The Dark Horse Report
Hi, I read a lot of research and researchers don’t tend to put their ass on the line and give a view, which is a shame. I don’t intend to do this; so the usual, “it’s your dough, do what you feel is best” disclaimers definitely apply. You’re all big boys and girls deal with it. I’m a bear and I hope to demonstrate why and how I will be trading the S&P over the next few weeks.
The last week has largely gone as I predicted with the elephant in the room not appearing – capitulation. There was almost no sign of capitulation with the exception being in Dollar Yen where there was at least some panic selling from Japanese exporters as we approached 116.00. Since then both the Yen has weakened and the S&P have recovered significantly, but in my opinion not enough. Here is some good reading – http://education.forexlive.com/!/sad-to-have-to-say-i-told-you-so-more-from-guest-economist-john-hearn-20160123
Oil is being driven by flat demand and oversupply coming mostly from Saudi Arabia. Iran has upped its production by 500k bpd which is a meagre 0.5% of total global production but it is more significant that they are back online than the amount they are adding. They have the reserves comparable with many of the Middle East producers, but it would take a long time to get them all pumping as they have been offline for many years now. Earnings released so far have largely beaten expectations see attached slide from Factset, but these earnings have to be considered now with the same critical eye you would a GDP number from China. Everyone knows you can massage figures and when your massive bonus (Fortune 500 CEOs are now being compensated more than Wall St bankers) is at stake you are going to announce a beat or you are doomed. This is the same moral hazard they were attaching to bankers in 2008 just a different leveraged bet by borrowing money buy back stock thus reducing number of shares makes EPS look higher.
The Fed has been clear that it is seeking to normalise rates. That means, all things being equal, they will seek to remove in their words “super accommodative rates” unless you expect QE4, there is no more money to print to prop this market up, the Fed has pulled its Put. Expectations for rate hikes have reduced in the last few weeks, they might hold off if we see turmoil in the markets as expectations are worked out amongst participants. I’m not convinced that the Fed is married to the idea of normalisation as they have ceased to be an independent body and much more at the mercy of those who pay the piper.
Wealth funds have been sellers as they have prop up their struggling budget deficits, I thinking specifically of Saudi Arabia. The only exception has been Norway who are quite happy to rid out the storm and hats off to them.
We have seen mediocre economic statistics this week from the US slightly weak but nothing exceptional; and certainly nothing to get excited about so lets not.
This week we saw a big sell-off , down to 1804.75 in the March, the turning point called by MrTopstep himself, Danny Riley who’s timing was unbelievably accurate and to many traders something they couldn’t believe until it hit their shorts badly (myself included). A lot of credence has been placed on the fall of the crude price, economists see it as an economy that can’t buy oil as it is too weak, this is crap, no-one revs up their engine and drives 1000 miles cos we made a new low in oil, they go to work same as always. A cut in the oil price is great for growth, it can make transportation cheaper, deliveries cheaper, airfares cheaper, but that doesn’t happen quickly. What floored me this week was while crude rallied 8% on the day!! Japan (Nikkei) one of the largest oil importers rallied 6% on the maybe of further easing by the BoJ. This is nuts but that’s trading! I’m sure Danny would agree – economics in volatile times like these are out of the window and people and organisations do what they have to do. Its ugly, but its real, the real price of stuff will come out when it decides to and not until.
See my 4H chart of the $SPX, Ive used a 34 period bollinger/MA and a very slow stochastic. Despite all the buying we have seen in the last three days this market is tired, I will be looking to sell further rallies, or stop into shorts if I don’t get them. 38.2% Fibonacci retracement from the lows is set at 1915, old highs from earlier in the week were 1916, I expect these to be tested and failed. If you are a bull, you want these rallies to succeed and make fresh highs above say 1908, 1928, 1947 and the NFP high of 1965 if you see these the bears should be worried, we have broken above the existing downtrend *and* the moving average standing currently at 1869 but looking at this on the dailies, this is a simple short squeeze however aggressive the turnaround on the 20th was. We are 100 handles higher (more or less) this is not a dead cat bounce, this pussy is alive and kicking, but it needs to show a lot more to get the bulls excited. My theory of three mean we need to retest the lows of 1804.75 (I actually had 1801/2 on my chart) and the third time if we don’t break it we go north. I will be adding to my short below 1790 with my old view of an interim low of 1590.
I will be selling 1905s which will no doubt be tested by the Algos for stops above so that is a great time to take advantage of the liquidity (more to come on this another time)
If you would like to see what I have to say day to day follow me on twitter @dmurfet the Dark Horse
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