2022-01-19

Breakdowns and the Next Shoe to Drop

I consolidated my accounts today. I had a lot of single-stock positions and sold nearly all of them. My only exposure was via ETFs. As of close, my exposure is mainly short XLY, AAPL and XLE. Depending on what happens, I will look at adding QQQ and SMH tomorrow. (I owned both coming into today and sold both.)

Apple completed its top and went below its 50-day MA today. Tesla is also below. The window is open for a plunge.

If the market slides overnight, this would be the next big shoe to drop: a massive island reversal off a top in semiconductors. I am not calling for this, merely pointing out what would make me extremely bearish. On the other hand, were SMH to fill this gap tomorrow and bounce, it could mark the bottom of the weakness this week. Definitely something to watch no matter what side of the trade one is on. Moreover, this is the last tech sector standing, along with a few holdout stocks like Apple. If semiconductors sink, then capitulation selling may finally get underway. Note that SMH lost support as dd XLY today (not pictured).
I saw this in a comment at Slope:
Below are the three time periods, the chart is the S&P 500.
The 1987 and 1980 lows were the end of a long down move and have clear long-wicked candles consistent with capitulation selling. Today, the Russell 2000 completed a massive topping pattern. The most relevant time is March 6, 2020 in my opinion.

XLY Breakdown

Save or dive time...

Amazon Less Than 3pc From 2008 Trendline

I am short this with my XLY holding.

Apple, Tesla, Nvidia

These three stocks may determine the direction of the markets the next few days. Apple looks weak to me, Nvidia is near support. Tesla is like crypto to me. It could drop 20 percent in a day for no reason and that wouldn't surprise me. It can also go up 10 percent and it wouldn't shock me. I am thinking of playing Apple directly, chips via SMH and Tesla via XLY. Both SMH and XLY are sitting on support lines.

Technical Bounce Maybe

A couple things I keep in the back of my mind.

1. The Fed will choose a stock market crash over inflation. Why? The Fed can stop a market crash at some point. Most likely, a crash will eventually take down commodities and lift bonds. It will alleviate the inflation risk. If the Fed doesn't stop inflation now, it will eventually have to crash the market from much higher levels and sink the economy into a depression, to stop inflation. It's always better to fall from a lower height, when a fall is inevitable. Finally, we could seriously discuss eliminating the Federal Reserve if inflation takes off. The Fed is taking a lot of political heat for inflation, but it didn't take this kind of political heat when stocks fell. Maybe Powell is a moron, but if not, inflation is enemy #1 until it dissipates.

2. The market still strikes me as desperately bullish or desensitized to real markets. I keep seeing historical data and analogs only from the current bull market. I've seen claims of extreme negative sentiment that only go back to April 2020. Here is a good analog, but also an example of this:

The Federal Reserve announced the taper in May 2013, ended the taper in October 2014, and raised rates in December 2015. That is 31 months from taper announcement to 25bps rate hike. If you want to add in QT (balance sheet reduction), we're talking more than 50 months from taper announcement until normalization. Stocks were also modestly above their 2000 high at the time. Go look at the chart if you don't believe it. The Fed announced their taper only 3 months after the S&P 500 Index cleared the year 2000 peak.

This time, the time from taper to balance sheet reduction could be as little as 8 or 9 months. I do not expect QT will start that quickly, assuming I'm right about inflation coming out of the economy, but there will be rate hikes in March. Likely 50bps as things stand today. That is 5 months from taper announcement to rate hikes, or about 6-times as fast as the prior cycle. As for stocks, I can be generous and say the entire bull market up to February 2020 is solid, but that still leaves an incredible bear market if the Fed- and USG-induced melt-up reverses. Vulnerable stocks plus an extremely aggressive Federal Reserve doesn't invalidate prior analogs, but they need to be compressed. A lot is about to happen in a short amount of time.

In short, I do not see any evidence for a bounce with legs. I of course will change my mind as needed, but my sense is a rally will be technical rather than fundamental. The market is still improperly valuing stocks in relation to other concerns such as inflation. Stocks are the man, the Federal Reserve is the woman. Stocks think the Fed is the one and is ring shopping. The Fed is already thinking about how it's going to dump the stock market for the bond market.

Worst Case Scenario for Bulls

Yesterday, the high for the regular hours trading was right at the open on the S&P 500 Index. The Nasdaq peaked a little after 10 am.
The worst case scenario for bulls would be something like this wag. A trip back to around 4700 and then failure. This type of action would be a major bull market top, the first since 2007.

2022-01-18

Delete the Ruling Class

Back in early 2020, I along with other traders were looking for a correction. Some thought maybe a top was underway (recall the Fed started repo in September 2019 to save the markets), while others thought a pullback would be followed by a melt-up into new highs. Coronavirus buried this reality. Here we are again in 2022 with traders debating a major correction versus the start of a bear market. The economy is in shambles thanks to government policy. Many governments are very unpopular, including as USG. Other governments are probably one bad event, like a police shooting, away from going up in flames. Would anyone be shocked if angry mobs rushed into parliament somewhere and beat lockdown politicians to a pulp? I would not be. Inflation is taking off because the central banks chose to pump a huge speculative bubble. Central banks cannot print supply, but they can pump demand. Governments didn't want their psychotic and destructive lockdown to cause a recession, so instead the Federal Reserve and other central banks have cornered them into a deflationary or inflationary collapse. The Federal Reserve will have to sacrifice the stock market to save the bond market if events go inflationary, or the stock market is going to get hammered as the global buzz wears off and turns into a bigger hangover than 2011, 2014-2016, 2018 and maybe even 2020.

