Equity investors, corporate boards, and momo machines are panic-buying stocks this morning, sending the S&P 500 above 2600 for the first time ever... as the yield curve crashes to decade flats...
VIX down, Stocks Up...
While USDJPY momo is helping, stocks are quite decoupled...
And so are bonds...
But it"s all about the squeeze... the biggest short squeeze since December...
Well that escalated quickly as the USDJPY ramp momo ignition failed...
VIX pushed up to itshighest in 3 weeks as stocks tumbled below yesterday"s lows to 3-week lows...
All major indices red for November
The question is... are HY bonds the canary?
The last month or so has seen "momentum" dramatically outperform the market as retail flows chase "what is working"...
In fact this has very much been a year of momo...
But, as Bloomberg notes, U.S. stocks with the fastest-rising prices are showing the kind of strength they did in the 1990s, according to Jonathan Krinsky, chief market technician at MKM Partners LLC.
He cited this year’s swings in the MSCI USA Momentum and MSCI USA indexes in a report Sunday. The gap between them stands at 15 percent, a threshold that the momentum index only crossed on a full-year basis in 1999.
“Momentum is definitely stretched relative to the market, but there is no guarantee that it won’t become more stretched,” he wrote.
Better lucky that smart? Managers of active funds are now extremely concentrated in the strongest parts of the US equity market with "momentum" massively outperforming the market in August (and ramping higher off the North Korea missile launch lows).
Bloomberg"s Dani Burger notes that with more than half of their bets on high flyers like technology and online retailers, hedge funds have near-record exposure to momentum trades, a strategy that’s up 2.6 percent in August even as the S&P 500 heads for its worst month since the election. The resiliency of the bet was on display Tuesday, when Alphabet and Amazon opened nearly 1% lower before rebounding along with Apple to deliver the S&P 500’s biggest intraday reversal in 10 months.
“It’s like these things are like gold -- it’s almost like a safe haven,” said Mark Connors, the global head of risk advisory at Credit Suisse Group AG.
“This resilient price action in equities is commensurate with the constructive positioning we see across hedge fund strategies and speaks to the persistent positive sentiment in 2017.”
The much-followed FANG Stocks soared over 2.1% off the opening lows...
The 50 most popular hedge fund longs...
Bloomberg"s Burger asks, how long can it last?
That"s a question that’s becoming more urgent for hedge funds that have finally caught up to a market where gains are delivered by an ever-narrowing cohort of stocks. Volatility has been rising amid renewed geopolitical tensions, signs of uneven economic growth in the U.S. and the threat of further interest-rate hikes by the Federal Reserve.
What’s more, the very nature of following momentum poses its own pitfalls. The strategy is one of the more volatile factors, and when rotations occur, pain seeps through as leaders quickly move to the back of the pack.
All that points to a hedge fund love affair that’s headed for heartbreak, according to Joseph Mezrich, head of U.S. quantitative analysis at Nomura Instinet LLC.
“We are concerned about this outsized exposure,” Mezrich, wrote in a note to clients. “The last time momentum exposure was this high was in 2013-2014, which led to a sharp decline in fund performance when momentum collapsed. Fund managers may be setting themselves up for a repeat.”
So what happens next? We leave to CS" Mark Connors...
"You can’t manage your book for a big deleveraging... Momentum is an escalator up and an elevator shaft on the way down. But managing that is what active managers do for a living.”
Update 12:45pm - if we do not hold the $1312- 1310 area in spot there is a lot of trouble ahead.
The 60 minute is looking at an inflection point in the area:
Breaking $1312 on the 60 minute chart puts us outside the bottom band, and would likely increase all BBand widths implying accelerated downside movement, aka a reversal. Inflection point to say the least.
