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"The House Will Likely Win"
Submitted by Lance Roberts via STA Wealth Management,
In yesterday's missive "It All Comes Down To This," I discussed the upcoming Federal Reserve meeting and the expectation that the Fed once again delays hiking rates due to global economic and market weakness.
With markets oversold on a short-term basis combined with a spike in volatility and bearish sentiment, a "punt" by the FOMC will likely spark a short-term rally in the market. Such an outcome would NOT be surprising by any means since the market has rallied the week of an FOMC "no hike" meeting since 2013.
However, those with a "bullish bias" should not become complacent in such an outlook as any rally will likely be short-lived. Let me explain.
A Change Of Trend?
As I have often written, markets do not rise or fall in a straight line. During bull markets, there are declines to previous support levels and during bear markets there are rallies to resistance.
Notice that at the peaks of previous bull markets, the initial correction looked much like all previous corrections during the bullish advance. The problem is that many failed to recognize, until far too late, the technical trend had changed for the worse.
Currently, it is being argued that this correction is just a blip in an ongoing bull market. However, there are plenty of markings that suggest that the current correction may have been the start of the next cyclical bear market.
A 2-4 Week Rally
As stated above, FOMC meetings that have NOT resulted in a "tightening" of monetary policy have consistently ignited short-term rallies in the market. As shown in the two charts below, sentiment and volatility have reached levels suggests sellers, at many levels, have been exhausted.
While the volatility index (VIX) is still suppressed relative to historical corrections, it is at the highest level since 2012. When combined with the most bearish sentiment reading we have seen since the summer of 2011, and a currently oversold market condition, the ingredients needed to fuel a short-term (2-4 week) rally are present. A delay by the Fed could be the spark needed to bring speculative buyers back into the market.
The chart below shows this oversold condition and is the same “potential reflex rally” chart I have posted for the last four weeks. The blue dashed line that I drew immediately following the initial slide has been marking the exact “reflex rally” I predicted at that time.
As I addressed last week, any rally back to those resistance levels will likely fail given the deterioration in both technical, fundamental and economic underpinnings. A failure at those levels will also be consistent with the previous transitions of "bull markets" into "bear markets."
Deja Vu All Over Again...
That transition was noted by Henry Blodget recently:
"As markets have calmed, the debate about whether we're in the early stages of a full-on crash has quieted.
But don't get too comfortable. This is still an open question.
At times like these, it's helpful to get a historical perspective. And what you find when you do that is that no one who is concerned about a crash should take comfort in the market's recent stabilization. Why? Because market crashes take time.
The market's recovery from the August lows might, in fact, be a 'buying opportunity' that is the beginning of another surge to record highs. But it also might be one of those bear-market rallies that have punctuated nearly every major market collapse in history."
The following three comparative charts support his view. Notice that following each initial decline there was a subsequent "suckers rally" that failed. It was the last opportunity to exit the market before the "crash" occurred.
1987
2000
2007
As noted by John Hussman:
"Market crashes 'have tended to unfold after the market has already lost 10-14% and the recovery from that low fails.' Prior pre-crash bounces have generally been in the 6-7% range, which is what we observed last week ..."
Is this the beginning of a "market crash?" Maybe? Honestly, no one knows for sure because crashes are fueled by a panic-driven selling exodus from the markets generally due to some sort of financial shock.
However, the markets are certainly set-up currently to trade within a more "bearish" trend which puts investors at risk. How much risk? That is something that John Hussman also commented on in his latest missive:
"We fully expect a 40-55% market loss over the completion of the present market cycle. Such a loss would only bring valuations to levels that have been historically run-of-the-mill."
Even if such an outcome does not occur, it is quite likely that given current valuation levels, deterioration in earnings growth, and a slower economic environment, that forward returns will be substantially lower. In other words, the "risk-reward" ratio for being an aggressive investor at this point in the market/economic cycle suggests that the "house will likely win."
It is Deja Vu all over again...
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Sell the rallies.
And just like in Vegas, the laws are skewed in favor of the house.
"We don't need no water, let the mutha fucka burn."
Don't be short this market on Thursday, Janet is about the slap the shorts in the face when there is not rate increase... ZIRP forever until we have Zimbawe bucks
We went below 20 on multiple % of stocks above/under 200DMA with economic conditions rapidly deteriorating. Anyone not positioned accordingly is going to get their surprise face ripped off and nailed to the wall for posterity.
The FED is in a fighting retreat, but sooner or later thing will collapse and all the money in the world won't fix it......
The only quetion I have is -
What institutions will be sacrificed for the criminal good?
Morgan Stanley and Barclays are candidates I hear tossed about.
Very good, men will continue to invent new forms of evil; as it is written so it will be.
Whichever one has large amount of criminal fines outstanding that they are unable to pay. Nothing quite as satisfying as getting a 3rd party to pay for wrongdoing.
Barclays has my bet, though I'd love to see DB...
