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Equity Markets: Update And Targets
By Nic Lenoir of ICAP
Good morning,
Today should be a busy one so let's go straight to the point. We had recommended to re-sell S&P futures on the break of the 200-dma, or since it happened after hours and earlier than we had anticipated on the rebound at 1,080/1,088 with a stop above 1,100 (see SP 60 chart). Our target remains unchanged at 1,015 for now. This is the standard Elliott Wave v) extension and should the sub-count of wave v) indicate a different intermediary bottom we will update you but for now we keep this as our target. After that we expect the market to bounce. Structurally we remain in a secular bear market, there is no doubt about it. However bear market rallies can be sharp, and we think the next inflection point will be critical. I have added the Dax future daily chart where we see key supports at 5,460/5,380, and the Nikkei which is even clearer with major support at 9,095. If you remember in 2009 the Nikkei was a much better indicator of the stock market local bottom than the S&P and in fact I missed the S&P bottom because the wave structure semed incomplete but caught the Nikkei one. It is worth watching the parallel again given we have such key pivot supports coming up, the same way we leaned on our analysis of European stock indices to reinforce our bearish outlook on US equities and sell the bounce post flash crash at the retest of the former support line now resistance on the Eurostoxx (see chart).
Big picture I keep my long term target of 380 on the S&P 500. Broken record but I stick to my guns one this one. Short term we are still advising to be short but moving in on key supports. Fundamentally my view is that the inventory rebuilding/federal spending is absolutely not anything organic and sustainable we can build a long term growth outlook on. We have renewed balance
sheet deflationary forces at work which have triggered a relapse of credit markets and this time sovereign debt is on the table too. There are measures that have been put in place in terms of liquidity but so far the impact on markets has been null with disruption in the funding markets still building up. At this point we think the solution will be for the Fed to step in and reactivate the liquidity facilities they let expire, but that will come only after a heavy political battle. Politicians are slowly finding out that maintaining artificially a market that is bankrupt in every possible way without printing money is quite tricky and they have not found the answer to that riddle yet. An overleveraged system supported by a structurally weak economy can only be maintained by a flooding of central bank liquidity combined with austerity. It will take a solid decade to get balance sheets in good health at the consumer/sovereign level without masive wave of defaults, pick your poison.
Buyers beware: don't buy the dip before the double dip!
Good luck trading,
Nic
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Keep shorting all:)
Heard a commentator on Bloomberg this am just before Timmay and Billary were to speak in China suggest that investors get completely out of equities. Today will be exciting.
Here is an excerpt from http://www.marketwatch.com/story/crash-is-dead-ahead-sell-get-liquid-now...
So please listen closely: All the TARP bailouts, stimulus debt and Fed loans won't work. Neither will a new conservative government. This is not a basketball game. We are not channeling Chick Hearn, calling this game before the final buzzer. While we prefer the illusion that "this time really is different," eight centuries of history suggest otherwise:
"The lesson of history, then, is that even as institutions and policy makers improve there will always be a temptation to stretch the limits. ... If there is one common theme to the vast range of crises ... it is that excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. ... Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang -- confidence collapses, lenders disappear and a crisis hits. ... Highly leveraged economies ... seldom survive forever ... history does point to warnings signs that policy makers can look to access risk -- if only they do not become too drunk with their credit bubble-fueled success and say, as their predecessors have for centuries, 'This time is different'."
No, "this time" it's never different. Get it? In the end, it doesn't matter what happens to the Dodd-Obama financial reforms. The endgame's never a Black Swan, it's a very White Swan well known to historians -- guaranteed, inevitable and inescapable. This time is never different.
The clock's flashing. Huge point spread. Think bear, think crash, think end of capitalism, think Great Depression II ... This is no buying opportunity, this game's in the refrigerator, call it.
I somewhat disagree. The market won't go straight down to its ultimate lows. There will be intermediate highs and lows that you can trade (think Japan throughout the 90's). I also disagree with the "end of capitalism". I think it's the end of government controlled economies. I think eventually we will get back to true capitalism where people trade actual goods and services instead of paper representations of same.
Looks to be a good day to have been short going into the open...
I don't know man... I'd be surprised if we didn't rally after the market opens. It looks pretty oversold to me...
Okay, everyone outta the Equities Pool and into the Treasuries Pool, 'cause Timmy has to sell billions...
thanks a lot tyler for providing this excellent research. thanks nic for producing such excellent and crystal clear research
I'm with you 100% on the appreciation. The Nic Lenoir are always clear and direct with some underlying basis explained. When the writeup clearly states that the final outcome is SPX < 400 it does give a fair warning or how the analysis is developed.
The last year has some important investments made in tooling capacity, both in the US and abroad. A lot of industries, from cement to light-bulbs to plastics, are actually in fairly good shape to come out of a recession flying.
Methinks your tool capacity may be off the charts. There is nada thats being done on the supply side that make any difference whatsoever, the consumer is deader than this parrot
http://www.youtube.com/watch?v=npjOSLCR2hE
Traders have been selling VIX OTM call spreads as the VIX drifts lower. Today is going to be ... uh ... interesting.
"Big picture I keep my long term target of 380 on the S&P 500."
Basically taking the S&P 500 back to early 1990s levels.
I would think that before that happens we have another round of quantitative easing by central banks to battle the demon of deflation.
They can QE until they need a case of Tucks. The fiat currency gig is over as even the most dense can see the results of QE1.
Projecting the S&P at 380!?! This man has some nuts.
http://www.collinsamerica.com/page14/files/nuts_maroon_truck_800B.jpg