2022-09-26

Canadian Banks

EWC is the Canada ETF. Banks have been outperforming in recent years. In relative terms, RY has done best compared to EWC. CM is the most exposed to the housing market.
Here is residential home prices and RY on the same chart. Prices are down 20 percent from the February 2021 peak. Interesting that it peaked at the same time as ARKK and other speculative stocks.

Liquidity Event Trade

I suggest finding stocks such as this one if you think a liquidity event is possible in the next month.

Middle Class Luxury Consumer

These stocks sell middle class "luxury" goods: backyard pools, ride on lawnmowers, boats, snowmobiles and a REIT with exposure to RV parks and marinas.

S&P 500 Going to 1500

The European Stoxx 600 trades below the 2008 top. In U.S. dollar terms, it trades where it was in September 2008. FEZ is the ETF that tracks this index.
Will the USA escape the fate of Japan and Europe? Both have seen stocks trade lower over long periods. Although not on this chart, the Stoxx 600 is below the 2000 peak. If the USA follows, it points to the 1500 level on the S&P 500 Index.

Lows Beget Lows; Yuan Deval to 8.28 on Deck

I talked about what could be next for markets this weekend. I posted charts on transportation companies, an airline, high yield and chemicals. There is a clear case for a bounce on these charts because they're at major support. If I have to condense the market into one chart, I pick BTC. My long-term support line breaks around $17,800.
The other charts to watch are currencies as I laid out in the "what's next" post. Almost all currency charts are either in "free fall" territory or coming up on major support and resistance. USDCNY is one day (at current volatility) away from breaking out. The target is around 8.10, but I'd wager the market tests the old peg area of 8.28 on a break. A 15 percent rally for USD from here, about 14 percent deval for yuan.
If this sounds crazy to you, consider this: yuan has mostly risen with the USD durign the bull market. Here's the returns for USD vs EUR,JPY, KRW and CNY since September 2018:
A yuan "deval" is not so much a devaluation as catching up with the decline in export currencies. I'm not predicting this will happen now, though I think it is highly likely for this cycle. If the dollar keeps running though, that is where the yuan is headed.

Finally, long-term government bonds continue their slide.

The 10-year bond futures contract has reversed all gains since 2008.
In conclusion, the market is poised for a bounce or a collapse and that's it. Until there are concerted reversals in currencies, bonds and stocks, then do not expect a sustained rally. Rallies will terminate within hours or days until this happens.

2022-09-25

Never a Worse Chart Setup: FedEx and UPS

Worst for the economy, not the bears. FedEx is at long-term support and UPS has a giant top that has never been seen before.
Seen this before in Canadian National Railway though...
JB Hunt looks toppy too.

This Bear Move Will End When...The Pound Falls to Dollar or Euro Parity

When charts break major levels, it can be tough to find a target. Fibonacci levels are one option. When looking for a psychological number, I think parity between the pound and dollar is as good as any. The pound fell more than 5 percent last week. Another 8 percent is not excessive by comparison.
It helps that it lines up a fib level.
If you want to get more bearish though, the cross with the euro looks like a potentially huge top, or potentially huge base for EURGBP. That makes sense though. If all fiat currencies will die, then I think the UK being independent increases the odds they devalue before the Bundesbank. I mean ECB.

More Crash or Bounce Indicators

The case for a bounce: there's no panic yet. Oversold conditions, extreme positioning makes for rally fuel.

The case for a crash: there's no panic yet. Oversold conditions, extreme positioning makes for crash conditions.

Clear as mud.

ZH: Friday Was The Highest Put Option Volume Session In History

I checked in on bullish percent. Tech is approaching zero.

Political Dominoes are Falling in Europe

As in Sweden, the politics are flipping in Italy.

