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The Bubble Most Go On: Stocks Buck Two-Day Taper Trade, Break Losing Streak With Late Day Surge
Looking at all non-equity asset classes, one would be left with the impression that the December taper is an increasingly likely outcome. Sure enough - bonds sold off again, and have been selling off constistently since the FOMC announcement. In fact they are poised to close at 2.62%, the highest yield since October 22.
The dollar, inversely, ramped higher on both EUR woes and the expectation that its destruction may "taper" in the near future.
As expected, gold did the opposite of the dollar, and Gartman's latest reco, and continued its sell off for the third day in a row:
Thus the taper trade continued for the second day in a row in all asset classes, except stocks of course. Despite breifly dipping into the red shortly after today's conflicting manufacturing reports, the late day ramp was once again on location, and helped push ES nearly to a new intraday high in the minutes before the close, before a shakedown took place just after the close, sending ES sliding after hours, and wiping out the entire 3:30 pm ramp in seconds.
It can be seen just where the rug gets pulled moments after the 4:00 pm close of trade.
And so we close another week of mad fun with Mr. Chairman's, soon to be Mr. Chairwoman's manipulated, frothy, bubbly, markets.
Finally, speaking of bubbly frothyness, here is a smattering of the recent headlines confirming just that.
- Oct. 31, Risk of London Property Bubble Is Increasing: Moody’s Analytics
- Oct. 30, Barclays CEO Reassured Regulators ‘Are On’ Housing Bubble Risk
- Oct. 30, Malaysia Has Taken Steps to Avert Property Bubble: Zeti
- Oct. 29, BlackRock’s Fink Says There Are ‘Bubble-Like Markets Again’
- Oct. 29, Dublin Home Prices Rise Most Since Crash as ‘Froth’ Signs Return
- Oct. 23, Central Bankers Will Fail Again to Deflate Bubbles: SG’s Edwards
- Oct. 23, Swedish Banks Lash Out at Government as Housing Market Overheats
"This time is different."
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So let me get this straight - after five years Bernanke is suddenly going to cut back on QE a week before Christmas and send the market down 10% during peak shopping? No one in the world believes that.
Never.gonna.happen
...as yeilds on the ten year promptly make their way back to 3 %.
heroin is one hell of a drug...
For many months now, I've been asking myself - Who is buying this market at these levels? An answer to that question was offered earlier in the day in the article;
http://www.zerohedge.com/news/2013-11-01/bank-america-its-getting-frothy...
It appears that the retail investor is in fact putting money into this market. Yes, they really do have short memories.
It will be interesting to see how long the fed can continue to inflate the market before the retail investor is reminded that the market *CAN* sell off for a few weeks or more.
I believe data about retail flow is an important number to watch. I hope we see more posts with this information.
Sometimes it's very hard to figure out ZH.
For years the articles have appeared on HFT. There are numerousl mainstream articles noting that even after a decline, HFT is 50% of volume.
So why would anyone ask "who is buying at these levels?" No one is buying at these levels. There is no market. There is just computer combat. Things are bought and sold 100s of times per second. At 50%, nothing else has the power to overwhelm HFT.
It remains mind boggling to me that anyone wants to play in that arena. You know perfectly well that the algorithms will identify you as human the microsecond you place an order, and it will never close favorably. You might piggyback on a multi day gain, but you'll do so not "winning in the market". Because there is none. You're just rolling dice in a game that has never existed before.
I've found it much easier to trade the more computers have entered the market. They obey Fib numbers and support/resistance lines much more realistically than humans. There are certain Fib retracements and extensions that they hit over and over. It's what they are programmed to do. It's often why you'll see buying seemingly appear when things couldn't seem worse - humans don't do that
No.
They are programmed to combat other computers. They don't care about any charts of fibonacci this or that. They care only about seeing a quote request from another computer, jamming it, and then churning HFT in that particular vehicle to eliminate the other computer's favorable price.
No one with a computer trading 100s of times per second could possibly care about charts.
Well, I can tell you that you are completely wrong. I have several friends who work in the industry. There are enough HFTs that obey Fib numbers that you can virtually guarantee an ignition when they hit certain numbers. It looks like the market hits an electric fence. I've been trading certain Fib numbers for years and you can tell when the market gets there - it may move through, but it bounces a few times first. And you are wrong that they are battling each other - usually they are moving in tandem to create a wave.
As a simple example - look at a 30 minute chart and plot Relative Strength (14). Look at what happens every time it touches 30 (oversold). It's because enough computers are programmed to buy that and then others jump on the ignition
Algo trading is not necessarily HFT
One of the main reasons HFT gained market share was to help banks, funds, and other large investors buy large numbers of shares while causing the lowest increase in ask price, and vice-versa sell large numbers of shares while causing the lowest decrease in bid price. Logically, if those are your goals, you would look at past data to see how other investors (be them human or not) react to the buying or selling of certain numbers of shares at different rates in different patterns.
