Wednesday, August 31, 2016

Don't Get Restless

It can be tough to just sit there and do nothing but that is the best course of action when there is very little edge.  The market has gone on a 6 week summer vacation, and it didn't give traders advanced notice.  Still sitting in boring low volatility range trading, with no impetus to move.  Sure, the Fed talked tough, but the bond market has already gained back the losses from the Jackson Hole dip.

Markets don't sell off for long when the economy doesn't change and stock markets are in uptrends.  It is as flat and boring as it gets.  Only time I have seen less action in the market is between Christmas and New Year's.  But that is 1 week.  This has been ongoing for 6 weeks now.

The latest hot topic is a possible Fed hike.  How many times will these fixed income knuckleheads get scared by a rate hike when the last one caused the 10 year yield to go from 2.30% to 1.65% in less than 2 months?  If the Fed hikes again, it will have minimal effects on the 10 year yield.  In fact, it will just cause a faster drop in rates at a later time.

As for equities, I have no edge in these kind of markets.  I will let the daytraders try to beat the HFTs.  I sure won't try.  Checking out for now.  See you later when the market moves.

Monday, August 29, 2016

Fed Talk

So the Fed thinks the S&P 500 has gone up too much too fast.  So what is there best weapon to wring out the animal spirits for a moment and get the pullback they want?  Talk hawkish but do NOTHING.  All talk, no action.  That has been the Fed for most of the last couple of years.  Always talking like a rate hike is just around the corner, but then when it comes time to hike, they find excuses.  They found it last September with China.  They found it in March with the down market.  They found it in June with Brexit.  There is always an excuse coming to do nothing.

That is why they have lost what little credibility they have.  The bond market has fallen for their tricks and heard the boy cry wolf too many times.  They are ignoring the Fed until the bond market shows that the rate hike odds are well above 50%.  And they are not there yet.

Don't believe the Fed when it comes to their rate hike talk.  Believe the bond market.  It has been the one that has been the most accurate and is the one that drives the market, not Fed blather.

We got the strong one day pullback that has been a long time coming.  It took a somewhat hawkish Yellen and Mr. Tough Guy Fischer to do it.  But we know it is one thing to talk tough, it is another thing to act tough.  And unless the stock market cooperates and acts nice.  So is September possible?  It would be a big surprise considering how chicken the Fed has been all these years and would be very uncharacteristic of their typical behavior.  So December or next January is much more likely.  I don't think Yellen is so certain of a Clinton victory that she would risk giving Trump the election by tanking the market ahead of November.

Still don't have much conviction in this market, and I have the done very little over the past month.  If I had to make a call, I would say that we pullback for another few days and then chop back higher in early September.

Wednesday, August 24, 2016

Didn't Miss Much

That was about as well timed a break as I can remember.  Quite the flat and uninteresting market.  Maybe that changes with Yellen at Jackson Hole, but she probably will be noncommittal considering that the presidential election is less than 3 months away.  And you can bet that she will do anything to favor Clinton for the White House.  The smart money knows this so it is a free Fed put for the bulls till the election.

You have seen institutions and hedge funds slowly add equity exposure, and most of the shorts have already been taken to the cleaners so they are out of the way, so you don't see rapid rises, but also you have a lot of funds that want to add more equities on a pullback, and they haven't had much opportunity, so even a minor pullback of 0.5% in the SPX brings in a bunch of sideline cash.

This will eventually end badly, but people were saying the same thing in late 2006 and that bull market had another 6 months left in it.  But really, we are living in unprecedented times.  There has never been a bond market with negative rates or so much global QE.  The central banks have gone to the extreme and the repercussions are unknown because it is the first time in the history of mankind.

But from what I fear, the volatility genie is being kept in a bottle by central banks until the pressure builds up too much in the financial system causing an financial explosion.  Of course, the central banks will try to bandage over the next mess with the same insane policies hoping for a different result.  All that leads is to controlled bond market with ultra low rates and a stock market that suffers from low volume and inactivity.  A great stagnation.  That is probably the equilibrium point for this financial experiment.  At that point, it will be time to retire from trading.  I think we are getting a preview of that stagnation this month, as the stock market is about as boring as it gets.

Short term, we should pullback, and upside is limited, but I said that over 2 weeks ago, and we are still sitting here, right near all time highs with very low volatility.  Sticking with the pullback prediction, but not a whole lot of conviction, with the Fed probably status quo till elections are over.

Friday, August 5, 2016

Back to All Time Highs

That pullback lasted about 2 minutes.  We got the bears biting at he false breakdown from the tight range, we reversed in a hurry back to the top of range and breakout above it today.  Hook, line, and sinker.  The bears fell for the oldest trick in the book, the false break below the range.  All this does is  more boring markets for another few days.

The strong nonfarm payrolls number won't get the Fed to raise before the election, and most bond traders seem to realize this.  The Fed wants a higher market going into election day, and they will do what it takes to ensure that.

 Still expecting a top sometime soon, as we still have election uncertainty and a lot of complacency set in at this time.  August through October is usually the worst time for the stock market, historically.  Plus we are overvalued.

Will be taking a blog break for the next couple of weeks.  Maybe some occasional tweets during that time.

Tuesday, August 2, 2016

Pullback Long Overdue

We are finally getting a pullback after trading in a very tight range after a huge rally.  Usually these pullbacks get bought.  Crude oil is obviously the biggest factor here as it has broken 40 with ease, without any bounces on the way down.  Bonds are not acting very well considering the stock market weakness, and that is another negative factor.

On the other hand, it didn't take much for the put activity to get heavy, as we saw an elevated put/call ratio yesterday and even higher today.  A bit surprising considering the small pullback, but people get bearish quickly these days, and get bullish quickly.  So it would not surprise me if we are back to the old 2060-2075 range by next week.  Usually these range breakouts off a tight range are false and usually retrace back to the range.

Don't have a strong opinion here, but I just don't see a big pullback yet until we consolidate some more and get the market set up for a fall.  So its probably a BTFD market for a few more weeks.