2022-09-30

Russia Ready for WW3

I wish every single person in the West would listen to Putin's speech.

Archive link

They're crazy. I want to speak to all Russian citizens, do we want to replace mum and dad with parent 1 and 2? They invented genders and claim you can "transition". Do we want this for our children?

We have a different vision.

They have abandoned religion and embraced Satanism - direct quote.

The world is going through a revolutionary transformation. A multipolar world offers nations freedom to develop as they wish and they make up the majority of the world.

We have many like-minded friends in Western countries. We see and appreciate their support. They are forming

liberation, anti-colonial movements as we speak - direct quote. These will only grow.

We are fighting for a fair world for our country. The idea of exceptionalism is criminal and we must turn this shameful page. The breaking of the West's hegemony is INEVITABLE (emphasis his).

There is no going back. We are fighting for our "great (as in big), historic Russia". Our values are (irony game crescendo): love of our fellow man, compassion and mercy.

Truth is with us, Russia is with us.

Something like a Western civil war could happen. There are people on both sides of this conflict in most countries.

Tidewater

The gap filled. I'm not shorting it though. Gaps on XLE, XOP and XES remain open.

GDP Now Pops to 2.4pc Growth

So much for the recession? I can't remember when the forecast moved this much, this late in the season.

Buy Signal

The commodity channel index is saying this market is primed for a rally. It doesn't say where the market could go today, only that better entries for bears are likely in the coming days.

Oh Really?

Get Paid

Go With the Flo

Get Some Rope

Russia is Ready for Talks

Ukrinform: Putin claims Russia ready for talks, while “annexed” areas not to be discussed
Russia is ready for peace negotiations with Ukraine but their agenda must not include the “accession” to Russia of the previously captured territories.

This was stated by President Vladimir Putin of the Russian Federation during his Friday speech during the ceremony in the Kremlin where the "agreements" were signed on the so-called "inclusion" into Russia of the territories of Ukraine captured by Russian troops, an Ukrinform correspondent reports.

“We call on the Kyiv regime to immediately stop the war, all hostilities, the war it unleashed back in 2014, and return to the negotiating table. We are ready for this. This has been said more than once. But the choice of the people in Donetsk, Luhansk, Zaporizhia, and Kherson we will not discuss. It has been made, and Russia will not betray it," Putin said.

RT: Russia calls on Kiev to return to negotiations – Putin
Putin has called on Kiev to treat the “free choice” made by the people of the four territories “with respect.”

“That is the only way for peace,” he added.

Healthcare Provider

If interest rates remain high or move higher in the future, eventually the government will be forced into making massive budget cuts. The most likely areas for cuts are defense and healthcare. The former because the spending is so excessive and the latter because it is the largest source of growth and the largest category.

Get Into the Zone

Reminds me of McDonald's.

Permarisers Die Violent Deaths

There are some stocks like Nike, McDonald's and so on, many stable, consumer stocks that have risen for years on end, sometimes going back to the 1970s such as FedEx. The early 2000s with McDonalds. Many more since the 2009 bear market low. They've never broken support. When they do, pay attention. You may only have a few days to catch an implosion. Case in point, I missed Nike.

Crash or Rally Day 2

I have missed out on substantial downside profits the past couple of days by moving to cash. I can't complain though. I tenex'd my Apple position by buying puts in mid-August, sidestepping that big rally in early September, and then re-entering. My smaller trading account, an old Roth IRA that I converted to YOLO status this year, also increased nearly 10 times in the past six weeks. I sold the bulk of my remaining Apple puts yesterday. I also sold my EEM puts which were an 8x. I lightened up on XLP, which had been YOLO sized. I plan on getting back in after what I suspect will be a rally, along with a few new and old positions such as my Canadian bank puts.

I come into the day with some small positions on DOW, FCX, ASHR and XLP, along with a small OTM runner call position on SPY which I may daytrade into size today, along with a substantial long position in TLT including what are now 0 DTE calls. I bought 20ish delta calls for October and November which could remain.

The market has developed a diamondy pattern this week. Diamonds are rarely clean, but the form is there. The moves out of diamonds are typically powerful. There's a case either way because a move down will bring many many put positions into the money negative gamma effect will kick in as market makers have to hedge. There's also a case for rally because the market is overdue for one. Since the market failed at 3750 two days ago and has struggled around 3700, bears have been emboldened. Almost every rally was sold yesterday. Yet from around 10:30 AM and 3:10 PM, there were two powerful rallies of about 40 points on the ES.

