Wednesday, March 7, 2018

Suddenly They Care about Cohn

You cannot make this stuff up.  Who would have thunk it.  The S&P, after rallying 80 points from the Friday morning tariff panic bottom, is short term overbought, and ripe for a pullback ahead of the newly feared nonfarm payrolls report.  It is the perfect time for Cohn and his Goldman Sachs buddies to get short a bunch of S&P futures and then drop the news of the resignation.  I don't even think Cohn's buddies would have thought the market would have dropped that much on his resignation news. 

A 30 point drop on a Cohn resignation tells you how nervous investors are here.  The psyche of the fast money stock traders is fragile.  The value investors want nothing to do with this market.  The HFTs and deep pocketed futures traders are having a field day fading the fear, buying inventory as retail pukes out their stocks, and selling it back to them after the market goes back up and everyone is relieved.

The rinse and repeat cycle is near its end however.  There are only so many times you can trick retail into buying tops, and selling drops, before they just throw in the towel and stay on the sidelines, which is usually the time when the market is ready to slowly grind higher, climbing the wall of worry.  We are right around that point.  You can feel it in the growing disgust the media is spewing over these tariffs and a potential trade war.  Never mind that they've never experienced or studied tariffs and trade in their lifetime.  Everyone these days is a 5 minute expert on the latest topics that moves markets.

The corporate PR machine has completely brainwashed the media and by osmosis, the public, by denouncing tariffs and fear mongering about how bad trade wars will be for the global economy.  Completely ignoring a much more powerful force in trade,  currency devaluations.  Europe, Japan, Switzerland, etc. have been using QE to bring down the value of their currency for years.  Sure, the US started it, but their QE was to keep interest rates low in the face of massive budget deficits and huge Treasury supply after 2008.  It is clear that the main intent of the ECB, BOJ, and SNB are to weaken their currency to boost exports, which is a form of trade war.  And to say that it hasn't affected US stocks is an understatement.

There are many more important things for this market than global trade.  And even if it was as important as everyone says it is, the multinational corporations have so much political power that they will stop anything drastic from happening anyway.  After all, Washington DC is bought and paid for by the corporate lobbyists.

The price action after the 10 year yields surged higher in early February and the subsequent plunge in global markets, and the price action after Trump's announcement on tariffs gives you an idea of what is more important.  Interest rates are about 500 times more important than tariffs.

I was contemplating a short on Tuesday near 2730 but since we're probably near the end of this selloff period, I decided to wait.  As I said before, it is a time to look to buy dips for the move higher after this selloff period passes.  A dip down to 2640 would be ideal, but very unlikely at this point.  Perhaps a move down to 2660 is the most we will get, and even that looks like less than a 50% shot.  I may have to increase my limit prices to 2680 to be able to get any longs before the selloff is over and the market grinds higher.

1 comment:

Anonymous said...

I think we will have a head and shoulder market. The left shoulder was formed already. A move to 3000 makes the head and the right shoulder will be formed by the end of the year. And then you know what happens after that.