David Rosenberg: "It Was Black Friday Before Black Monday"

"It could never happen again..." is the constant refrain of the asset-gatherers and commission-takers around the world as they prepare to defend their livelihoods from yet another delusion-clarifying plunge back to reality for stock prices.

Well, after this week's bloodbathery - and tearing down of the social-media-will-remake-the-global-economy narrative - many are starting to recognize that all is not well... and perhaps, just perhaps, the support pillars of this flimsy potemkin village we call 'the stock market' have already crumbled...

Dollar funding markets are extremely stressed and The Fed's balance sheet contraction (and its implicit tightening of liquidity) is not helping...

 

Gluskin Sheff's David Rosenberg has been very vocal  about his fears that market participants are blindly ignoring the similarities - fundamentally, geopolitically, and technically - to 1987.

He previously tweeted..."Hmmm. Let's see. Tariffs. Sharp bond selloff. Weak dollar policy. Massive twin deficits. New Fed Chairman. Cyclical inflationary pressures. Overvalued stock markets. Heightened volatility. Sounds eerily familiar (from someone who started his career on October 19th, 1987!)."

And in his latest tweet, Rosie warns..."It was Black Friday before Black Monday."

Suggesting investors "Look at this memorable clip from the legendary Louis Rukeyser’s Wall Street Week from October 16, 1987.  Focus on what Marty Zweig had to say, and pour yourself a strong one as you do!"

Marty starts around 6 minutes in...

David may be on to something... "you are here"...

 

All of which confirms our recent note that JPM continues to view 1987 as an important analog for 2018, "as we anticipated a similar cross-market dynamic heading into the year whereby interest rate and curve volatility could be a primary driver for volatility in the equity market."

To underscore this, the technician notes a surprising similarity namely that to date, the 2018 pullback has traced out a similar trajectory as both the Apr-May and Aug-Oct 1987 corrections:

"In 1987, both correction periods traced out a remarkably similar path up until about day 35 from the peak. In the Apr-May period, the S&P 500 had established a well-defined range support zone with the initial pullback. The market had gone on to retest and hold that support in late May ahead of a powerful 20%+ rally to the Aug peak. The initial drop from that peak into Sep 1987 established range support in Sep, just as the market did in spring. Except the mid-Oct retest of that support failed to hold."

In other words, in 1987 it was roughly 40 days past the prior peak that the S&P decided whether to keep going higher, or crash. If indeed the current market is an analog, the S&P faces a similar choice now.

Some further observations from JPM:

We suspect that a confluence of stop orders through that support and the 10% peak to trough correction threshold triggered or at least contributed to the market dynamic that defined the three-day crash event. It is also worth  noting that the aggressive trend to higher Treasury yields and curve steepening reinforced the equity weakness until  the May and Oct 1987 bottoms. Even during the brief crash episode, the trend to higher rates reinforced equity weakness up until the last day of the meltdown. As far as that cross-market driver goes, the aggressive trend to higher yields and early-2018 curve steepening moves have in part reversed, so we see a low probability that the  equity weakness resumes with the same momentum it had in early Feb.

Unless, of course, it does... which is why JPM urges to keep a very close eye on which way the S&P will break next. And while another ramp higher obviously removes the risk of another "1987" event, a move below the 2,610-2,637 support confluence would leave the market susceptible to a retest of the key support in the 2,500s that held in Feb, according to JPM. Hunter's recommendation: "we suggest at least partially reducing the new long exposure accumulated during the Feb turn and on the early-Mar pullback if the market breaks below 2,610."

The 200- day MA has risen to 2,585, which sits just above the 2,541-2,557 Oct-Nov 2017 range lows and 2,533 Feb 15 trough. That area also roughly lines up with the 10% peak to trough threshold, an area that marked a floor for the majority of late-cycle drawdowns. Even if further weakness materializes, we think the market will hold that area, but would wait for a reversal pattern to set up before suggesting re-entering any long exposure reduced on the break below 2,610. Longer-term support rests at the 2,463 Jan-Mar equal swings objective, 2,417 Aug 2017 low, and 2,400, which marked a key inflection in 2017 – first as resistance and then support.

All this is summarized in the chart below:

Comments

Fuck you Tyler FireBrander Sat, 03/24/2018 - 13:41 Permalink

Pssst...

Trump is not, did not, start a "Trade War".

He is launching an offensive in a "Trade War" started under Bill Clinton (NAFTA) in which the USA has not simply "lost battles"; we've for the most part, surrendered without a fight.

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You,  and  everyone  else  neglect  to  mention  GATT,  Generally  Accepted  Trade  and  Tariffs,  is  a  big  deal  as  well,  all  backed  by  Demo's  Tom  Foley,  with  full  support  of  the  Snake,  Republican  Newt  Gingrich.  At  some  point  in  time,  people  will  figure  out  no  difference  between  the  two.  up  voted  you.  cheers. 

