Thursday, April 28, 2016

Markets Demand More

The global financial markets have been conditioned and repeatedly been reinforced with the belief that the central banks will do whatever it takes, and to quote Mario Draghi, "believe me, it will be enough."  Well Mario Draghi was completely wrong.  Judging by what the European markets are doing since he embarked on QE and negative interest rates, it has not been enough.

The market is not just believing what they say.  Usually, way more than often than not, the central banks deliver what they promised and more.   They habitually "beat" market expectations for stimulus by providing just a little more, much like companies that give out earnings guidance which they can beat by a few pennies coming earnings time.

The BOJ is learning the hard way that they need to placate the markets all the time, and can never disappoint or they will pay the price in the form of a much stronger yen, immediately.  Really, a little more than half was expecting something from the BOJ, and they didn't deliver.  That may not crush the market in a normal, non-conditioned market, but this market is hooked on free money and want more.  Always more.

The BOJ and the ECB have set the bar so high with their repeated dovish actions that it is almost expected that there will be something new anytime the equity markets have shown even the slightest bit of weakness or the currency has shown even the slightest bit of strength.  The expectations are sky high.

The equity markets are extremely vulnerable here.  It goes beyond looking at sentiment at this point, because neutral sentiment is the new bullish sentiment.  Just getting sentiment to neutral sets ups this fundamentally flawed market for a possible huge breakdown.  People forget that in August before the big dip, most people were leaning neutral to bearish.  Same situation at the end of 2015, when most people were expecting a mediocre to bad 2016 and they got it in spades in January.  It is time to be a bear.


MM111 said...

Well markets shrugged that off pretty good.

Market Owl said...

Yeah, same old sh*t.

Anonymous said...

Good Morning Market Owl,
Many Thanks for your reports, you're on my best-to-do-read list.
I guess it's time to short :
Cot SP500, Put/Call CPC & CPCE, Volatility (Vix, ATR, Daily and Monthly Bollinger Width), SPX 2 month Falling Wedge Down Breakout.
Have a nice day.