Meanwhile the daily shows the same area as an outright negation of today"s momentum higher.?The Upper BBand comes in near $1312 currently. A settlement inside that adds fuel to the 60 minute chart above
Expect more profit taking if we get below this area. Pray some buyers have not gone to the market and are waiting for this dip to buy in. If stops exist, expect Commercials to gun for them here.
posted originally on marketslant.com
Big players like Soros and Druckenmiller use liquidity events to get out of massive positions all the time. This is another example of where these types may sell into strength. That does not mean the market will not continue higher afterwards. it does mean profit protection is mandated when gorillas like these are entering a room. If we do not close weaker today, beware the London Open for a large profit booking as the past has shown us. Many continue to call this a spoof, and sometimes it genuinely is. We think Friday"s Comex activity was one to shake out momo longs and help commercials cover some shorts. But it is prudent to accept that some of those big orders seen during London hours are genuine profit taking by players not worried about $5.00 when they are booking $55 in 2 months
Yesterday, via Moor Analytics we gave you the road map ahead. Admittedly we did not think it would happen so quickly:
We wanted a bull flag to form starting with a selloff early last week, as opposed to the one at week"s end, and said as much on Aug 21st;
Ideally, over the next 3-5 days: we wanted to see Gold fill the Comex gap underneath, and in the process shaking out some weak longs and luring some shorts to pile in. First touching the $1285 area, close with a positive settlement on a lower day. Then we could see a nice orderly rally out of a bull flag. But so far that is not the case. Instead we have more buying at the top end of a range that has earmarkings of Friday"s behavior.
Our time frame was good. Our order of events was not. The rally / dump 2 Fridays ago did spook us, but last Friday"s sell-off and rally undid that. The Comex gap got filled underneath as we wanted, and the market closed positive on the 25th, leaving a tail of sellers trapped below. Happy to be wrong timing wise here about the momo money bailing.
Paraphrased with our comments in italics
For additional information contact: Moor Analytics
Comex Futures now have a Gap between $1317.80 and $1318.90. To those who ignore gaps as Gold is a globally continuous market, we get it. But to those who trade in one time zone, they remain relevant when applied consistently. We"d be hesitant to buy that gap if tested because of our own volatility based trading style, and would rather buy it upon a break under adnarally back through $1321.
Bollinger Bands show us that if one were playing the momentum game it is prudent to remain long until a settlement occurs within the outer band. This comes in currently at $1321 now, and is consistent with Moor"s levels. Any breaking of that level, especially late in the day does not give us a good risk reward in which to buy. We"d rather short in the gap with a stop-loss and reversal set at $1321 for a day trade.
Today:
Gold is Goldilocks regardless of the next $50 move... keep the faith and let the momo guys create short term opportunities for you now.
As we write this, Gold is on its highs at $1309.90 with room to move. It would seem buyers 2 Fridays ago were indeed trapped longs who likely sold it in the hole last Friday when the market held. We wanted a bull flag to form starting with a selloff early last week, as opposed to the one at week"s end, and said as much on Aug 21st;
Ideally, over the next 3-5 days: we wanted to see Gold fill the Comex gap underneath, and in the process shaking out some weak longs and luring some shorts to pile in. First touching the $1285 area, close with a positive settlement on a lower day. Then we could see a nice orderly rally out of a bull flag. But so far that is not the case. Instead we have more buying at the top end of a range that has earmarkings of Friday"s behavior.
Our time frame was good. Our order of events was not. The rally / dump 2 Fridays ago did spook us, but last Friday"s sell-off and rally undid that. The Comex gap got filled underneath as we wanted, and the market closed positive on the 25th, leaving a tail of sellers trapped below. Happy to be wrong timing wise here about the momo money bailing. from the same post:
If we do not close higher today, they may bail given their gnat-like tolerance in metals. Traders with a 6 month horizon may find themselves annoyed by the funds with a 6 minute horizon right here, right now. We fear the supernova spike/reversal right here and feel the market is much more likely to extend higher on a more sustainable basis if it consolidates a bit here and takes out some weak longs. We prefer the market establish a base here.
Friday"s spoof/spike likely shook out the weak longs that piled in prior. So we got our wish.
Next stop: according to Moor Analytics" numbers should be $1315 before we run into selling.
GOLD DAILY
?
interactive Charts HERE
Find below Moor Analytics" Weekly Macro Report. Note Michael uses previous moves as basis for retracement moves. He frequently uses this approach to quantify macro trends in a time-specific way. His time frames are macro to micro. If you are a frequent reader as we are, you may see much of the first parts repeat. This is necessary for context and new subscribers. The new material can be found usually at the end where nascent trends or counter-trends begin. Daily reports are much more detailed in the unfolding of trends in real time and we encourage readers to patronize the firm at no benefit to us.