What I was watching most of the day was the up minus down volume. Both of those rallies came on brief interruptions in the selling. Not net buying. You can barely see the 10 AM rally on the volume and you can see a small shift into up volume buying late in the day, but on net it was a small move. My sense of the market here is that it will take something like a panic to shake more sellers out, but there is a high risk of panic in these conditions. I'm not downplaying the possibility. On the other side, all it will take is some positive net buying to unleash a ripping rally for as long as the buying lasts. I suspect something like 100 points would come quickly if they buyers finally step in, if 40 points came when buying and selling volume were merely in balance. My bias here is to buy a dip, but it is not strongly held.
Bonds will rally if stocks rally. There is a rather sizable inverse H&S pattern formed on ZB and it has a target at the former mid-June low. That is about a 3 percent move. I could see that being traversed today if the market rallies. Conversely, it won't take much weakness to invalidate this pattern. The core PCE was higher than expected in August and increased the overall inflation rate, not bullish for bonds, although perhaps it wasn't bearish enough with home prices and rents now falling in September...
I like ZB and TLT as longs as the calendar turns to Q4. Not because I expect the Fed to follow the BoE with a new round of QE, but rather I see a combination of inflation coming down, potential stock panic fueling some safe haven buying and less room for losses. As long as inflation doesn't reaccelerate, it's at a level where there isn't substantial downside on the long-bond in late 2022. On balance, that can fuel a rally for a time even if it heads lower later this year or next.

BTC still hasn't cracked.

The Dollar Index looks similar to March 2015, but as I've been saying, "it ends when it ends." Assuming the stock market goes lower in October, there's still risk of massive depreciation in export currencies including the Chinese yuan.
The market will be easier to trade if it rallies, but the market doesn't have to make it easy to trade. The trend is down because this is a bear market. Tesla broke support on Thursday. The market has shown Apple is not safe. Both stocks are overloaded with bulls who still think this isn't a bear market. Yesterday, both stock showed they can wreck the market if they lead on the downside. I think both will fall hard in the next month or so, though maybe not today. If you've held puts/shorts until now and you have enough time, the coming rally shouldn't develop into a profit-crushing move. I use much shorter-term options and therefore have sold out. I would see my profits collapse if the market rallies. If it turns out I am wrong and the next move is a larger rally, I would have seen my profits completely wiped out.

2022-09-29

Apple and Tesla Are Done Propping Up the Market

The major indexes are very "bullish" looking compared to underlying stocks because Tesla and Apple were propping them up. No more. Even if the market rallies, watch Apple and Tesla. They will be the tell when it's time for the market to reverse.

Long SPY

Capital is at $2340 pre-trade.

Bought 10 1 DTE SPY calls $370 strike for $0.85

Update: I'm letting this ride.

Tesla Breaks Support

Squeeze or Crash

Very heavy selling this AM with a lot of puts being purchased on SPY. It's crash or squeeze time.

EEM opened at a new 52-week low

2022-09-28

Gold Retakes Former Support

Update: Gold didn't clear the line on my SlopeChart.

Original post:

Ignore the Yuan at Your Peril

Bloomberg: China Warns Yuan Speculators They Will Lose Money in Long Term
“Do not bet on one-way appreciation or depreciation of the yuan, as losses will definitely be incurred in the long term,” the People’s Bank of China said in the statement released Wednesday. Key market participants need to “voluntarily safeguard the stability of the market, and be firm when they need to iron out big rallies or declines in the exchange rate.”

The central bank added that it has “plenty of experience” to fend off external shocks and effectively guide market expectations. The statement referred to corporates making speculative bets on the exchange rates and financial institutions that were violating policies.

They're bluffing. They don't have enough dollars to defend the yuan and moreover, they don't want to defend the yuan if the dollar continues rising.
The onshore yuan has fallen more than 4% against the dollar this month and is on track for the worst annual loss since 1994. Earlier Wednesday the onshore yuan fell to the weakest level since early 2008 and the offshore unit to a record low in data going back to 2010.
They devalued in 1994.