So. Russia Russia Russia!

ZH: Psaki Says Russia Attack On Ukraine Coming "At Any Point"; US Sanctions 'Pro-Russian Agents'

Crucially, Blinken will from there go to Geneva where he's agreed to meet Russia's foreign minister Sergey Lavrov. He's expected to demand that Russia "take immediate steps to de-escalate," according to Psaki's briefing.

Russia has lately confirmed it has a build-up of forces within its territory near Ukraine, but hasn't disclosed how many troops, after Kiev and Washington have commonly accused the Kremlin of having at least 100,000 troops there in preparation for a Ukraine invasion, something the Russians have vehemently and consistently denied.

There's a big problem in America. The Baizuo ruling class is incompetent. They have accumulated enough power such that their destructive policies are laying waste to formerly great cities such as San Francisco, Los Angeles, New York and Chicago. The national economy is in decline, inflation is taking off. Events are starting to spiral out of their control because they are in over their heads. False ideologies cannot handle harsh reality unless they are themselves harsh, but theirs is an ideology of the cuddle puddle, born in a time of wealth and abundance, when the hard choice is what color to paint the room and endless debates about pronouns are possible. When hard times hit, the whole ideology gets defenestrated, sometimes along with its adherents.

And so now we're being sold a Russian boogeyman to distract from their failures. From their crimes against humanity. The lockdowns, deadly vaccines, hare brained energy policy, offshoring of the economy, murder of citizens by the police under their command, pumping children with hormone blockers and mutilating their genitals, their sedition against the elected president, their criminal use of law enforcement and intelligence agencies, the list of their crimes is long. And everything is about to blow up in their faces.

You can do as they tell you. Put on your mask, take your vaccine, blame Russia for causing the economic calamity about to unfold and maybe go along with their distractive war with Russia and China and probably Iran and everyone else with a score to settle, that will result in the destruction of what remains of America. Or you can place the blame solely where it belongs: with the illegitimate ruling class in America.

Crypto Complex Breakdowns

I saw that the average stock in the market is down 38 percent from their high. Well, take a stock like SI. it is down 56 percent as of today. It still has an 80 percent drop ahead of it because the entire bubble will be reversed. The even better good news for bears is that the major indexes are still relatively high and VIX is still low.

Crude Oil

Oil is going to make a major move soon.
I don't know where point 7 may terminate, but the analog is now "complete" through point 7 assuming it does turn lower. If the analog holds beyond that, support around $67 per barrel will fall in the next couple of months.
If instead "this time is different" and oil breaks the pattern, it'll lights out for central banks, governments, stock markets and the global economy.

Paypal: Bombs Away

If you expect more downside...

Time to Go Mobile

Exxon is right near its July 2014 all-time high. That was the start of a $75 per barrel slide in oil and the start of the U.S. dollar bull market. The Fed had started tapering in January and would finish three months later in October. If the Fed follows its script, the current taper will end in two months. Last time, the Fed didn't raise rates until December 2015, more than a year after the taper ended. Markets are near certain the Fed will hike rates when the taper ends in March.
Crude oil:
XLE must rally 15 percent to retake its June 2014 all-time high.
This is a great spot for me. If oil and XLE go higher, there will be many bearish setups. If instead inflation is peaking, XLE and other energy/commodity shorts may be some of the better first-half trades.

Gold Miners Ask: What Inflation?

GDX is back to where it was before the pandemic selling hit. The entire move has been reversed. GLD is only up 6 percent. Gold gets no respect from gold bugs. The vast majority ask why gold isn't up, instead of wondering if all this inflation is about to be let out of the balloon.

QE is Finished

Normally I'd buy the glitch argument, but when bonds are aiming for a breakdown, it tells me teh Fed may be accelerating the taper.

ZH: Fed Cancels Bond-Buying Plan Today, Blames 'Technical Difficulties'

Russell 2000 2pc Away From Completing Major Top

I have no call on timing, but only note that if ZB were to breakdown today, the Russell 2000 could follow today. A four-percent down day for the Russell 2000 would be a sizable move, but in the context of a bond breakdown, it's nothing. Whatever happens, we are less than 10 days away from a major move in the markets in either direction because selling pressure will intensify as that support approaches.

Bonds in Striking Distance of Major Breakdown

Markets are calm considering a major breakdown in bonds is possible as early as today, depending on how the trading chakes out.

There Goes Charter

My biggest position now after today's move. Will be exiting current position this week (Friday expiry).
XLY may be ready to go too.
Also a great place for a bounce.

If Inflation Fear Gives Way to Taper Fear

This one looks ready for a hammering.

If Markets Go South

Capitulation Time

While going sideways is always a possibility, I expect capitulation by bulls or bears this week. The Russell 2000 and Nasdaq will crack their lows if the market goes down by any significant amount. The S&P 500 still has support below. The 30-year bond could also break down. Crude oil is at a 52-week high. Politically speaking, inflation is out of control.

SARS2 Lab Made

Dirty deeds, done dirt cheap at the Fauci (USG's NIH) financed Wuhan lab.