‘Mother, Italian, Christian’: Giorgia Meloni, Italy’s far-right leader on the cusp of power

How far-Right Sweden Democrats are bringing Trump's America to a small country town

"It's completely crazy that so many people here vote for them," complains Johan Tinné, the co-owner of the central Café Innegarden. "I think they've grown because of all the shootings and the gang crime. They blame everything on immigrants, and when something bad happens, they use that as propaganda." When asked if any friends and family also vote for the party, he shakes his head. "The day they start voting for SD, I'll end all my contact with them."
If you view politics somewhat objectively, if you can set bias aside when observing the whole picture, you can see how easily the populace can swing from a complex false reality such as "systemic racism" to innate tribalism. Or from one form of racism to another. It isn't that one is right or wrong, though your bias may argue that. It's merely the observation that, if you raise a population to think native populations are inherently evil, then it isn't at all a stretch for the public to then switch out white for black, or Russians, Chinese, Jews, migrants. What looks like moral authority is merely popularity and power. It's almost impossible that the natives, who are the dominant population group, won't eventually retake power on their terms.

My biased opinion is that the Western media, government and educational institutions rely less and less on dialectic, and more and more on rhetoric and intellectually-devoid ad hominems. As Biden did in his "MAGA are fascists" speech. A good reason not to engage in this type of propaganda is that it has a raw effect on the public.

Take a very complex theory such as systemic racism. Take the in extremis example of blaming anti-Asian violence on white supremacy, when nearly every single video shows a black assailant. If the propaganda pushes the public into an place of extreme emotional agitation and cognitive dissonance, if the public is starting to feel an emotional reaction such as whites believing they are being blood libeled and Asians are becoming anxious by the dichotomy of reality and propaganda, politics can quickly swing 180 degrees. An emotionally agitated population swings from "anti-white" to "anti-black," and stays there because of the video evidence. It doesn't require concocting bizarre political theories to defend "an epidemic of black crime." It's kind of funny that people who don't like the rise of SD in Sweden, say things such as "I think they've grown because of all the shootings and the gang crime." When a political movement intentionally increases shootings and gang crime, a backlash is inevitable.

In the 1980s, a reaction to the 1970s consisted of the Moral Majority turning against the smut and drugs of the 1970s. "Just Say No" emerged.  The moral part peaked in the late 1980s with Congressional hearings on rock and rap music lyrics. Crime was met with increased policing and incarceration.  "Three Strikes You're Out" laws proliferated. NYC saw crime rates plummet with "stop and frisk" and "broken windows" policing. Going farther back, the laissez-faire USA of the 1920s was effectively erased by FDR's New Deal, which vastly expanded government in a way that prior generations of Americans would have openly rebelled against. I believe current conditions are far closer to the 1930s than the 1970s. 

In times of extreme negative mood, political reversals are likely. If the right is in power, expect the left will win and vice versa. Across the West presently, extremist left-wing/liberal ideas are in power. It expresses itself mainly through extremist immigration policies (effectively open borders) and anti-racist ideology that treats native populations as the worst/lowest group in society. Global corporations tag along with policies aimed at crushing local labor. My view is these ideas have drifted into absurdity and cannot be defended. Since espousing common sense policies on immigration and race gets people labeled racists, then a shift back to "the middle" is unlikely. Instead, the public will flip into a moral mirror.

Moreover, it doesn't require complex theories. Should the government treat citizens better than foreigners? Should the government treat victims of crime better than criminals? Should government help workers more than giant corporations? Should government help companies build businesses at home instead of abroad? Should government fund social welfare at home instead of funding wars overseas? Most people will choose the former over the latter, except the current people in power. Two consequences follow. First, the people in power are going to lose that power. Second, I predict that every movement that is aligned with power from BLM to LGBTQ and so on, is at risk of also losing their social status. Not that they will, but that they could and some definitely will. For example, anti-LGBTQ laws that exist in Hungary, Poland and Russia will be found across the West.

The far right is having a moment in Europe. Actually, everywhere.