Chinese version with some additional all-is-well context: 央行警告:莫赌“单边市”,久赌必输!人民币瞬间拉升

It's a situation with binary outcomes. Either it happens or it doesn't. If the dollar moves higher, odds of a revaluation surge. If the dollar peaks, there is no need for revaluation because CNY will depreciate along with the U.S. dollar (the peg may suddenly become tighter as well if they want to close the gap with EUR,JPY and KRW).

Crash Warning

The market finally has a psychological crash setup. Investors are pricing in a Fed pivot after the BoE intervention. Not much, but the talk is there. This is scaring away bears and bringing in bulls. This will reduce rally risk moving forward because bears will be scared of being caught in a pivot. It's a bit of a paradox, but the more people believe in the pivot, the more right they will be, but the more they believe it, the lower the SPX level at which it is announced.

Sometimes Stocks Break From the Herd

Netflix could explode higher on positive earnings. It for certain will if the market puts in at least an intermediate-term low. For the record, I don't think expect this rally will last more than a day or two, if it even goes beyond today.

Ragnarok

Apple is having trouble this morning after a news drop last night. The Bank of England restarted QE today. We're into the "this is serious" phase of the downturn where bad news and policy intervention start driving markets. For its part, the U.S. government and central bank remain on course. U.S. officials up to Janet Yellen have said there's no problem in financial markets, there's no need to slow the rise in the dollar. The Federal Reserve acknowledges what's happening, but hasn't changed its rhetoric one bit. Powell speaks today though...

Stocks were overdue for a rally. Bonds are rallying for a similar reason and probably because traders are thinking, "if the BOE is doing QE again, the Fed won't be far behind." If 2008 is a template, there is only one to two days of rally possible. I will become aggressively short above 3700 if the ES should get there. BTC is hanging on. I don't want any spare capital when BTC breaks that trendline. I want to be 100 percent in short positions.

2022-09-27

Lack of Demand for iPhone

I always preface or conclude by warning that short-covering rallies are an ever present threat, but this is an important domino falling. The lows have already fallen overnight, but once Apple goes, all the bulls hiding in it will be mass slaughtered as bids disappear. The indexes will implode lower thanks to its huge weight. Again, this is ahead, but maybe not immediately ahead because the market is overdue for a rally.

ZH: Futures Tumble After Report Apple Backs Off Plans To Increase iPhone Production Due To Lack Of Demand

Crash Line on HY Credit Approaches

Expect accelerated selling in stocks if this line breaks.

USDCNY Breakout

If the breakout holds, next target is above 8, my hunch is around the old peg of 8.28.

Adjusted For Bonds, Nasdaq Outperforming in a Major Way

I'm Loving It

McDonald's took out a major support line today.

Bouncing to Collapse

Nord Stream system suffers multiple ‘unprecedented’ leaks as sabotage not ruled out
“Yes, there was actually information yesterday, it came from both Gazprom and the operating company. This is very alarming news, indeed we are talking about some kind of destruction in the pipe, it is not yet clear what kind, in the Danish economic zone,” Peskov told reporters.

“…This is an issue related to the energy security of the whole continent,” Peskov told reporters, commenting on the situation around Nord Stream.

According to the Danish Energy Agency, there are three possible causes of the gas leaks.

1. A shipwreck

2. Construction defect

3. Deliberate act

“It is of course worrying that there are three incidents roughly simultaneously.”

Occam's razor says only one of those, number 3, is likely to produce multiple failures at different points along the pipeline.

Who is responsible? Russia seems the least likely since they built the pipelines. Germany would also seem unlikely, except the current government is already destroying the economy. This is only an escalation of current German policy. The United States is also a potential culprit, as are anti-Russian and anti-German countries such as Poland. Whether regional players are capable or not, I cannot say. Although China hasn't shown itself to be aggressive in geopolitics outside of the South China Sea, if they are playing a realpolitik deep game, setting the United States and Russia against each other could be a goal. There's also ecoterrorists, though this seems beyond their capabilities.

