And just like that, the VIX index crashes right back to where it was before the late-January 10% drop in the stock market – a reflection that the remaining stock market speculators and hedge fund bots have been completely cleansed of any fear impulse that hit daytrader keyboards in the first quarter of 2018:
Hedge funds went from insanely short VIX futures to long VIX futures after the market had dropped 10% and the VIX soared. They were slaughtered on their shorts, now they are getting bludgeoned on their long position. But guess what? They went net short again about four days ago. Selling volatility again at the bottom of the volatility index. Not a good omen for perma-bulls.
The Dow has recovered about 56% of the decline that occurred from January 26th to March 23rd. Correction over and on to higher highs? Possibly. The Russell 2000 broke out to all-time highs starting in mid-May. The Nasdaq hit an all-time high Tuesday. Everything appears to be heading higher…or is it?
The Dow is being driven primarily by Boeing (BA), Microsoft (MSFT), Caterpillar (CAT) and United Health. On Tuesday, I calculated by hand that the big move higher by AMZN was responsible for 43% of the performance in the S&P 500. If AMZN had just been flat that day, the SPX would have closed lower from Monday instead of up 8 pts. By all indicators, the move in the Russell is being driven by a short-squeeze. TSLA was up $28 – 9.6% – yesterday because Elon Musk whispered the phrase, “Model 3 production target,” into the ears of the romance-starved Tesla bulls. Also known as a “shot of short-squeeze Viagra.”
When the market was plunging earlier in the year, the hedge fund bots shifted from insanely long to recklessly short. Now they are being squeezed.
The Italian debt and Latin American currency crises have not only not gone away but they are getting worse. As long as the reports don’t hit the headlines, the problems do not exist for moronic daytraders and hedge fund computer program news spiders.
Economically in the U.S. the bold propaganda-laced, heavily “adjusted” Government-manufactured economic reports continue to diverge from the economic and financial reality on Main Street. Housing, auto and retail sales are deteriorating now as the majority of U.S. households have found themselves stuffed like a French goose readied for foie gras production.
Of course, the smart money is not hanging around for Part Two of what’s to come. The “smart money index” shows that professional money is leaving the stock market at a rate that has only been equaled in the last 20 years in 2000 and 2008…
There’s no telling how much longer this insanity can persist this time around. But it brings to mind Hemingway’s description of how to bankrupt as conveyed in “The Sun Also Rises” – “Two ways: gradually then suddenly.”
By the way. Keep an eye on gold. The majority of the market looking to the sky for stocks and down over the cliff for gold, we could get a surprise move higher in precious metals and mining stocks.
Dave, I know your not a big technical analysis guy and you do
not care for Clive Maund. The chart analysis in his latest report
should put a smile on you face. We are about to enter a serious
dollar decline. Report attached.
Thanks for the heads up. Guess I better cover my DXY long LOL. Just kidding. I don’t always
agree with Maund but I acknowledge it has merit and I like to see his work. Thanks for the link.
The end of the credit cycle is nigh. Business cycles don’t really matter anymore, and I don’t believe there has been a real recovery since 2008. It’s all been a phony money illusion.
There will be no restarting the next credit cycle, as the faith and good credit behind all the cycles since 1971 will be flushed, including all sovereigns. Unfortunately, all the debt will still be there, dwarfing any collateral that might still exist. All paper collateral, such as stocks (read Tesla, Netflix, etc.) will be vaporized, but there might be some unencumbered real assets available, although most have poor liquidity. Any credit that is available, will only be issued against real, liquid assets – of which the most liquid, and universally accepted, is gold.
I expect that the usual reaction when things go south, will be buying of the so-called safe haven assets such as treasuries and FRN’s. But this will be a bull trap because when all the hyper leveraged entities, including the big banks, blow up, all the fools will realize that there ain’t nuthin’ there and rush to the only safe haven known to man, throughout history.
I like that Hemingway analogy. I also like Taleb’s thanksgiving turkey surprise, as well.
The gold short open interest is down to 422,988. Is this about where you would like to see it for the next rally to begin, or do you think the non-commercials need to go more short?
AXDDF was down over 25% this morning but recovered most losses? Is this irrational selling?