Pietro Castelli Gattinara, associate professor of political communication at Université Libre de Bruxelles and Marie Curie Fellow at Sciences Po, said that the far right is a global movement and a global ideology, even though one of the core tenets of these parties is a kind of nativism. That translates into a rejection of migration, but also of the social and cultural changes taking place within societies. The “woke” culture wars may look different in the US or Italy, but they are a feature of the modern far-right.
The "far-right" is diverse. The "Woke" around the world all believe the same things. They are globalists. They want to wipe out the nations. They call their movement diverse, but it is really homogenous. If everywhere is diverse, then it's homogenous. NYC is diverse because people from distinct cultures live/travel/work there. If everywhere is as diverse as NYC, then it is no longer unique.

The globalist goal isn't stability, but instability. They are using migration to destroy nations that resist globalism. Nationalists only share their love of their own people and cultures. Indian, Japanese, American and Swedish nationalists all agree that the nations (people) of India, Japan, America and Sweden should not be destroyed by globalism and diversity. The world is made more diverse by having these nations, than it is by putting all these people into a blender. 

War in Ukraine only highlights the battle. Russian areas of Ukraine want to breakaway and join Russia. Globalists are like the Ukrainian government trying to rule over diverse peoples. How much easier would it be if Eastern Ukraine was flooded with migrants who oppose joining Russia?

It is possible this is a temporary "moment" for the "far-right." I instead see a major turning point in the world. I believe it is very possible no one above the age of 50 will see the stock market higher (in real terms) than it was at the end of 2021. Prosperity is going away and whatever is associated with power today, could very well become unpopular in the decades-long downturn. More to the point, poor people value things like safety, community and culture in politics because they lack the wealth to buy it. The government cannot provide better material welfare if the economy is shrinking, but they can always provide more security and increase social cohesion with policies enforcing the dominant language, religion, family structure and so on.

One example: countries have already ended easy international travel with the pandemic. That is an anti-globalist, nationalist policy and it was mostly done by the globalist governments. A logical next step is to ban all migration, as that is a more "invasive" type of population movement. Even when they "win," the globalists will have to behave more like nationalists in the same way that laissez-faire accepted the welfare state as a practical matter.

2022-09-24

What's Next for Markets

Many traders are looking for a low around the 3500. Some are short-term oriented, but others have that as a long-term target. The 3500 level is only 5 percent away. I will ride a position down to 3500 and might take very short-term trades, but overall I wouldn't be looking to short here if I thought 3500 would be the final low. There would be more to be made by buying at 3500 and riding the subsequent rally.
Above is Elliot Wave. It is fractal, such that wave 2 can develop like the ABC pattern at the top, because within Wave 1 there are five waves. I don't use Elliot Wave for trading, but it does describe market psychology well, tends to work better in bear markets for that reason and makes it easier to put the market in context.

The first scenario is Wave 1 ended in June. (Note that everything is inverted because this is a bear market.) That low will hold until next year or the dip to 3500 on the S&P 500 is a bear trap for anyone not covering there. A new low at 3500, followed by a big rally, means wave b of the a-b-c of wave 2, completed. Wave c will be the rally into late this year or early 2023. 

Not making a new low is the same as making a slightly lower low, as long as the next move is a big rally. The 4400 level discussed before could be where this goes, a 25 percent rally. Since the market (measured by the S&P 500) would be down close to 30 percent at 3500, if that were only wave 1 it would open up a final bear market low in the low or even sub-2000s level because there are two more bear waves coming. This could easily touch the bottom of the megaphone made by the 2018 and 2020 lows. (I'm using VOO because it is less marked up than other charts.)

