Friday, November 28, 2014

Crude Oil Panic

This is turning into an all out panic in crude oil.  As I write, WTI  is trading at 66.30, down $10 on the week.  Brent crude is nearing $70/barrel.  There is all out liquidation among longs right here in front of the weekend.  It is a Black Friday for crude oil longs.
I was tempted to do a dip buy today but I held off because I was already underwater in my short bond position.  I will hold the short bond position, and perhaps look to buy crude oil on a further selloff early next week.  But I have a feeling we will have a gap up after the all out dump that just took place at the pit close in the NYMEX crude oil futures.  Despite that, I am not willing to take a long position here just because of the potential for even more liquidation come Monday if we break $70 for good on Brent crude oil.

We may get a tradeable bounce in crude oil near these levels but I would only look for a $3-4 bounce.  There is too much overhead now above $70 for it to breakthrough meaningfully.

Wednesday, November 26, 2014

Treasury Market Euphoria

The current time period is about as close as you get to euphoria in the Treasury market.  You had stocks flat to slightly higher, yet Treasuries soared, especially the long bond.  You get bond bulls most bullish when bonds go up despite new all time highs in S&P.  This coinciding with month-end, ahead of the Thanksgiving holiday, and with the Treasury futures roll is adding to one perfect storm that is squeezing bond shorts and getting longs excited.

The bond market move yesterday and today looks exhaustive and there seemed to be a fair amount of capitulation after a very strong 5 year Treasury auction.  I will be looking to put on a short position in the long bond, looking for a move lower over the next two weeks.  The seasonally strong period for bonds is now over, and we are entering a historically weaker period for bonds, and a strong period for stocks.  I am sure the chartists will say we have a bullish breakout in the TLT, or the long bond, but I will take the other side.  The bond market is like a super tanker, it turns slowly, and reacts slowly to equities.  Believe me, if equities keep going higher, as I think they will, bonds will not be able to continue to rally.  The European sovereign bonds have massively outperformed Treasuries since the October 15 capitulation.  Believe it or not, Treasuries have been lagging almost all the global bond markets.

Stocks still have a long ways to go higher.  Europe is just now joining in the equity party, and when the Europeans start partying, that is when you get the blowoff move higher.  I would be long stocks, short bonds from now till the first week of January.

Monday, November 24, 2014

Seasonally Strong

We are now entering the heart of the seasonally strongest period for stocks, from Thanksgiving week to the first week of January.  With all the central bank goodies thrown at this market, I cannot fathom anything upsetting this bull run.  If there is something bad that happens, the dip buyers will be there to make sure the dip doesn't last for more than a couple of days.

Yet I cannot get myself to get long after such a huge run higher, and with all the good news out.  Even the massive amount of secondaries and IPOs on the calendar failed to put a dent into this market.  We had to get overextended on Tuesday to even get a slight dip the following day.  I thought the equity supply would at least slow down this train, but it hasn't.  Perhaps post opex hangover will do something, but I wouldn't hold my breath for a dip.  We probably just go sideways to work off the overbought charts and then grind higher again.  Expecting a strong week for stocks and Treasuries, as Treasuries usually are strong going into month end, especially on a holiday week.

Friday, November 21, 2014

China Rate Cut, Draghi Dove Talk

We got a double whammy today.  It is another feel good Friday with central banks on center stage.  This time its the ECB and PBOC.  These bankers must feel like superstars, able to leap tall buildings in a single bound.  China is now joining the act, which was a matter of when, not if.  You know these central bankers have only one switch.  The on switch.  The off switch doesn't exist unless you have gigantic bubbles.  Big bubbles are left alone.  You need historic bubbles to get these central bankers to act.

Of course you have the ES on fire again, and now Europe is joining the act, which finally happened.  Draghi will lengthen the US equity bubble by a few months all by himself.  This is the blowoff stage.  You are in the middle of it.  No where even close to the end.  You still have bonds acting strong, you need them to weaken in order for you to have even a hint of a top.  There is absolutely no hint of a top yet.  We are still on full blast bull mode.  This bubble will be epic, with China joining the war front against bears.  Get long, or stand aside.

