Tuesday, June 2, 2020

Riots Don't Matter But...

Riots and protests don't have any kind of lasting effect on the market, most will agree.  But then why do people get so bearish when they see the news coverage of the riots?  Its because people are emotional, and expect the market to follow that emotion.  The market is swayed by buy and sell orders, and in this day and age, most of that is HFTs hunting for paper flow to front run. 


If the market goes down this week, which I expect, will it be because of the riots?  Or because it reached extreme overbought levels, with over 90% of stocks above their 50 day moving average?  I am sure when it goes down, its going to be people saying civil unrest and riots finally brought a selloff.  But I would argue that its because the market has passed the thrust off the panic bottom phase, and entered a choppy topping phase. 

We are in that bear market topping phase, where the conflict between fundamentals and technicals causes choppy trading and eventually leads to the market rolling over and going back down to where it was at the panic phase. 

I could easily see a move down to SPX 2950 within the next 10 days and still not expect the market to have made the final top of this bear market rally.  I am sure any move below 3000 on the SPX would be accompanied by a lot of bearishness, considering the news flow and focus on the riots and looting. 

But we will soon reach the peak of the riots, and it will be forgotten like so many other irrelevant news stories that scared investors in the past.  The only very minor tangential effect the news flow could have is on the November election, but even then, I don't think it changes the results.  Its too far away from November, and people will have mostly forgotten about these riots by then. 

The economy is the most important factor in voters' decision making, and the coronavirus economy is still going to be weak with lots of unemployment in November.   So that is a huge negative for Trump who is facing an uphill battle to get re-elected under such weak economic conditions. Putting his signature on stimulus checks is not going to change peoples' opinions about him and the weak economy. 

But unlike what most people believe, a Biden win and Democratic sweep of the Congress would not be a bearish outcome for stocks.  Looking at all the spending and stimulus that Pelosi and the mainstream Democrats want to do with Trump in the White House, imagine the amount of spending that they would want to do with Biden in the White House.  And all that things equal, higher government spending not fully offset by tax increases raises GDP, and that is usually bullish for stocks. 

The worst possible scenario would be Biden winning and Congress being controlled by the Republicans, similar to the early Obama years.  That would mean fiscal stimulus would likely be blocked by the Senate/House, and this time, with rates already at zero and the curve near zero out to 10 years, the Fed won't be able to rescue the stock market through the bond market channel, and would have to outright buy stocks if they want to rescue it.  

The volume was extremely low yesterday, surprising considering it was the first trading day of the month, and with the riot news out there.  Its actually not a bullish setup in the short term, as I've seen a few low volume tops after an extended rally off a panic bottom.  Plus the put/call ratios remain low and overall, investors are complacent.  However, hedge funds are still not fully embracing the rally, so its not yet an all clear to go all in short.  We may chop around the SPX 2950-3100 level for a few weeks before it finally cracks much lower.  You rarely get perfect setups on the SPX but odds are in favor of the shorts here. 

26 comments:

Anonymous said...

Long GPMT 5.5

OL DAWG said...

Looks like i bot the top. Will have to hold but im fine doing that. Mkt sucks for daytrading right now and has low volatility. Short sellers just putting on shorts and covering 1% higher a day or two later. I think this goes on for another week

Market Owl said...

Lots of speculation out there, seeing a ton of trash getting bid up. Think we selloff later this week, riots are going to be cooking this weekend bigtime.

OL DAWG said...

Well i was watching news over the weekend and cops were letting looters run away and just shooting smoke bombs on protesters. But starting from yesterday they were arresting people and beating up looters. I think LA has decided to crack down.

OL DAWG said...

Imma lay the hammer down 3130. 3100 is for sure probably tonight. 3130 to 2950

OL DAWG said...

Or better 239 qqq but i will settle for 238

OL DAWG said...

Long aug qqq 237 puts 11.55.

OL DAWG said...

Is 220 qqq by end of June asking for too much?

Market Owl said...

You’ll be out of those puts this week so what does it matter what happens at end of June?

OL DAWG said...

So you think we will keep going up? Im taking a stand here. I think i first started shorting at 219. People buying aapl and amzn here cant be reasonably sane.

OL DAWG said...

Hey how much are you down in this trade. I hope this is not a widowmaker for you. After this trade i think im going to start trading 500 shares of intc and make 300 bucks a day. Its no fun anymore holding overnight and fighting the fed. But this is fucking ridiculous

OL DAWG said...

But just as i called it. I said 3150 a month ago and here we are 3130. I swear Goldman Sachs should hire me as a market strategist. Ol Dawg chief market strategist and technical chartist

OL DAWG said...

They see me rolling. They hating. Controlling. Trying to catch me riding shorty.

Market Owl said...

Not a widowmaker, got risk under control. I rarely go all in so leave myself room just in case it goes against me. Started shorting too early, but I'll make it back plus interest on the other side of the hill.

Seems like daytrading is more suited for you, you don't seem to like holding overnight. I'm the opposite, don't like intraday trading and playing for small moves.

Market Owl said...

Good call on the 3130. What a bear market rally, can't imagine too many shorts hanging around, probably a lot of them stopped out today.

OL DAWG said...

Well i dont like this lay and pray kind of trading. We got an opp to short again at the all time high again unbelievably and ill take it. But yeah no need to take life out of your years and overnight hold and pray a position goes your way and keep averaging up or down.

By the way way too much talk about v recovery this and that. No wat we go back down to something ridic like 2600. Honestly i think 2900 would be a godsend. You know the ppt will be waiting to go brrrrrrr if things get too low

Market Owl said...

I don't think 2600 is ridiculous. If this was just a bear market rally, then we'll at least retest the lows around 2200. I am sure Powell will step in to buy equity ETFs if we do get anywhere close to 2200. What a wanker. He is just as bad as Bernanke.

OL DAWG said...

Lol this is not a bear market dawg. All we saw was a 35 % correction in a bull. Im positive we will be at 3500 by next year. Fuckers just inject like a half year of gdp into this mother

Anonymous said...

QQQ hit the pre Corovirus high of 237.47 to the dot
hope we fall tomorrow on this double top

Anonymous said...

SPX hit its march high, DOW went to 200MA on daily

OL DAWG said...

Nikkei down 1.5% so is Dax. Its a good sign nigga. #blm. #Whatever

Market Owl said...

Added more short here. Speculation is through the roof, this feels toppy.

OL DAWG said...

Top!! #BLM bear lives matter

OL DAWG said...

Spx percentage gains in last 6 elections

2016 +9.54%
2012 +13.41%
2008 -38.49%
2004 +8.99%
2000 -10.14%
1996 +20.26%
1992 +4.46%
1988 +12.40%
1984 +1.4%

Is 2020 a recession? Given all the stimulus money I say not.

We started off the year at 3250. Maybe we dip and we continue to climb into the election and past we should be at least 3300 by end of the year. 3300 only gives up +1.5% for the year. All major dips should be btfd

OL DAWG said...

You ever see the streaming chat section on investing.com for e mini or nasdaq futures. See good insight from the traders there in real time. Lot of permabull dipbuyers

Market Owl said...

No, I haven't seen it. I don't need to look at chat to know how frothy this market is, very toppy action here.