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Guest Post: By the Pricking of Equity's Thumbs, Something Wicked This Way Comes
Submitted by Charles Hugh Smith from Of Two Minds
By the Pricking of Equity's Thumbs, Something Wicked This Way Comes
Sentiment is awfully complacent, and volatility is low. Smells like May 2011--or August 2008.
Equities look ripe indeed for an "unexpected" bloodletting and resultant wicked correction. The general outlines of a equity bubble awaiting a nice little thumb-pricking are all present: high levels of confidence and complacency, massive divergences and a disconnect between the global economy and U.S. equities.
It's certainly possible that the stock market will reward the 83% bulls and further punish the 17% shorts, but it's ever so much evil fun to inflict the most pain on the greatest number of participants. If Mr. Market reverts to his usual evil ways, it's the bulls, slumbering a la Pearl Harbor, 6 a.m. 7 December 1941, feeling little need for hedging against any downside, who may hear "tora tora tora."
It's possible that the U.S. economy can keep logging positive statistics even as the global economy spirals into depression. Never mind that gasoline consumption has plummeted or that savings have dropped or that austerity and higher debt service payments insure a deep recession in Europe; and who cares about China's real estate bubble popping? None of that matters here--or so it seems.
Heck, maybe we've entered a new golden era of low volatility; that's possible, too. Everything's fixed, and the U.S. has successfully decoupled from the rest of the global economy.
Based on sentiment and volatility readings, those are the consensus views. Reportedly 16 out of 16 stock market mavens see nothing but rally ahead--and we all know unanimity is astonishingly accurate in predicting stock prices.
The U.S. dollar has traded on a see-saw with equities for years; recently, both equities and the dollar have surged. So either the see-saw has broken or this is the mother of all divergences.
Maybe short interest is at recent lows because it's now painfully obvious that equities have broken out into a new rally and only fools feel the need for hedges against downside.
Commodities such as copper have led the market for years; recently they've rolled over while the stock market surges higher. Once again, either historic correlations have been decisively severed or there is a gargantuan divergence that's about to be resolved.
Sentiment readings are firmly in extreme bullish territory, but hey, maybe the market will reward the majority with a rally that feeds on rising complacency.
And maybe the truism "volume is the weapon of the bull" is also voided, as low volume rallies may well lead to lower-volume rallies.
The market has been acting as if all these signs are bullish. Maybe, maybe not. Meanwhile, the witches are cackling quietly over their bubbling brew, and it certainly sounds like some evil is being conjured up.
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I'm leaning towards 'a gargantuan divergence thats about to be resolved', probably in very painful and bloody manner as well.
Besides, gargantuan is such a cool word, rarely does the opportunity arise to use it effectively.
I always thought a guargantian was some kind of lizard...
... or some kind of spider.
Wrong on both counts, actually giant ape-like lab monsters.
http://www.imdb.com/title/tt0060440/
or hybid tropical fruit grown in the former nuclear tested south Pacific atolls.
Yes, gargantuan is a very cool word. Last time I heard it used was in the movie Kill Bill. Perhaps it will become the buzz word of 2012: gargantuan divergence, gargantuan deficit, gargantuan ignorance of politicians, gargantuan bankster ego's, or right here on ZH as... gargantuan bitchez!
For a relly great read try Rabelais, a french monks account of Gargantua and Pantregul, a great 16th century satire. Milestones
I don't much like equities, but anyone thought about buying some KBR calls?
If WW3 is a foregone conclusion, it might be a good idea to bet with the criminals?
"mr market" is wiping out entire countries phuck face. Still ain't good enuf? Go ahead..."short at the top" ass wipe. WE ALL PLAY BY THE SAME RULES in this game. HOW we play by those rules of course...
Nah, the market isn't wiping out countries, just worthless fiat currencies. People always rebuild from the ashes eventually.
Fair is foul and foul is fair
those damn witches from Macbeth
"Fillet of a fenny snake,
in the cauldron, boil and bake."
Copper is down because construction is down world wide.
What's the worry Chuck? Let's just snap our fingers and drop the price of oil to $25 and we'll be fine.
YEA that was a hell of an idea...lol.
Thanks for the reminder.
"We're Just Going To Kill the Dollar"; Kyle Bass (11/7/11 interview) 1/2/12
http://www.youtube.com/watch?v=7K-R7VSmQRM
tough to short when you hear thing like this from our policy makers
And then?
and then new currency and repeat
IBM looks to have a bit of an HFT air pocket under it. Anyone doing any work on individual stock price vs. volume with an HFT influence ? Could something as simple and basic as OBV reveal the effect ?
IBM vs. it's OBV
http://3.bp.blogspot.com/-gmwGKDQX3MM/TwdOff4rMkI/AAAAAAAAADk/57IwCBOGFh...
They succeeded in building a smarter planet - or at least a smarter HFT system. That's whats keeping them afloat.
That's what I'm working on - I'm an IBM-er!
While the market looks like it's treading water under the surface there seems to be a lot more appetite for risk. The NFLX/BAC's of the world are catching some bids and financials are clobbering utilities for the first time since July. I bet the next leg is up, but you might want to sell this rally.
What is this "Market" you speak of? Markets are not allowed to be "Markets" unless the NY Federal Reserve President/PPT's "ESF" says it shall be so... and removes itself from market participation.
I noticed he forgot to put the quotes around his phrase, "fixed" market.
"Commodities such as copper have led the market for years..."
Obviously construction is down and it is the biggest user of copper.
But here is a less obvious question about Dr. Copper: has anyone bothered to chart the amount of copper being replaced by cheaper alternative materials? For example, rarely do you see copper gutters being used on new homes. Plastic pipe is used whenever possible in lieu of copper, new copper phone lines are not being strung as more folks use cell phones, etc.