In reply to by FireBrander

DownWithYogaPants Fuck you Tyler Sat, 03/24/2018 - 14:37 Permalink

Oh how I miss Teddy Rukeyser's George Washington come over.   Quite the asymmetric smile like he's all 1 brain side.  Talk about nostalgic.  NPR went to all fat black lady hosts with no knowledge of topics.  Just the NPR attitude of whispering liberal voices that go tisk tisk.

I think the Federal Reserve is implementing the Purple Revolution that its masters have instructed it to do.

Trump better issue United States Notes and put them out of business.  

Did you see the shoulder pads in that gals suit? Yowy zowy she looked to be wearing football gear.

In reply to by Fuck you Tyler

JRobby DillyDilly Sun, 03/25/2018 - 11:53 Permalink

"Asset Gatherers / Commission Takers"

Right down there with car salesmen on the least reputable scale. 

Those paying attention will see that this arrogant shit show is going extinct now along with so many others. "Your book" is owned by "the wire house" it is their property and they will sue you if you try to move for the big up front and take it. Oh, they are cutting commission rates too.

(Laugh Track Deafening !!!!)

Because the crash is coming skimmers of fiat.

In reply to by DillyDilly

bshirley1968 shortonoil Sun, 03/25/2018 - 10:01 Permalink

Exactly. We may get an 87-like crash, but this isn't 1987 by damn sight.

Looking back at 1987, the world was young, economies were just being established, US dominance had only just been solidified over the Soviet empire that was about to fall apart. The future was bright and the excessive consumerism of "moar" was just beginning. In other words, there was real growth yet to be had in many markets. Technology was about to explode.
Today? Economy of the West, technology (at the consumer level, and the US empire are "long in the tooth". The "party" is over. My point? If we have another 1987 style crash, there won't be any coming back.....to a world as we know it.

In reply to by shortonoil

Rex Andrus Jeffrozz1234 Thu, 03/29/2018 - 17:55 Permalink

I am sorry you feel that way. The world is very hard. We fight a war for survival. Nice is a gift good people, always christian people, do for those who can't keep up. I am not nice Jeff, but I pay your bills. I just wish you could understand what this means.

Don't say that to me on the street.

In reply to by Jeffrozz1234

Rex Andrus rockstone Thu, 03/29/2018 - 17:16 Permalink

Dems fighting words. Donald Trump loves Carl's Jr. Western Bacon Cheeseburgers, Mueller. Fuck You SES. The President of The United States is eating. http://andy.puzder.com/

He got 2 scoops? Fuck you. If he asked you'd drop your panties, even if the world depended on you saying No. If he fails, we go all.

May the road rise up to meet you. https://www.youtube.com/watch?v=Pu94mWlgzMY

In reply to by rockstone

snblitz Savvy Sat, 03/24/2018 - 21:51 Permalink

Currently the US has a trade surplus with Canada

I am not certain why you keep posting that.

https://www.census.gov/foreign-trade/balance/c1220.html

There is no requirement that trade policy be "fair".

There is not even any ethical or moral basis for that.

You could label a trade policy "generous" or "advantageous" or the opposite.  But "fair" simply does not apply.

Let us assume you have apples and I have wood.

We either choose to voluntarily make an exchange or we do not.  "fair" does not come into it.

Are you going to say that it is unfair that I want 10 apples in exchange for my wood?  Applying the word "fair" in this context is senseless, a non sequitur.

In reply to by Savvy

swmnguy FireBrander Sat, 03/24/2018 - 21:46 Permalink

What do you mean the US "surrendered" on trade?  US Corporate interests got the trade terms they paid the US government to get for them.  US manufacturers immediately closed down US production and slashed their labor costs by some 85%, buying products made in Mexico, China, and places with even cheaper labor, like Vietnam and Bangladesh.

The US got exactly the terms we demanded and dictated.

Did you think those manufacturing jobs were going to come back?  Sure, as soon as the US worker can live on about $5,000 a year, at current valuations.  Or as soon as US Corporate interests agree to increase their labor costs by about 600%.

Meanwhile the damage has been done.  All that profit US companies earned got spent, by raising Executive Compensation to 250x-400x employee pay, buying back their own stock and other rat-holes.  The US middle class is disappearing.  The US consumer turns out to be the vanished middle-class employee, whodathunkit.

So sure, let's have some tariffs on imports.  All that will do is further raise prices for the US consumer.  Tariffs at these levels aren't going to make up that 85% wage differential.  Tariffs that would make up that gap would stop the US economy cold. 

In reply to by FireBrander