The collision of global markets and social mood

Tuesday, May 2, 2017

Tuesday -- Constant Fear . . . Where?

S&P E-mini Futures:

Asia slightly mixed. Europe green. Global yields higher in unison.

Disappointing China PMI results vs stronger Euro Zone PMIs. Thing is, EZ PMIs are still in a pronounced down trend since 2000.

Two-day Fed meeting starts today. What a time for a surprise rate hike.

A fund manager predicts a "life-changing" rally is shaping up. He that says “smart money” is accumulating stock, bearish valuation descriptions are "nonsense," and that “If you factor in the low interest rate environment, we’re trading at a reasonable valuation." Finally, "constant fear is helping to drive the market higher."

Jessie Livermore called this uncontradicted bull dope. I see a lot of it when the markets have been ripping higher. I also see the opposite when markets have been plunging. In 2007, right at the lows, traders were calling for an S&P 500 of 500.

So to politely contradict, everything I've seen lately shows that insiders are selling gobs of stock. Even CNBC discussed it.

Company insiders are dumping stock at levels 'rarely seen,' report indicates

Goldman has been quite vocal about equity valuations being pinned to their historic 99th percentiles.

Deutsche Bank just noted the flood of  inflows, usually a sign of latecomers to the party.

US: largest inflows in 19 weeks ($13.8)
EM: 6 straight weeks of inflows ($1.8bn)
Japan: inflows 14 of past 16 weeks ($0.8bn)
Europe: 5th straight week of inflows, largest since Dec’15 ($2.4bn)

WSJ just noted the surge in new accounts at discount brokers.

Low interest rates mean the market is cheap? How about low interest rates have encouraged overconfidence and excessive risk taking.

Constant fear? The VIX reached 9.90 yesterday. 

Dry comment from a bond trader on Twitter: "Beta adjusted gross exposure near all time highs with vol down here? Sounds promising..."

What if the "life-changing" rally is happening right now.

JPY, CAD, and MXN notably weaker.

Bitcoin up over 4% yesterday and another 3+% today to above 1400.

Another day of higher yields.

Things you don't want to hear when you're the BOJ: "weaker demand seen in today's enhanced-liquidity auction for 2yr, 5yr, 10yr and 20yr JGBs, while the curve was mixed with mild underperformance seen in the long-end."

Long-end underperformance? That's yield curve inversion creeping in.

WTI crude slightly lower. NG flat.

Gold lower, silver and palladium higher. Copper and platinum lower.

Copper had a pretty epic turnaround yesterday during China's day off but has cooled on today's China PMI numbers.

S&P Outlook:
For the time being, I do side with the fund manager quoted above that we're headed higher. Possibly into the 3rd quarter.

Along the way there could be more subdivisions of third waves inside third waves that get resolved with still more fourth waves marked by "surprising disappointment." The market is getting stretched, internals are waning, and yet the wave count suggests more work higher.

Seems necessary for sentiment, too. The wave of peak social mood is cresting fast. Probably has a bit more to go as well.

Suck 'em in.

Below the market sits a nice volume shelf at the 2375 area. New highs are still possible. NDX is looking thinner and thinner.

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