Right now he views the trends ranked by time in the following manner:
Which brings us to current events in the report written last night:
The decent trade back above 12920 (+ 1 tic (10 cents) per/hour) warns of decent short covering—likely back toward 13150 (+). We have seen $12.5 of this so far. This line will come in at 12948 (+1 tic per/hour starting at 8:20am). Decent trade back below will negate the short covering bias.
Implications for bulls now are to be long against $1294.80 on a rising trend line with expectations of a short covering rally closing in on $1315 as its target. As Michael"s work is prone to call big macro moves quite well, we"d suspect that an eventual piercing of his $1375.40 would put us in a whole new bull market from a macro perspective. Right now his work is doing just fine conveying correction and retracement levels. The point is, these are very good trade-able levels we use for 5 to 30 day positions.
Macro Gold Report
via Michael Moor of Moor Analytics
Gold (Z) 8/28/17
On a macro basis: On a higher time frame, the move up to 13754 from 10468 in December of 2015 is a correction against the bear trend from 19114 in September 2011 down. On a medium timeframe, the move up from 11243 is a correction against the move down from 13754 on 8/2/16. Areas of possible exhaustion for this move up come in at 13143-237 and 13466-556. The maintained gap higher on 7/18 left a medium term bullish reversal intact below that warned of higher trade for days. We have seen $67.8 of this so far from (Q) into (Z) with a roughly $7 spread differential. This has been on hold since we broke below the 12978-88 and 12954-60 areas, but this is now OFF hold as we broke below the 12919 line mentioned below and back above. The solid penetration above 12417-21 warned of solid short covering in the days/weeks ahead, with a good likelihood of a run back up toward 12980 (+). We have seen $63.8 of this so far, taking out 12980 on 8/11. This has been on hold since we broke below the 12978-88 and 12954-60 areas, but this is now OFF hold as we broke below the 12919 line mentioned below and back above. Decent trade above 13193 (+1 tic (10 cents) per/hour starting at 8:20am) will project this upward $36 (+); but if we break above here decently and back below decently, look for decent profit taking. The decent trade back above 12920 (+ 1 tic (10 cents) per/hour) warns of decent short covering—likely back toward 13150 (+). We have seen $12.5 of this so far. This line will come in at 12948 (+1 tic per/hour starting at 8:20am). Decent trade back below will negate the short covering bias.
On a shorter-term basis:
The maintained gap higher on 8/17 left the short term bullish reversal warned about below, which warned of decent higher trade. We have seen $11.5 of this before backing off the high. Decent intra-day trade below 12829 will negate this definitively. I warned on 8/18 to be out of longs for the time being if we broke back below the 12978-88 and 12954-60 areas, but this is now back in play. Trade below 12813-808 is a sign of renewed weakness.
For additional information contact:
Moor Analytics
We suspect the $1315- $1323 areas Moor alludes to above are tied to a channel occurring between July and October 2016 that formed a cliff before the drop to $1124.30. Whatever the reason, that is where the next congestion lies on a weekly basis.
GOLD WEEKLY
?
It would seem that mal-investment is beginning to show its limits. The Fed is starting to feel collateral damage to its decade of poor decisions. Governor Malloy of CT recently stated he made some misallocation of the states money which are resulting in the current pension crisis CT and other states are going through.
Misallocations? Malloy is an elitist crony of the state. A State that has been advocating misallocated of money since it rescued the TBTF banks. Savers have been punished to the tune of over $1trillion while those who could still afford to buy stocks made out like bandits.
There was no organic recovery, only mal-investment, mis-allocation.. call it what you will.
Let"s be honest. Central banks are buying Gold hand over fist. But they will not say so upon their own death. That cat will never be out of the bag. The cat remains in the bag, and the bag is in the river. Get ready for a smack down in Gold, as China needs more.
But in the meantime, how much more proof do you need that Gold is indeed the most undervalued asset on earth? And while it may stay that way for years to come, the forces keeping it in check are slowly ceding to the new powers in the east. These are the same powers that view Gold as a physical hedge, not a hot crypto to chase.