Just wondering how much less copper is being used not because of our lousy economy but because it is being replaced or rendered obsolete (such as the case of cell phones).
it's not obsolete, those cheaper alternatives all break, or cause health problems.
If anything it's controlled obsolecsence in housing, very few fixtures are made using brass or copper anymore, it's mostly extremely fragile/thin cast steel or plastic, which with care can last for a few decades(depending), as opposed to generations..
Realize though, that this is driven by personal economics. It does a person little good to buy an expensive light fixture that will last hundreds of years, when a cheap one (or two) will provide the person with the same utility over their lifespan for far less cost.
I've got a shelf full of old computer parts that will likely still work 20 years from now, but how much utility can old 386 PCs provide these days? Not enough to justify using them.
Some obsolescence is a good thing.
Load a Linux distro on them '386s and turn them into headless servers...
Oh but how can that be? They are more green, they must be better. They at least do not make giant holes in the ground!
</sarc>
Other than a historic restoration (gov funded, of course), I haven't seen copper gutters in forever (so I'm not sure how applicable that stat it). Household water lines though, have nearly all been made of PeX around here since the time when copper took off.
A legit question, but new uses are found for it, too.
Motor windings on electric cars.
Armature windings on wind electric gizmos.
What will happen to Paper Gold and Silver (CEF) during this projection?
If you're looking at the us dollar index, I don't think you are seeing dollar strength there, only euro weakness.
It is another religion where faith is required to be given to a known confidence trickster who has always rigged the game and raised the percentage they skim year after year.
It's a Jim Jones religion comedy on an industrial scale with thousands of preachers handing out koolaid to their clients who believe and are happy to kill themselves for a profit. They will never wake up.
Extremely difficult to fight the tape as far as equities are concerned. The credit markets and the euro are telling a different story. Equities almost always catch up. For equities to really roll over, there has to be an unexpected event that catches the market by surprise. The eurozone problems are thought to be baked in by the so called pundits and the thought is that the can will continue to be kicked more and more. Printing money, accumulating debt....
We are looking at important elections here and abroad this year. Therefore the critical issue is timing. My guess is a bank run on a european or massive social unrest because of austerity measures being instituted will be the first shoe for the equity markets. Just amazing how the European banks are levered 40x. The dike has too many holes and the profligate idiots are running out of fingers.
Don't bet on the U. S. decoupling from the global economy. There a ravenous hunger for liquidity, and the future of U. S. exports are tied to the global economy. Now, unless people really believe that it's possible to print out of this debt crisis, go long on leaf blowers and toilet brushes. Everybody is going to need them for work.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
Market beyond broken,,,volume blows..that spike down in the EURO is scary......its a ghost town,,
never been good at picking tops,... but bottoms i can hit with innate accuracy - having patted myself on the back, [excuse me while i put down my horn] these are not normal times, nor will they ever be again in the foreseeable future
indeed , we are in a new financial paradigm - 'robo-algo-hft-stewardship',... where humans have been taken off the playing field - no need for carbon-base fossils when we have nano-seconds silicon composites to simplify are already dumbed-down existence,... eh?
welcome to the 21st century 'New 'Fat-Finger' Patented Redux"!
the 'nwo' markets are truly independent today, and if the central banks say 'full steam ahead' its full steam ahead --- no time for dithering just go for the ride and make some dough in the meantime before the next stop which ain't for awhile
jmho
Ps. barclays gave us the 'atm' in the 20th century,... fast forward - barclays gave us the 'etf's & hft's' in the 21st century - what's next? a universal trading platform annexed to the "United Nations/ World Trade Building" in brussel's,... or for that matter, sweet, sweet basel?
Just wondering how much less copper is being used not because of our lousy economy but because it is being replaced or rendered obsolete (such as the case of cell phones).
Rosie -
Actually, copper is widely used in cell phones. Copper is one of the most used industrial metals (in tons annually). While there are replacements for plumbing fixtures and even for some of its electrical systems use, more modern uses include electrical relays, heat sinks in computers, fungicides, roofing material (aforementioned fungacidal properties)and it is also used in ceramics applications. With rising population over the next 30 years (expected to top 9 billion) I cannot imagine a scenario where copper is being used "less".
It is also important to remember that of all the metals that most effeciently conduct electricity (copper, silver, gold, and platinum) copper is still the cheaper alternative that gives cost effective transmission and does not oxidize at a high rate if properly installed and insulated. With the large population already on the Earth seeking to upadate (or to create for the first time) their infrastructure, I say copper has nowhere to go but down in supply and up in price. Remember your Econ101? Infinite wants and Finite supply.
The problem with the "next stop" is much like that of a 787 in a nosedive - the acceleration down might make you uncomfortable, but the stop's a definite killer.
Wow, really awesome analysis. Very scientific. SO exactly where does the downward sloping witches' brew and upward sloping "tora, tora, tora" intersect???
I also like how you have specified the timing that the cauldron will start bubbling. Awesome. This post will be useful for future analysis of the exact pukepoint of society's stomach for empty rhetoric.
I think the market is making a 'wings and fuselage' pattern with a definite similarity to the market on December 6th, 1941. I think if we consider the trajectory of Wicked Witch's flight in the 'Wizard of Oz' as a broad indicator and then try to match the number of cackles in the movie to the number of stocks that broke their 200 DMA to the downside, we can definitely see a pattern developing.
Don't try this yourselves. I'm an expert!
"The Market" ... Bernanke has proudly testified that The Fed has targeted volatility and the wealth affect of higher equities. Have no fear children we can fix it so the market only goes up. The leadership groups within the market are the ones chosen to demonstrate the "recovery" Housing, Retail, Insurance, Finance ... why else would the home builders and retailers be outperforming miners and oil service? Its a sick pup.