For all the losses in the stock market, investors still seem oblivious to risks. This has all the hallmarks of a bear market given the amount of time and the destruction in smaller speculative companies, but major index declines have aborted at these levels before such as in 1998, 2011 and 2018. That is to say, U.S. large cap indexes have declined on par with corrections and small panics, not a world where bond and currency markets are crashing, Europe's main energy supply has been destroyed and the global economy is tipping into a deep recession.

eugyppius: German Energy Apocalypse Update V

Prices have increased vastly across the economy, and estimates are that up to 60 percent of German households are now committing their entire monthly income to cover the rising cost of living.
It is like the 2020 lockdowns, but it never ends. Consumer spending will collapse and with it will go the rest of the economy.
As the pressure builds and the first closures begin, Germany is entering an economic recession, and there are everyday renewed cracks in the political edifice. Minister President of Saxony Michael Kretschmer (CDU) – no fringe political figure – recently remarked that Germany “cannot do without Russian gas” and acknowledged that EU sanctions are to blame for the shortage, but he stopped short of demanding that Nord Stream 2 be opened; instead, he hopes for a return to Russian gas after the Ukraine war has ended.
Ending sanctions was a good solution until the pipeline was sabotaged. There's no way out for Germany. There is no way out for the world. The NY Federal Reserve Bank's DSGE model showing a mild recession that lasts until 2024 looks like a rosy scenario.

With markets oversold, a bounce seems likely, but with a caveat. Oversold conditions produce crashes and market indicators don't include everything. It's true that markets usually price everything into the market, but there are exceptions. One is when the people are delusional. As I've put it before, either losing a main source of energy isn't a big deal or the European economy will sink into depression. I don't see an alternative. The market is priced for "not a big deal." 

This is a category of risks the Chinese like to call gray rhinos. Take China's bad debt and housing bubble. Everyone knows it's potentially a problem, but it isn't at the moment. I'd add situations such as Germany's energy situation into the mix. Everyone knows about it, but do they understand it? Many "shocks" and "black swans" are gray rhinos that people don't know about or don't understand. If China lets the yuan drop to USDCNY 8, that isn't a black swan. It's not even entirely a gray rhino because it's highly probable if current conditions continue. Yet markets would be "shocked" and "panic" if that happens.

The chart of the S&P 500 has a clear bullish foundation. The June low wasn't taken out. It looks like a potential double bottom. Markets are oversold. Bearish sentiment is widespread. A rally would give bull confidence and bears doubt because, if the market rallies on news that Germany's economy is guaranteed to collapse next year, then what won't it rally on? That will be the thinking.

I don't think this is anything except a relief rally until it gains at least another 1 percent. If it starts running towards 3800, then a more substantial rally could unfold.
All I see from bulls is very short-term oriented thinking, such as the bearish positioning among traders. I don't see them making a strong case for owning stocks here. I do see some talk from the value guys about locking in high treasury yields.
Longer term, the Western public is delusional. Their behavior during the pandemic, their slavish following of all media narratives up to an including the Ukraine war, their inability to distinguish between male and female. It is trivially easy to find social media accounts with a Ukraine emoji complaining about high energy prices and even blaming it on the right-wing, Russia or Trump voters. Smart money knows better, or does it? My suspicion is they do not. My suspicion is that even if they know better, they don't realize how many of their colleagues do not. 

There is a confidence about the world that is wholly unwarranted. The mainstream was shocked by 100 predictable elections in Sweden and Italy. Events I and others have been expecting for the past decade come to pass and many people lose their minds because their concept of the world is divorced from reality. There is a moment of intense shock when one realizes their view of the world is 180 degrees out of step with reality. This shock is going to make its way into the financial markets. If not now, then sometime over the next 12 months. The shock can also come from a continuation of current events. What if the voting public in the USA is already so lost that they vote for more of the same? What if they burn the nation down, and then blame it all on white supremacists? What if the public believes it?

Short-term, I'm waiting for the bounce in stocks to finish. I expect it'll rally another 1 percent or so this morning. That's where I'll be looking to reenter short positions. The past few days saw several rallies. All of them were caused by strong performances from BigTech stocks such as Microsoft, Apple, Amazon and Google. A different mix each day, but always BigTech. It doesn't tell direction, but these stocks are propping up the market. If they give way, the market can plunge.

BTC remains one of the charts that sums up the whole market. It rallied strongly today and hasn't broken it's long-term uptrend. The slope of the line is very steep though, rising from a current $17,800 to around $19,000 by late November.



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.