Wednesday, November 19, 2014

Don't Fight It

For those of you who have the contrarian tendencies and want to short this stock market.  Just stop.  You are fighting an uphill battle.  There are times when you have to step aside from certain sides of the trade.  When you have a V bottom, and persistent strength, it usually doesn't go away for quite a while.  It is a psychological thing.  After the V bottom, you scare out the weak hands and those who want to add exposure wait till they get the all clear sign.  What is that all clear sign?  The market volatility going lower and time.  Time makes the skittishness go away.

We got a blastoff yesterday off a bunch of narrow range days.  It is bullish.  You have quite a bit of equity supply coming in the later part of the week, so I don't expect follow through, but at the same time, I don't expect this market to pullback much at all. You will be lucky to get a one percent pullback, and that will be eaten up quickly by ravenous dip buyers and underinvested fund managers, that have been waiting for a bite of equity for about a month now.

The FOMC minutes should be a non-event, I don't expect much either dovish or hawkish, but Treasuries seem vulnerable to further selloffs here as equities remain resilient and we have run a long way from the beginning of the year.  Also I have noticed Treasuries performance lagging even UK Gilts, not to mention obviously German Bunds since the October 15 top in bond prices.  There is a growing divergence of monetary policy that should drag European rates higher, especially now that Draghi is getting louder about full blown QE to save the European economy.

Monday, November 17, 2014

No Movement

This is about as bullish a price action as you can get after a monster V bottom.  Very little volatility as we grind higher, I still see those that can't believe why we go up every day or don't pullback.  This is not your old fashioned market.  The liquidity is overflowing and you don't get pullbacks in those liquidity driven rallies until you hit the top, wiggle around, and then plunge.  It doesn't feel natural, but these are the new rules of the game.  We will keep going higher and higher until we reach nosebleed territory, and then suck in the dip buyers with a few little 1% dips at the top, and then we go down in earnest.

Amazed to see that the VIX futures is still trading at 14.35 with this little volatility.  We are back to the 0.4% daily range.  It is either balls to the wall volatility, or nothing.  We are in the nothing phase, and it should last till year end.

Treasury market looks deadly, every rally is being sold, had a big gap up in the works due to weak Japan GDP but it was straight downhill from Asian trading hours.  Everyone is looking to lighten up ahead of expected hawkish FOMC minutes.

Friday, November 14, 2014

On Treasuries and the Superman S&P

It has been a quiet week in the markets, but there are a couple of things that I have taken away from this week's trading.  The first thing is that the Treasury market is much weaker than I thought, and that many are actually now made a 180 degree turn from the beginning of the year when many were looking for higher rates.  I see more people now confident that rates will remain low.  That despite the furious rise in interest rates from the October 15 bottom.  I have been wrong on Treasuries and taken a hit but I don't believe being long Treasuries for more than just a short term trade is a good bet.  Seasonally the Treasury market gets weaker from the beginning of December till the next spring.

As for the S&P, it remains resilient and it seems like many are dumbfounded at its persistent strength.  It is a recurring pattern of stubborn strength for several weeks after a V bottom.  Now we are in the beginning of the seasonally strongest period for stocks, especially on an up year, and with expected strong holiday retail season, there will be a lot more bullishness building up into Christmas as we grind higher.  Even Greece worries in the EU and a weakening Eurostoxx hardly put a dent into the S&P freight train.  We are headed higher, and I do expect a break of 2100 by the end of the year.

Finally, I do see crude oil close to the bottom, price-wise, but from a time perspective, I don't expect much of a rally till we get to January.

Monday, November 10, 2014

Back to the Bore

VIX with a 14 handle, little intraday vol, welcome back to the Bore.  The 0.4% intraday range, the slow grind higher, the talk about TINA, overrating the economy because stocks are higher, etc.  It is repetitive, and all too predictable.  This is about as good a time for a stock market vacation as any during a non-holiday.

