Monday, May 8, 2017

They Bought the Rumor

The Street knew Macron was going to win, so they bought ahead of the French election results, hoping for a payoff on a Macron win.  Well, the payoff happened the few days before the election result, as fund managers were buying up Europe and shorts were covering quickly ahead of the weekend.  Now you have a bit of the hangover from that buying binge.

The market is too calm for it to go down right away, with VIX at 10.1 right now, but there is too much complacency for it to go up much either.   With crude oil and industrial commodities weak, it is easy to say that China is weakening.  That is obvious, but what is less obvious is whether the equity and bond markets really care until something serious happens.  And nothing serious has happened yet.  Eventually, China will blow up but their leadership is trying to delay the crash as long as possible.  Which means they will probably go right back to loosening the short term markets there.

 I feel like I have been repeating myself so I will refrain from putting out any more posts until there is a material change in the market.  Since a big bubble seems very unlikely, it is time to think about the next big trade in the coming months.  It will likely be a bear trade.

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