Denial Is Not Just Not A River In Egypt
A one-day oversold rally didn’t do the trick for bulls as Friday’s reversal was severe.
Currently markets are marching lock-step lower with oil markets.
Some are calling for $20 oil in the near future which, if it happens, would devastate both small and large producers alike.
Consider all the debt exploration and producing company’s carry and bankruptcy would occur trickling down thru the financial system. What could stop this from occurring is an intervention by OPEC producers and even a war between the Saudi’s and Iran. The latter would quickly see prices explode higher.
Thursday’s bizarre oversold short squeeze rally saw no follow-through Friday but the opposite occurred with new lows the feature. Headline market sectors are quickly down nearly 10% YTD with others falling nearly 20% YTD. This puts us near bear market territory. Europe and emerging markets are already in bear markets with many in recession. Institutional investors are in shock and denial this is happening.
When markets display this kind of behavior given many oversold rally failures, then we’d have to admit markets are in great trouble.
Whose fault is it? It’s easy to pin blame on the Fed since they’ve created this situation. Various Fed Governors will be out trying to cheer investors up with ideas of more QE and lower, even negative, interest rates. As me and many others have stated the past few years the Fed stayed too long with ZIRP despite “emergency monetary policies” were no longer necessary given the economy had healed several years ago.
Raising interest rates even modestly as they did in December was too little too late. Now they’ve lost their credibility.
As if it mattered economic data Friday was mostly negative. PPI declined to -0.2% vs prior 0.3%; Retail Sales were down to -0.1% vs prior 0.4%; Empire State Manufacturing Survey collapsed to -19.37vs prior -4.59; Industrial Production down to -0.4% vs prior -0.9%; Business Inventories down to -0.2% vs prior 0.1% and consumer Sentiment rose to 93.3 vs prior 92.6 (with focus on cheaper gas and heating oil).
Stocks were crushed again on heavy volume as market sell-off may become a full-fledged bear market with a follow-on recession.
Market sectors moving higher included: Volatility (VIX), Treasury Bonds (TLT), Gold (GLD) and little else.
Market sectors moving lower included: Everything else.
Below is the heat map from Finviz reflecting those ETF market sectors moving higher (green) and falling (red).
Dependent on the day (green) may mean leveraged inverse or leveraged short (red).
Volume was once again heavy and breadth per the WSJ was quite negative.
Given Wednesday’s collapse and Thursday’s rally, Friday’s sharp decline puts us in short-term oversold conditions but also worse than unstable.
Sure, it’s likely to respond positively to any rally in crude oil just so it’s not due to any geopolitical events between Iran and Saudi Arabia.
We’re flat and have been in cash since the last day of 2015.
I’m desirous of shorting but need to wait for short-term oversold conditions to moderate.
Trading stops are too far away allowing for too much risk.
This is the worst yearly start ever for most equity indexes ever even going back to Dow in 1928.
Let’s see what happens.
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