The collision of global markets and social mood

Tuesday, May 19, 2015

Tuesday -- When Victory Defeats

ES Futures:
Up, but not as up as one would think given the news from the ECB.

ECB announced that they will increase their purchases of euro-area assets in May & June. Perhaps the non-permanence of it is the reason why futures are lower this morning than they were last night. The more important thing is that euro-area bond yields have calmed down.

Merkel is sounding more and more like a globalist rather than the Chancellor of Germany for her hesitance to kick Greece to the curb. Her allegiance seems to be to the Euro Zone project rather than the voters of her own country.

And hey, Picasso's recent record-setting sale may actually mean something. Check this out from Bloomberg:

"Jason Goepfert, president of Sundial Capital Research, has a note analyzing the relationship between record art sales and the stock market.

"Previous bouts of expensive art sales have indicated over-confident conditions in the stock market as well. There is broad overlap between the markets, now more than ever. Wealth concentration is near an all-time high, and with stocks doing so well, it has helped to fuel massive confidence in other "greater fool" markets like art. Like any trend in an unhinged market, it's next to impossible to predict when the confidence will peak. Based on previous peaks, it could (should) be any time. The market is relatively isolated and a plateau in art prices wouldn't have much affect on broader assets, though it would likely be coincident with a plateau in stock and bond markets."

USD needs above 95.26 in my opinion to maintain a corrective quality of the recent decline from the 100 level. Inversely ditto for EUR where the level is 1.11302. Both crosses are getting major play today.

Euro area yields may have calmed down, but yields here still look precarious.

WTI crude has not broken out nor broken down. This keeps pressure on for higher prices, perhaps, but it may be signal that the current bounce is a fourth wave (as expected) with a fifth and final wave to new lows at some point.

NG continues to power on. 3.352 is a possible target, as well as a weekly gap at 3.446.

Gold had a great week last week and may need to rest.

S&P Outlook:
The VIX closed yesterday 5.2% higher than its most recent low with the S&P printing a new record high on weak A/Ds. This combined with the misleading narrative of "the most hated bull market of all time" could spell trouble once certain targets are met.

The fact is that this market has produced record high levels of bullishness amid record low levels of bearishness as recorded by AAII, II, and DSI, and has done so not once but multiple times. That the data goes back to the glory days of 1987 is of no concern. Most of the participants probably don't remember the euphoric mood.

Here's another representation of historic bullishness: cash-to-assets ratio of mutual funds, courtesy of Elliott Wave International, via Twitter. Epic euphoria.

Eventually, in both bull and bear markets, victory defeats those who believe too deeply.

Also, the VIX has printed three higher lows since April 14th. It may pay to be aware. Yet if this chart is accurate, the big move might not occur until the fall. Sounds catchy.

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