Given the obviousness of that reason for computers to care about the charts, it should be easy to follow that the next logical step in profitable trading would be to watch for the same types of patterns you use to buy/sell, indicating that someone else is doing what you do. Then you take advantage of that by buying early in their purchase pattern.
Given that, it becomes more obvious that chart patterns, while ever-changing, will reapeat themselves with some accuracy at some times. Not always, and likely never exactly the same way, but you only have to be right 51% of the time to make money.
CrashisOptimistic says, "So why would anyone ask "who is buying at these levels?" No one is buying at these levels. ..."
Why not? If hedges (interest rate and equity) are in place and paid for, then there is little risk in buying yield at any level. The return will be about the same no matter where equities and interest rates go.
There may be some small unhedged traders but my gut feeling is that very few are outright long or short anything.
The wreck for will be if/when the derivative market counter parties fail and the hedges lose their correlation with the underlying instruments. That eventuality is what Draghi was talking about when he said "whatever it takes".
The dangers are in the hedges, not the position.
Without a decent correction between now and December... how will they get the stupid investors to "buy the dip"?
I think you just saw the "dip" over the two days previous. Unless we get a blistering unemployment report next Friday it looks like straight up from here. My target is around 1950 S&P
doubt that. It mattered that ES went down to 1640 not long ago. Left a very long exposed tail wick that was bullish then but chart history says that should get tested soon. Hasn't touched 200 day EMA in quite some time, either.
I think 1675 or lower is not so far off. Bearish engulfing daily was printed Wednesday, too, portending another sizable move down.
You could be right. ES ended right on top of major support as I mentioned below. If it cracks that there is a vacuum to the downside. But really it all comes down to the Unemplyment Report. Unless we crack 170,000 or the unemployment rate hits 7.0% we are taper off. I haven't seen any indication this is going to be a strong report (unless the Fed wants it to be of course).
R2K and XLF are raising the warning flags. 1600 would be a perfect 10% correction before turkey day. It's hard to find a year when S&P doesn't touch the 200 day.
It's been tough as I went long SPXU at ES 1727 on this latest run up. Thought it was already crazy how high it'd gone from the 1640 not even a few weeks before.
I think that 1550ish area that was bounced off of likewise left one of those big exposed wicks that needs retesting. The way I see it on the chart, 1493 or so ES a target within 6 months.
I like 1800-1850. The inflation adjusted peak before the last crash. What makes you think 1950?
I think we get a scare correction in the 1820-1840 range. Mainly to balance the Dec 13 option books. 1950 is year end, my eventual target is just north of 2100. They simply can't stop printing now. I think we get there either inflation actually starts to show itself in the "official" numbers or it becomes apparent to the lemmings that the emperor has no clothes. 2150 on the S&P also lines up nicely with the Nasdaq retesting the old bubble highs
"investors" - LMFAO!!!! kind of like "markets".
LOL!
ES at 1751; my latest shorts are at 1761; so I'm still alive. This is the fourth time; now. I own myself about 19 grand from playing with this bitch; I hope the fucking thing goes in the tank pretty soon.
Massive support in the 1748-50 area from a trend line going way back. We bounced it twice today. If we get through that you will be looking good
The taper is not the issue here. It is the 10 year yield > 3% that will trigger the mayhem. The FED already lost control. Irrelevant.
That will just trigger more Yellen bucks or a military "intervention". I haven't seen any evidence they've lost control...yet
anything over 2.0% on the 10Y UST is proof they have lost control of the bond market
Fed needs to stop QE altogether to have a chance of yields getting back down there
We've now been in the neighborhood of 3% twice. Once there was Syria that moved us lower and then no taper. I'm not sure I'm following as to why ending QE would get us closer to 2%. I think almost everyone Keynsian, Austrian, Anarchist, Realist or otherwise would say that removing the largest buyer of bonds by far would make bond prices go down and yields go up
Bill Gross thought that, too.
http://www.marketwatch.com/story/how-to-know-if-bernanke-failed-2013-11-01?dist=countdown
The QE money "printed" by the Fed has no credit multiplier. It is designed to be captured by the Federal Reserve Bank of New York via interest on excess reserves, which is higher than fed funds rate for a reason.
If the QE money is not lent in the inter-bank fed-funds market, as excess reserves used to be lent before there was interest paid on such balances, it does not multiply in a factional reserve banking system.
Both monetary velocity and the credit multiplier have been intentionally lowered by the very mechanics of QE. They will not rebound on their own. Simply put, both the credit multiplier and the velocity of money are a function of QE. The more the Fed does QE, the more they go down. (For more details on the mechanics of QE, see this missive.)