Let me make it easier; QE1 ,2 & 3 with ZIRP is the only bull in this market. Since QE was removed on the forefront (still going in in the background), the only piece of bull left is ZIRP. If the FED raises rates, then it will be to crash this Bull. The run up in the market is simple the anticipation the FED is on "Market Watch", which is claims it does not do, yet the Central banks have been actively interfering in all the markets. Blah, blah blah and more blah!
but but this time is different!
You too can play along.
Get ready for one hell of a dip.
But not before they grap the shorts by the testicles one last time.
Ahh, good times...
It was almost funny to see a little rip this morning.
No Shemetah here. DOW up, Metals Down... Fuck
Be happy. BTFD
Dont hesitate. Btfd while ya can. Ignore technical canalysis
If the Fed doesn't raise rates the market may jump 1000 points...who knows. But this sure feels like a 'Sell The News' event no matter what happens. It feels alot like the market just wants to roll-over.
Or, are we slowly settling into this humdrum, not bear or bull market, economy with little growth. The infamous "new normal" with a taste of disinflation > deflation?
Sure the house will win. It has inside information. Just look: Today, right now, the 10-year yield is up 3.81 percent, the dow is up 221.
This mean the insiders already know the decision from the fed meeting: NO RATE HIKE.
Frontrunners have spoken.
You have to suck up.
You have to endure austerity and debt.
You have to suffer for the mistakes of Wall Street.
You have to suffer for the mistakes of the investor class.
You have to suffer because billionaires lost money, because the big banks can't cover their losses.
You are going to suffer.
You will atone for their misdeeds.
You can start by gathering up your belongings and moving out of your house.
this mini-rally today makes me wonder who already knows what's going to happen thursday and/or what's their motive? front-run a non-hike ramp or bait the muppets into last minute buying before a liftoff selloff? just seems like a strange time for 1+% move in either direction unless somebody already knows the outcome (ok, who are we kidding? but again, who & why?)
Talk of a rally...has the underlying economy improved...nope..still a market dependent on stock buy backs and Fed injections of liquidity...so it is to the moon I guess.
All I know is that I ain't gonna buy this market in hopes of 3% net gain yearly after all the bullshit the blood suckers pul off. Sell the rallies and wish you got out in July. You know a mosquito usually shits on you while it sucks your blood? It's true....... use your favorite search engine.
Good advice, the sun may shine or it might rain. That was realy helpful.
Henry Blodget: The market's recovery from the August lows might, in fact, be a 'buying opportunity' that is the beginning of another surge to record highs. But it also might be one of those bear-market rallies that have punctuated nearly every major market collapse in history."
Time is soon. Now that CEO cronies have put companies in debt with buybacks, FED will raise rates, market goes to zero, bondholders (FED/banks) take posession of companies and real estate after worldwide defaults. System is thus reset with banksters holding all corporate and real assets. rinse and repeat in 70 years.
Just like the TV character Sgt. Schultz I know nothing. But the nothing I know today is less than the nothing I knew yesterday. It is hard to know anything with the so much hidden. Any gambler should know the house always wins because you're playing their game and their odds are 100% they'll clean you out when you play against them long enough. That's why you don't play against the house. If you're going to play you play heads up.
And in chess about 35% of matches end in a draw. A lot of loss and no gain just to start all over again and then to start again with a less than 1 in 3 chance of winning. Sounds like a lose lose to me. Or if you're a computer and play tic tac toe against yourself you realize quickly nobody really wins in the end. When all sides come together and unite only then can everyone win. This includes polar opposites. I've proven this repeatedly in programs I've led to great successes over the years.
Everyone here should be familiar with this similar quote “On a long enough time line, the survival rate for everyone drops to zero.” - Charlie Palahniuk
The hundreds of signs and symbols shown in advance of IX XI told everyone what was going to happen. At the time I and most of us probably missed most, if not, all of them although maybe not subconsciously. I know nothing but my comment the other day sure seems to have struck a nerve based on the subsequent response. So apparently I know something. But with all the layers of hidden information and fighting it is impossible to solve the biggest global problem facing all of us.
Another recent clock picture again reminded us it is 2 Minutes to Midnight. Coincidence or just another pre-event reminder like IX XI?
http://www.zerohedge.com/news/2015-08-17/8-reasons-why-telegraph-thinks-...
We will continue to have Deja Vu endlessly until everyone is on the same page cooperating 100% with each other and with 100% of everyone's information revealed and made available. No jockeying for position, power or a grab for glory at the end by anyone. Because any of this will cause failure for everyone.
That's a tall order in a world where everyone controls everything down to the finest level of detail so that they can preserve the small portion of what they perceive as power. Why do you think I regularly use children's examples? I'm holding up a mirror in the hope that those that enjoy, laugh and mock those that don't know about these boring endless repetitive and predictable games see the reflection of themselves and reconsider their path.
Only when these things above are complete will a global solution be possible to prevent further Deja Vu and the same old song and dance. Keep the market stable. Fight the fires together as they arise. And when everyone is on the same page and ready that will be when I can add the most value to a solution. I'll skip the examples this is already too long.