Marketview: No Fun Market

Cannes Film Festival in 1971

There’s a feeling floating around that while markets are up it doesn’t feel very fun. It’s very hard to get excited when the trend is straight out of the most boring playbook of them all: low-cost index investing. No sooner was buy and hold declared dead that every buy and hold investor was made whole with superstar returns. Asset managers and traders love to feel superior to their retail counterparts. They work tirelessly to spot alpha generating macro themes and potential black swan events. As long as the $VIX remains low and the big trend is QE, all this hard work is mostly useful as dinner party conversation while wondering why they’re not just long equities with leverage. Not very fun, indeed.

State of the Trend

The week started out hitting new all-time highs on both an active Monday and a quiet Tuesday before the Fed meeting concluded. After the Fed announcement the market slid lower into the end of the week. This minor pullback has so far been greeted with a similar tone as the ones before it. First, blame the Fed for either too much or not enough transparency. Second, lament over whether or not this is finally the end of the long run higher. As of now, the trend is still objectively higher. I’ll admit, that I was expecting more blow-off type price action to the upside. My indicators are still bearish, but the market is defying them as is common in strong bull runs. Only price pays. If we slice thru $SPX 1730 support with high energy trade, the upside much is likely limited in the near term.



In the wake of the financial crisis, there was a need for someone to hang for the financial crimes against humanity. I remember one trader I worked with back in 2009 was convinced that only a landmark conviction could signal all clear for a new bull market. I hope he’s not still waiting.

This week, it was reported that SAC Capital will plead guilty to insider trading and securities fraud and settle with the government for around $1.8 billion. JP Morgan is reportedly in a deal with the Department of Justice to settle charges around the MBS business for a record $13 billion fine. Bank of America is next on the chopping block. In Europe RBS and Barclays are putting a bunch of traders on leave for potentially manipulating forex markets.

pitchforks torches mob

At this point, the torch and pitchfork mob has largely dispersed. Victims and those professionally bound to a constant state of outrage are the only real remaining concerned parties. Everyone else seems to have gotten on with their lives. Can these events somehow mark the top in the same way that traders were expecting them to mark the bottom? I think at this point they’re just another stage of the public finally digesting all the negative sentiment. While the market is elevated, sentiment remains relatively low. Before the market finally tops out we need sentiment to reach extreme bullishness. Hopefully, these rulings will be a part of getting the public there.

Memes: China


The Chinese equity market was beaten to death over the summer but is mounting a comeback and attracting all sorts of attention. The chart of the Shanghai Composite looks to have formed a classic double bottom and shaken out all but the most long-term believers. The China breakout meme is lurking in the shadows of the Chinese government announcement of “unprecedented economic and societal reforms”. If that means that the wealth being created in China will benefit more than just those involved in the delicate dance of politics and corruption, then we we this as a huge positive. The knock on China is that it’s equity markets are last to move and buying weakness in strong markets is usually not the greatest strategy.

European Stall

European CPI has reached central banker resignation levels. Clearly the ECB is not meeting their mandate. This has been the source of Euro weakness and relative dollar strength. This story has been well documented by people smarter than us. An interesting curve ball in the Euro soap opera the US Treasury report which usually focuses on Chinese currency manipulation singled out Germany for causing instability by creating an export surplus. Basically, implying that Germany is responsible for exporting deflation in the Euro Zone. Between this and the NSA I don’t think we’ve heard the last in the Obama-Merkel saga or the European one, for that matter.

Bearish Shame


This indicator has been skewing negative for 60 handles. This is either a prescient warning of coming carnage or an indictment of the indicator. It happens from time-to-time in very strong directional markets. We were at an inflection point in early October and provided some quantitative work on oversold markets and the traditionally strong fourth quarters to offset this indicator. At this point, if the market can force the MAMOx to flip bullish, it will be a pretty good signal that the blow off  top is nearing exhaustion.

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