Besides the hilariously fabricated economic data and the whole central planning bit - both of which are now everywhere these days - the one most notable feature about China"s economy and capital markets are the constantly rolling, bursting and resurrecting asset bubbles: from housing, to stocks, to bonds, to commodities, to cryptocurrencies, to pretty much anything that isn"t nailed down and can be traded, and back to housing again, the lifecycle of a Chinese assets is best expressed in terms of its "tulipness": how long before the swarming horde of Chinese bubble-chasers, armed with over $35 trillion in closed-capital account credit, latches on, bids it to the stratosphere, then sends it crashing only to repeat the cycle from scratch. And since these bubbles come ever faster and ever more furious, one has to be lightning fast to get in (and out) before it"s all over.
One such place where "if you blink, you missed it" is China’s Zhengzhou Commodity Exchange, the location of what Bloomberg has called China"s "wildest commodity trade" du jour: the buying, and selling, but mostly buying (for now) of ferrosilicon contracts. Trading in futures of the little known commodity - an alloy used to harden steel - exploded this week, as humans became veritable HFT vacuum tubes, with the average contract on Wednesday held for an estimated 39 minutes, according to Bloomberg calculations, as "investors" scrambled to buy just so they could immediately flip it to another greater fool.
And as the chart below shows, a whole lot of greater fools suddenly emerged at the start of the month.
Incidentally, the tenure of oil contracts on the NYMEX is an ancient 47 hours.
As Bloomberg"s Alfred Cang reports, "Ferrosilicon is just the latest commodity contract pounced on by China’s hordes of speculators with an intensity that makes the world’s most liquid markets look leisurely. In repeated bouts of manic trading over the past year, they’ve piled in and out of everything from cotton to zinc, eventually prompting regulators to step in and calm the frenzy."
Of course, the second regulators "step in" to burst one bubble, the same hordes of speculators immediately shift to another, similar asset, which then becomes the next bubble du jour, and in recent days the choice has been a "hot potato" between the alloy, rebar, iron ore, siliconmanganese, and various other commodities, all of which are traded not with the intention of actually holding on to the asset, but selling it as soon as possible at a higher price, before the whole house of cards comes crashing down.
“There are large volumes of short-term investment in steel and related products such as rebar, iron ore and ferroalloy futures with investors trading momentum and sentiment,” Wei Lai, an analyst at COFCO Futures in Shanghai, said by phone.
For regular followers of China"s "investing" habits, none of the above should come as a surprise. What is surprising, is that this particular bubble hasn"t burst just yet: trading in ferrosilicon peaked on Wednesday with more than 705,000 contracts changing hands. Prices surged to a record $7,726 yuan a metric ton the previous day, up 25% this month (a move which in all honesty is tame when compared what ethereum and bitcoin have done this year).
What is also surprising, is the viciousness with which the bubble hunters swarmed this particular asset: until August, it was one of the quieter contracts on the exchange, with 22,000 contracts trading daily on average in July. Then China"s trading hordes arrived...
A spokeswoman for the exchange declined to comment to Bloomberg on the market movements: after all what can they possible say - "we keep getting overrun by an army of momo housewives"?
Overall, trading in steel and iron ore is the heaviest on China’s three commodity bourses, with volumes that dwarf contracts such as ferrosilicon. An average 7.9 million steel reinforcement bar futures traded on the Shanghai Commodity Exchange in July. Earlier this month, the bourse hiked fees and margins to calm trade in rebar after prices ran up to the highest in four years on speculation that China’s supply-side reforms are creating a shortage, and to cool the latest bubble mania. It failed.
For those curious how to calculate this particular metric, which for lack of a better phrase, we dub "bubble momentum" and bloomberg calls "commodity churnover", here is the answer:
Analysis of aggregate open interest, volumes and trading hours illustrates the extraordinary pace at which Chinese investors are trading commodities futures.
Dividing the average aggregate open interest at the end of each day by the aggregate volume shows the number of futures traded for every outstanding contract. Multiply that ratio by the number of hours in each trading day and you get an estimate for the average tenure of each contract. While Wednesday’s ferrosilicon contracts were held for less than an hour, the average for the month is 3.6 hours. Futures in Siliconmanganese, another alloy used in steel production, change hands at the fastest pace, with an average tenure in August of 2.7 hours. Iron ore is about 3.8 hours on average and rebar is 4.3 hours.
The best thing about China"s bubble factory: once the locals tire of high-frequency trading ferrosilicon, or whatever is the high speed bubble du jour, they can just move on to the next one and do it all over again.