QE is a game of interest rates, not the quantity of money. It is a bit surreal to watch the mechanics of the U.S. Treasury borrowing excessively in order to keep the economy afloat; the Fed dominating the Treasury auctions in order to keep long-term interest rates subdued, after which, the Fed pays 25 basis points for its QE excess-reserve funding, only to take in the remaining coupon interest from its giant fixed-income portfolio, aka the Fed's balance sheet, and remit it back to the U.S. Treasury in the form of an $88.4 billion profit for 2012.
QE is the largest carry trade in the history of finance, the success of which will be known after it is completely unwound, which will not happen for a few years after Chairman Bernanke leaves. I believe that with QE, Chairman Bernanke tried to get the U.S. economy to re-leverage, or at least stop if from de-leveraging. Regrettably, I have to report I do not believe he has succeeded on that front.
The total leverage in the U.S. economy has begun to fall again, coming in at 345.5% at last count. Total leverage in the economy is simply the sum of all credit market instruments in the U.S., total debt if you will, divided by GDP. The total leverage in the economy doubled in the past 30 years and peaked at the onset of the financial crisis, after which we began a process of de-leveraging, or falling total leverage. The U.S. economy registered rising leverage in Q3 and Q4 of 2012 but has again begun to de-leverage in 2013.
In the grand scheme of things, this renewed de-leveraging may seem like a blip on a long-term chart, but I believe it is what keeps Ben Bernanke up at night, for if it continues, it will likely prove that QE under his tenure was a failure.
Another way to think of this rising-leverage ratio is that it takes ever-increasing amounts of debt to produce the same unit of GDP, where the level of total debt in the economy goes to the stratosphere, while GDP is subdued. That rising differential between total debt and GDP has been a source of prosperity for much of the past 30 years, and QE is a maneuver to get it to move in the "right" direction.
That is a whole bunch of useless verbage. You could simply say QE is the continuation of a circle jerk that has worked for 30+ years. Will no longer work without killing the petro-dollar.
rock and hard place bitchez. power and control, the status quo must maintain power and control over real resources (including the human kind)...
for at the end of the day any person with a lick of common sense knows that you need real resources and energy in order to actually create anything of real value.
fuck the mother fucking paper-pushers and their financial "products" of mass destruction...
same as it ever was...
Yeah, I hate it when educated people talk!!! Everything is stupid that doesn't help me! I own gold, so I want everything to crash! Who cares that a gold controlled monetary system would have a worse effect than a fiat based one. None of the corrupt wealthy I bitch about would possibly have my genius foresight of buying gold!!! So certainly the power balance would shift to people like me! And, the best part is, we could have more wars! Since wealth is stored in physical form, we would finally get a reason to invade and devastate massive populations to take their wealth. What a great system that would be!!@#!@#!@$@$#%%$&( W^)$+VUIDSFJ fuck you.
My what an intelligent response. < sarc off >
That which cannot be sustained, won't be, no matter how much you cry and whine about it.
Why would falling bond prices (rising yields) indicate a taper? Haven't rates gone up during much of the various iterations of QE, especially more so in the last year?
In a "debt is money" system, sovereign debt must increase, period. It's the cost of the new debt that will be a problem now...
It's really psychological - the Fed is by far the largest buyer of bonds right now. If they start to indicate they will not be a buyer of last resort then liquidity will dry up and bond prices will go down. Yields have risen during QE only in anticipation of the earlier ones ending or this one being tapered
NDXTrader,
You're probably right. However, if tapering ended tomorrow, don't you think it's possible that a great transfer from stocks (lower prices) to bonds (higher prices/lower yields) could occur?
I hear what you are saying - that and the expectations of slower "growth" could see a temporary decline in rates. But I think the Fed has become the bond market at this point. Their imprint was smaller before and I do believe China/Japan/Europe will use any rise in prices to dump now. I truly believe the only way to keep rates low now is to print more
they never were in control they just said they were. once that belief is gone. poof
No worries, I'm waiting for Janet to pass the door so that I can hypothecate my London mansion in order to get a loan, so that I can pile on 3x ETFz.
The great rotation.
Friday trading has become nothing more than a rounding up and fucking of weekly option "traders".
Frankly speaking - may as well trade this bubble. From being 30% down YTD trading as a rational person (heavy on PM's and shorting bubble stocks) - I have embraced the bubble and I am up big time. LOL. I feel dirty, but sometimes you gotta do the obvious trade, even if it goes against everything you believe in.
Thanks Bernanke!
Fed keeps buying greater percentages of issued bonds.
tick tick tick tick tick tick tick