I will be on a semi-vacation, that is I will be watching the market but my mind will be elsewhere.  I don't have the energy to try to pick up dimes in front of a crawling bulldozer.   Don't expect anything exciting, just a steady grind higher as the vol gets lower and lower.  I'm sure we'll get a pullback eventually, but I definitely won't be looking for one.  Waiting for a pullback in this market after a V bottom is like waiting for Godot.  

Friday, November 7, 2014

Relentless Buying

I look at other equity markets, including Europe, China, Japan, etc.  And none of them have the lift or the sustainable buying of the S&P.  Even yesterday, with Draghi hinting about more bazookas down the road, the European market couldn't sustain a rally, but as soon as Europe closed, the S&P hit another gear and just grinded higher and higher.  And of course overnight, you get the drift higher on no volume, regardless of how world markets do.  Divergence between US and European equities just grows and grows.

Today we got an in forecast nonfarm payrolls number and the reaction is muted, both in Treasuries and in stocks.  Expecting another boring grind higher up day, what's new.  You can't fight the money flows, they are all going to one place:  US equities.

Wednesday, November 5, 2014

Another Good News Gap Up and Fade

That is two in a row.  Good news in the form of Republican takeover of the Senate, in the midterm elections, after the BOJ QE Blast from the Past on Friday.  Gap up, and crap down in the morning.  Seems like we've saturated the fast money buy drive into the S&P, and we'll need to settle down and trade sideways for a couple of weeks.

These good news events are quickly changing investor sentiment from bearish to neutral to very bullish.  Usually you need a fair amount of time to change investor sentiment, but the lessons from the past 2 years is those that wait to feel comfortable have been buying near short term tops, not in the middle of the move.  So everyone knows the game plan now.  After the V bottom, buy before the other fool does, and sell it to him a few weeks later when he feels comfortable buying.

So you are getting these rapid changes in investor sentiment and positioning happening over 2 weeks instead of 4 weeks.  That makes it trickier planning the future market direction.  It makes past historical price action less useful as a guide for future moves.   It is almost like we are on overdrive, moving in one week what normally would take two weeks to happen.  I don't know if that means we reach a top sooner, or if we chop away in a range near the top for longer than usual.  Either case, the top for this bull run is on the clock.  I give this market 6 months, at the most, of further upside, and there will be hell to pay for TINA and other viral, but misconceived notions out there, on the other side of the hill.  There is no growth to back it up.  It is just all the equity allocations worldwide going towards US equities, because they are the most loved and trusted.  This can go on for a while, but you will reach a breaking point when investors finally realize that it is risky to pay such high prices for equities when there is no global growth.

Ok, that being said, I expect the S&P to keep grinding higher for the next 3 months, LOL.  My short-term view and long-term view are not the same.  But I will not play the S&P bubble on the long side, except for very short term trades, even though I expect it to go higher.  And I have given up on the short side ages ago.

Tuesday, November 4, 2014

New All Time Highs

Yesterday we hit new all time closing highs in the S&P 500.  This after falling nearly 10 percent less than 3 weeks ago.  I don't think that has ever happened in the history of the stock market.  We are living in unprecedented times.  The liquidity is overflowing.  There is literally too much money out there sloshing around.  That is the only way you drop 10%, and go up 10% to new all time highs in less than 3 weeks.  

Excessive liquidity has a way of exacerbating moves on the upside and the downside, but mostly on the upside.  Because that money has to go somewhere.  Either stocks, bonds, commodities, or real estate.  Yes, it can go to cash, but with ZIRP, money will flow to one of those 4 asset classes.  

Now that we are at all time highs, the bloggers are backing to being very bullish, after being very bearish in October.  Same old, same old.  I don't believe that just because they are back to bullish, we are going to go back down.  However, it does mean that the upside is fairly limited for the next few weeks.  After that, we can probably keep going higher because TINA.  There is no alternative.  Until of course the market cracks, and then there is an alternative, which has been ignored: cash, or cash equivalents, i.e., short term bonds.  

Short term, it will be fairly quiet, so not much to say.  The lower the volatility, the less there is to discuss.  I am down a fair amount on my Treasury position, but it is a medium term holding.  Looking to hold for most of November.  Not much to do in the equity space right now.  I missed the move, unfortunately, and I see little opportunity there at the moment.