If you were one of the myriad analysts, next-in-rotation fund managers, tech commentators, et al paraded across the financial/business media over this past week – you had a good week. The narrative of “earnings beats” together with the so-called “relief rally” emanating via the French elections helped propel the argument.
However, if one (once again) peered passed the headlines of Non-GAAP reporting alchemy that would make Issac Newton envious one could clearly see that all was not “gold.”
Both Amazon™, and Alphabet™ (aka Google™) beat handily, and yet, a few questions emerged via my reasoning. First:
Has Google Ad revenue benefited from an increasing advertising pie? Or, are we seeing the first hints of rotation from platform to platform as advertisers dump one for another in a desperate attempt to obtain some form of return for their social or digital ad dollars?
It’s possible it could be the latter, and if so it spells “it’s different this time” just like it has before. i.e., circa early 2000.
The reasoning for this is simple: Twitter™.
As I have stated on more occasions than I can count, the one company to watch for clues into what is the entire “tech” or “Silicon Valley” health of the “ads for eyeballs” model is Twitter. And this once songbird of everything that was/is “The Valley” did something that is the anathema of what is presumed to be the “holy of holies” metric for the entire genre. To wit:
But not too worry, for this is reported as an earnings “Beat” when using Non-GAAP metrics. Yes, declining (again – declining!) ad revenue is reported as “Good News!” The only person I can see with more wonderment across his face than the ghost of Sir Issac is that of Bernie Madoff as he watches all this from a cell wondering “And I’m in here for what precisely?”
Then, of course, there’s Amazon.
After disappointing reports over the past two quarters Amazon (once again) rocketed to new heights as the headlines of “Beat”, “Smashed” and every other exclamation known-to-man was used to report it raced across the media. And yet, if you looked closely, again, there are a few issues contained within that should make those who are closing their eyes and hitting the “Buy” button horns-over-hooves concern.
Moreover, as I posed the idea of “What if?” into the “ads for eyeballs” assumptions earlier; what does one takeaway when viewing the current rocket ship ride of Amazon? For if personal spending is supposedly DOA as was reported via the latest GDP report (e.g., worst since 2009) and GDP is now reported to be an abysmal 0.7% (not a typo) what’s fueling this?
Hint: It’s an outlier, or said differently: It’s nothing but what’s known as a “Momo Play.” To view it as anything representative, or as a “gauge” of current economic health (As I heard many a talking-head try) is as I’ve stated before – an abject lesson for wanting to be blissfully, ignorant. (Always remembering this is my opinion, for who knows where this “rocket ship” can travel.)
So with the above for context the issue at hand is: “Now what?”
The real trouble, in my estimation, lies with precisely where we might be in regards to “the markets.” By all rational objective reasoning, backed with the lessons which should be held front-and-center from not just the dot-com crash, but also the financial crisis of ’08. One can’t shake the feeling that we’re precisely (once again) on that knife’s edge. And just the mere fact of the “markets” precariously balancing on that “edge” is beginning to draw blood. The tell-tale signs are everywhere. Below are only a few of the ever-growing list…
These are just a few of the very real questions that are now permeating the once “it’s different this time” argument for belief. The problem with it is – that’s what always gets said right before reality comes roaring back with a vengeance.
I can’t make this point enough: Only since the election of Donal Trump the “markets” have been on a rocket ride straight up. Before that moment (i.e., October) the Fed. Chair herself was musing the idea that the only way to heal the lasting effects still within the economy was to possibly run a “high pressure” policy stance. (i.e., uber-dovish)
That “ride” has (once again) allowed for the proclamation of the NASDAQ™ hitting never before seen in human history highs. (e.g., 6000+) All against a backdrop of declining GDP, along with declining revenue and more from many of its once star players. All while not accounting for (in my opinion) the effects of those 2 rate hikes. These have yet to be both factored, as well as felt, in the current “market.”
As of right now the “hopium” trade that is a direct result of the Trump “reflation” trade is still self-propelling – but it’s quickly running out of fuel as evidenced by not only none of the campaign promises being passed (i.e., Obamacare repeal and others) but a 1 week resolution was needed as to not shut the government down.
And the “markets” closed where?
Hint: Right back to where they were before when I stated “You are here.” And things have not gotten better, as a matter of fact, they are worse – far worse. (e.g., Unless you are one of those who like to buy-the-potential-nuclear-war-dip that is. And if so, take solace in your decisions, because the President keeps suggesting the idea is closer by the day.)
