This market wants cheap money. It does not care about forward guidance, P/E ratio's. It wants cheap money to keep the party going. Interest rates are coming down, and when they do, there will be nowhere to go fir yield except the stock market. If you follow my work I talk about the confidence crisis that is coming when confidence is lost in government, banks and fiat money. You can already see the economic, political and social tensions reaching their zenith. Human history is cycles of soft money and hard money. No soft money has ever stood the test of time. It seems we are approaching this situation (Ray Dalio calls it 'paradigm shift') where central banks are out of options.
We saw with the Fed that they cut rates but they need to do it in a way to maintain confidence. In last months FOMC meeting Powell said it was a mid cycle adjustment. Now he wishes he never said that. This week he cited uncertainty and needing to reach targets. They cannot tell you the real reason because they must keep this narrative that the economy is the strongest it has ever been, and the recovery from 2008 has worked due to . So much so that the Europeans, Japanese and Swiss are in negative rates!
All central banks are going to inflate their currency. It is a race to the bottom in cutting rates but they must do this while maintaining some narrative to keep confidence in the system. They cannot admit they failed.
So the two major news this week:
1) On Monday we had a repo event. Basically banks were running out of cash and emergency funding had to be ushered in by the Fed. Emergency liquidity. Short term rates went up to 9%...way than the 2% or so of the effective Funds rate. The Fed had to inject more money to keep rates low and keep the system going. The whole system would have frozen. If you follow my work, I have warned that this freeze or credit freeze event is coming. This is how digital money will be ushered in so all money will be tracked and taxed. It is coming.
Our big sign of a market crash is for interest rates to spike with a sell off in the bond/debt market. Yes, the Fed can print money to buy it up...expanding their . But then this would lead to a confidence crisis. If their expands to a large amount, we essentially go into a socialist/communist system where markets are propped up. Central banks become the buyers of last resort. No free markets. Again, I argue this is happening and we pretty much are in managed/controlled markets now because of all the things that would happen to pensions and the middle class if assets fell.
So the Fed injected through repo over 300 BILLION dollars in 72 hours. This is a sign that the Fed may be starting to lose control of the system and manipulation. What we need to watch for is how long repo takes place. If it stops in a week then it is fine. However, if it carries on for months then we can say there my be a large issue coming.
Well on Friday close, the Fed announced they would continue repo through until October 10th... we can argue that we have stealthily went back to expansion or . Again, if you follow my work I have said this is coming. They would not call it because then people would realize in the past did not work and would lead to a confidence crisis.
Again folks this is big stuff.
2) China left the trade table and said they would not meet the US for a deal.
I have said that China can remain patient. They have no election so they can wait for a weaker US President to come to office. The Chinese (and Russians) loved Obama because they considered him weak. They advanced their geopolitical ambitions greatly (really to 'check mate' positions) during Obama's tenure.
It is President Trump who needs this trade deal. He will be the one who needs to go to the trade table and will accept a Chinese dictated deal.
The only things that would change this is the people in China rising up due to food issues. China has been hit by the swine flu and army virus and the CCP is subsidizing food prices, especially pork. If they can't control this for any longer and have food issues, they would be forced to accept a deal.
And also Chinese credit issues. There are problems in China as we have seen. Banks needed bailouts, and now there are reports that pensioners and government employee's in tier 3 and tier 4 cities are not getting paid...some haven't seen a cheque for as long as 6 months. There is also a rumour that China may not have enough dollars to maintain the Yuan at a price they want...that the CCP borrowed money from HSBC and other banks...meaning their 3 trillion dollar reserves may be much smaller than they care to admit.
So again folks expect a lot of crazy news like this to happen. I believe we are in the economic reset. There is also a thucydides trap issue occurring with the US declining and the East rising. It is likely there will be a conflict. 72% of all thucydides trap environments have led to war. I have given my take on Iran as well and why it is important for China, and the US to nullify China's advantage.
So let us look at other US equities and short ideas:
The Nasdaq did not touch resistance at all time highs, but is showing weakness. We failed to make a new higher low and may even have made a pattern indicating a trend reversal is coming. A big support/flip zone here at the 7760 zone. Await to see if we do break below here.
The Dow Jones triggered on Friday, however I do not like to hold positions over the weekend in this environment. We had a nice uptrend with higher lows and higher highs and then began to range before breaking. I want to see how we react on Monday. Ideally await for a pullback or a confirmed lower high swing before entering.
The Russell 2000 as well with a nice looking short set up. We did close below the neckline if you look at the set up through the lens of a set up, but we did break below support. Not the best close so this is one to see how it opens.