The second scenario is Wave 3. The market tumbles as it did in 2008 after sliding down most of the year. Most likely down to 3000-3300 area. An middle ground in this scenario would be the Feb 2020 level of 3400. Closer to 3000 it is more of a crash and would strengthen the Wave 3 thesis. Jan-Jun is Wave 1, Jun-Aug Wave 2, Aug-Oct Wave 3, Oct-Jan? Wave 4, and then the final low next year either breaking the March 2020 low or close enough to be called a test. More than 40 percent down from the top, more than 50 percent on Nasdaq. The final low might come in March to May. 

A crash should be triggered by a huge event. Catalysts could be currencies (yuan deval would be high on my list) or bonds (I posted high yield yesterday, right at long-term support and the ex-dividend portfolio trading like they did in 2008 and 2020). Perhaps a key earnings miss or warning from a company such as Apple (AAPL). Geopolitical events such as Russia-Ukraine escalating into a regional war or with use of unconventional weapons. This might be a best case scenario for bulls (without the war escalation) and for bears if they have positioned for a big drop.

Leaving speculation aside, a move lower will absolutely require major breakdowns in key charts. One is high yields bonds. HYG broke and recovered a line from the 2008 and 2020 lows. JNK broke that line clean, but there's a second line formed by post-2008 corrections still ahead. HYG is the better signal here. A plunge through support will be a huge event.

CNYJPY probably doesn't need watching, but it sums up the yuan depreciation thesis. China is struggling as export competitor currencies crash. If the yen continues falling, the yuan will eventually break sharply lower as it catches down to the yen, won and euro.

Many charts, including HYG above, are where a bounce looks likely. Charts such as USDKRW also make it clear that this move has to be terminating because charts don't go vertical for very long.
Moreover, a chart such as USDKRW will reverse explosively. The only scenarios for this chart are accelerated continuation or reversal. The 1997 peak was in December after a 3-month panic, but global financial markets didn't bottom out until September 1998. The "2008" peak was in March 2009 with some choppy months. It is 13 percent back to the 2009 peak and 30 percent to the 1997 peak.

As I speculated on August 19 in Won Enters Crash Zone, the prior two breaks above the horizontal led to huge moves. We are in this move now. It ends when it ends, but this has major implications for all markets because this chart isn't moving in isolation.

I wish there were a way to be more confident, but these situations are always opaque on the inside. In hindsight, they are obvious. They're unknowable because crashes break everything. Candles, technical indicators, sentiment and so on can all scream buy buy buy and the very fact that the market doesn't bounce, or reverses after a short bounce, is what induces panic from the professional trader down to mom and pop retail investors. 

Nothing is screaming crash here, but continuation in high yield, currencies, stocks and bonds will push everything towards a crash moment. Don't forget crypto. BTC would likely implode in a crash, yet it too sits above long-term support. Gold broke its last line of support on Friday, so that is one key chart that has walked through the door opened by King Dollar. Whether the market bounces or falls or crashes, in my opinion there are days to weeks left for bearish trades in stocks and bonds.


Reversible Chemical Candles

More candles that scream bounce. I didn't exit my Dow position, but I probably would have lightened up if I checked this chart before close on Friday.

Jet Blue Hammer Near 2020 Low

This is a chart that screams bounce and will unleash terror if it doesn't bounce.

2022-09-23

High Yield Bonds

The first chart is with diviends stripped out.

Housing Affordability Implodes in the USA

This is a larger bubble than at the peak in 2006. This is only through July when mortgage rates were much lower. The number I am most focused on is the qualifying income. In 2019, a household making $50,000 could qualify for a mortgage with conservative criteria: 20 percent down payment and 25 percent of gross income for monthly housing expense. That number was above $89,000 in July. My sense is mortgage rates have gone up faster than homes have decline, but even if not, this number probably hasn't dropped much.
Wages could go up 78 percent...except the Federal Reserve doesn't want wage inflation. If the bond bull market is over, the only way to square this equation is with massive declines in home prices.

No Panic Yet

BTC stil hasn't broken support. There are indications the market is oversold, but there is no panic. Outside of energy, there are only pockets of weakness in subindustries.

Yuan