What the Fed. has unleashed into the “markets” via their ever evolving iterations of QE and its ever grateful HFT frontrunning brethren (see the now resigned Richmond Fed. president Lacker for clues) has been the only fuel as to power the markets where they now stand. What they’ve also done in unison is make everyone oblivious to the inherent dangers within.
Hedging and more has been a fool’s errand, and for many, an abject lesson in not only losing money, but status. (See the Hedge Fund industry for clues.) However, what might be even more indicative of that intervention is none other than the tech space, with all its unicorns, deca-corns, and even super-corns (yes, that’s now an actual term in “The Valley”) suddenly coming up lame in the unicorn stables of “Cha-ching!” Not to mention the IPO disasters and disappearance of those “Crushing it!” stock valuations. (See Snapchat™ for clues.)
This is where the beginning signs for caution are raised for anyone paying attention. And they are there – in spades. But there are also other areas to watch that help back up the hypothesis. And one of the first to show stress when things are not going as well as planned in “tech” land is: The Russell 2000™ e.g., the small business index.
The Russell is not only not showing the exuberance of the others, it’s beginning to show all the signs of rolling over. That is something to take notice in conjunction with the tech sector as it hits ever higher highs. How that dichotomy resolves is anyone’s guess at this moment. But trying to ascertain any clues is of a paramount importance in my opinion.
Another key earnings report that may give far more light than anyone estimates is coming up on Wednesday. That, of course, is Facebook™.
As of today all the estimates are that they’ll handily beat and some analysts are raising their targets. It’s very well they could, especially in today’s world of earnings reporting alchemy. However, one thing which caught my attention was the sudden touting a few weeks back that they had hit “5 Million advertisers.” Small businesses noted as the “key driver.”
“Sound great!” many are saying, and, in-truth, it is a worthy milestone. However, I see the timing as possibly a little suspect, here’s why… (I make this point for it has become near laughable how nearly all upcoming “tech” earnings reports now suddenly coincide with an ever-growing list of preceding announcements of grandiose ideas that are alluded to be right around the corner (like next week!) of flying cars, self driving trucks, rocket rides to space, virtual reality, just to name a few.)
Facebook as of late has been in the news with nothing but negative reports with a slew of horrendous acts being broadcast via their platform. e.g., Rape, kidnapping, beatings, and others. One of the concerns over all this (apart from the issue itself) was a possible backlash from potential advertisers. And who could blame them, and there lies the possible rub…
As I implied with the sudden “5 million” hoopla, what I’m asking is this: Is the addition of these stated 1 million plus new small business advertisers a replacing (therefore a diversion as to squash attention) for the potential of 1 or 2 (or more) large buyers who may have pulled ads?
In other words, if they’ve added so many “new” small business users – shouldn’t the ad revenue explode this report with all things being equal? I believe this is the metric to watch for.
How the numbers break down should be interesting. Google showed its own problem (via Youtube™) seemed to have been a one-off with no real impact. That said, I don’t think that comparison is the same for Facebook should the numbers show otherwise.
We shall see.
If there is a “hiccup” in Facebook’s reporting, coinciding with a realization that the reflation trade is all but DOA along with much of the legislation that was supposed to make it so. I believe we could be in for a very, very, interesting week ahead.
Then again, if a nuclear showdown does persist even more so than today?
I guess the “Buy The Nuclear Annihilation Dip” nonsense is back on.
SO I guess there is no point in working anymore. Just take my savings and go 100X levered in the stock market, take my perpetual winnings and retire.
Just plow everything into FIZZ, APPL, and PCLN. Every stock is supposed to double every six months right? Kind of like houses doubling in value every five years.
God, why do people work when it is so easy. We don"t need anyone to work a job, all anyone has to do is buy stocks. If you have $10,000 just buy on 100x margin and make $10k a day. Don"t worry, stocks only ever go up long term, so you"ll never lose.
You"ll be a millionaire before you know it. Might be driving a piece of shit Chevy Cruze right now, but that brand new Benz is just a few buys of AMZN away.
IT CAN"T BE FANTASY IF IT"S HAPPENING!!!!!
Which is why the world has gone full retard and won"t ever go back.
