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The Rubber Band Is Stretched - Will It Break?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
A rubber band can remain stretched for some time, but it takes some force to keep it stretched.
The consensus is anticipating a smooth sleigh ride for Santa's traditional stock market rally from November to year-end. But the rubber band of the current rally is looking quite stretched, and there's a distinct possibility the rubber band snaps and Santa's rally hits a rough patch and overturns, distributing lumps of coal rather than additional equity gains.
Exhibit 1: The Russell 2000 index (RUT). It's hard not to notice that MACD is about to cross in a bearish signal, and that the stochastic has already crossed and is heading south.
Then there's the open gaps below, which tend to get filled despite endless claims that "this rally is different." Yes, of course it is.
At the previous top, the RUT noodled around in a trading range for a couple of weeks, reaching for a breakout that quickly failed.
The RUT has repeated the pattern rather neatly: two weeks of going nowhere (a.k.a. distribution), and a breakout that quickly reversed.
It's also interesting that the RUT's runs seem to last around 20 days or so. The downturn in October lasted about 22 days, and the current run-up is stretched tight at 24 days.
Exhibit 2: the volatility index (VIX). As Zero Hedge has noted, the VIX exhibits a peculiarity at the close of each trading session: it drops precipitously in the waning minutes of trading, and equally magically, stocks pop up to close positive for the day.
Confidence Guaranteed By A 3:58PM VIX-Slam.
That this sudden slam at the close has happened every day this past week must be coincidence--right?
Meanwhile, we see the stochastic has turned up and the MACD is poised to cross as well. The huge gap yawning around 24 is meaningless to complacent kiddies awaiting more equity-gain goodies from Santa. What's the basis of this confidence that volatility has been eradicated? This rally is different. Yes, of course it is.
Mr. VIX keeps getting slammed at day's end, but he still managed to notch an uptrend:
A rubber band can remain stretched for some time, but it takes some force to keep it stretched. In this case, the force is the daily VIX body-slam and the resulting pop up in equities. This has worked to keep RUT and its cousins aloft for several weeks of going nowhere, but the chart suggests all the kiddies who are supremely confident that Santa will deliver more equity gains might find their complacency is not rewarded.
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christmas is cancelled
How many more rabbits in that hat, Bullwinkle?
https://www.youtube.com/watch?v=kRW7pITY5Cg
My Christmas budget for the last 4 years is US$0.00. No change this year as well.
IMHO I still believe this Ponzi still has a little life left with 2015 as the time for the fireworks to fly. But heck what do I know.
Way longer to go. They still have to try negative interest rates, savings confiscation, price controls, war, etc etc (things we haven't even thought of). Maybe by 2030 it collapses.
Thanks for the laugh!
Santa Claus Rally, biotches.
Hedgies way behind in performance and their kids still want the GI Joe with the Kung Fun grip. If not, redemptions will be epic.
They should just buy SPY and give some SPY to their kids for Christmas. Duh.
Ok CHS so give us your future projections of those charts for the next 2 months based on all those gaps, MACDs and oscillators.
The question has been "when" for quiet a while now. That's the really hard part to get right thought isn't it?
The rubber band has been stretched so far, for so long, it has lost all elasticity.
Young's modulus, Bitchez!
"A mighty limp rubber you have there, Lloyd."
Off-topic:
"Israeli Prime Minister Benjamin Netanyahu appeared on CBS '" Face the Nation "Sunday morning, where he denounced alleged cooperation between the US and Iran in the fight against the Islamic State (also known as ISIS or ISIL) jihadist group.
Read more:http://www.businessinsider.com/netanyahus-warning-for-the-us-dont-get-tr..."
In other words:
US and Iran should not kill our terrorist ISIS.
hehe.
"The American leader went off w/o orders again and consorted with the Persians.
As PM of Rothslandia, I will reign him in."
" Rothslandia" I'll have to remember that one... Nice work.
There is a big difference between what economists think that people will spend and what the population thinks about spending.
hehe.
Christmas gifts do not pay my bills.
hehe.
wow unbelievable a suckers rally it seems glad my money sits in hard core metals in the physical nature. God help the peeps that want to believe in thier paper
Guns, PMs, land, lead, and heirloom seedz.
Bit-Chez!
I got my blog up. I feel like folks got all butt hurt over my last post, which was satirical in nature and not serious. I don't really think anyone should be publicly shamed for thinking the market will go down or having a bearish view or being wrong. lol.
Here's my take on the entire investing/trading industry is one sentence: Being wrong is inevitable; staying wrong is a choice.
www.thecrucible.us
or the direct link:
http://thetradingcrucible.blogspot.com/
"Uhh, the rubber broke, Reggie."
"Shit, do I have AIDS now?"
"No, Obola."
The Bots got this one till they dont.... The farce called a market is a living breathing experiment in Chaos Theory.... A Bot in Ireland Spits up an SSD and the thing goes to shit... amazed that they can keep this going without POMO....
The sooner the better, running out of non-GMO popcorn over here.
How can it break. FEDs got their computers jacked in.
I'd venture to say the " Laws of Vulcanization", are very close to the limits of their polymer bonds. no pun intended/s
The rubber band analogy is appropriate and dovetails with chaos theory of all systems as they increase in complexity and size over time. Whatever happened to "Black Swan" theory of market collapse to tick the first domino? Pre-2008, if there was so much of a whisper of another hint of military conflict or even a bad storm, it would knock down the S&P. Now, it barely budges down on the news but once they whisper that the conflict is not really that bad or will solved or the storm is over, the market ramps way up above where it was before the bad news. Can they keep levitating it forever with their magic liquidity algos and S&P emini/Treasury bond circular or fake/money laundering? I guess that is why we never hear about the Black Swan event anymore.
We have been lulled into complacency by the extraordinary actions taken by central banks and governments over the last six years. Have these actions really worked or merely masked over major flaws and problems? I contend that by not demanding the right kind of growth and by throwing money at problems we have only delayed and added to festering issues that face us in the future.
Modern Monetary Theory often referred to as MMT by its many believers is to remove much of the risk ahead and guarantee that we will always be able to muddle forward. This is a economic theory that turns to newly acquired tools like derivatives and currency swaps that are suppose to allow us to print and manipulate away problems. This has created an "almost surreal" feeling of indifference towards reality. More on why debt does matter and the system is about to fail in the article below.
http://brucewilds.blogspot.com/2014/01/have-we-been-lulled-into-complacency.html