer to wait for better odds. I've been doing this a lot this year, preferring to trade less but do so with larger positions.

Currently, anything below 1858.38 without a new high first would likely break the wave structure and put pressure on bulls. There are, however, multiple targets beyond 1874.40 as high as 1880 and even a volume shelf at 1890.

It is now apparent why the Greek 5-year bond auction was 8X oversubscribed yesterday: Markit reports that Greece remains on target for outright deflation with March CPI at -1.3% y/y vs -1.1% y/y in February. So the chance to grab a 4.95% yield was too good to pass up.

Evidently France is headed in the same direction, and is further ahead, or behind, depending on how you look at it, with inflation at just 0.4% y/y in March. Europe is headed for some deep trouble.

So perhaps is China, where the latest trade data caused CNBC's Deirdre Wang Morris to simply exclaim Whoa. March exports fell 6.6% y/y (vs +4.8% expected) and imports fell 11.3% y/y (vs +3.9% expected), well below market consensus. The imports may not be a big deal simply because China is trying to boost internal consumption which will likely be a bumpy road for the near term. But the export figures, along with the latest collapse in the Baltic Dry Index seem to confirm that global growth is slowing at a time when it can't.

After all the unprecedented stimulus efforts worldwide, it just can't fail, can it?

Yes, it can. Because the global debt overhang is so many multiples larger. It's just simple math coupled with the not-so-simple psychology that drives its implosion.

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