“If the weather forecast suggests it might rain, wouldn’t you carry an umbrella?”
The market is standing at the proverbial “crossroads” of bull and bear. From a “fundamental” perspective there is not much good news. The past week we saw numerous companies beating extremely beaten down estimates. However, while JPM and C got a boost to their stock price, the actual earnings, revenue and profits trends were clearly negative. But that is the new normal. We live in an environment where Central Banking has taken control of financial markets by leaving investors “no option” for a return on cash. Therefore, the “hope” remains that asset prices can remain detached from underlying fundamentals long enough for them to catch up.
In Greek mythology there was a monster called Cerberus, the hound of Hades, a monstrous multi-headed dog who guarded the gates of the underworld, preventing the dead from leaving. Today central banks have taken on the role of feeding our own modern version of Cerberus to keep all the troubles away. This hound of Hades has 3 heads that are named debt, deflation and demographics. Together they make a deadly combination that will result in a massive reset of asset prices...and central bankers are running out of food to feed the monster.
As the trumpets sound to signal the start of earnings season, the battle between fundamentals and “hope” begins.
"Europe looks concerning" warns BofAML's Stephen Suttmeier, pointing out, rather ominously that the broad European index - STOXX 600 - is trading like it did in 2001 & 2008.
Over-supply plus a warm 2015-2016 winter have resulted in low gas prices. That is about to change because supply is decreasing.
"We transition from the best 6 month stretch for the S&P since 1950 into the worst 6 month stretch which commences in May. Moreover, while April has been the best month for the Dow over the past 65 years (+2.0%) during Presidential Election Year's April falls from a 1 seed to an 11 seed with an average loss of .9% according to the Stock Trader's Almanac"
The S&P 500 is stalling below 2085 as daily momentum for price action and especially market breadth is waning. Similar to early November, confirmation of a near-term S&P 500 peak could come on a close below rising channel support near 2028 with daily Williams %R moving out of overbought. This would place the focus on the 200 and 100- day MAs near 2017 and 1997, respectively, which are ahead of chart support at 1969- 1947.
“There have been three great inventions since the beginning of time: fire, the wheel, and Central Banking.” – Will Rogers
"The issue is not whether margin debt will matter, it is just 'when'. Unfortunately, for many unwitting investors, when that time comes margin debt will matter 'a lot.'" And we suspect The Fed knows it...
The technical situation for the gold price has sharply improved, to the evident surprise of many mainstream analysts, but what are the reasons behind the turnaround, and implications for the future?
BofAML's Stephen Suttmeier views the 61.8% retracement of the May-Feb decline at 2010.72 as critically important. A failure to close above this retracement would send a bearish message, especially given negatively positioned and falling 100 and 200-day moving averages.
If history proves prophetic, buckle up. Stock prices may be in for a precipitous decline.
This week’s reading list is a collection of articles from people who have been “getting it right” for the last few years. While they are often dismissed by the media because they disagree with “mainstream thinking,” it is quite apparent they had a better grasp of the issues in the end.