Hey guys, sorry I missed you yesterday, I had a busy day of meetings and was away from my desk. Let's get right into it this morning. US Futures are struggling to hold on to the (weak) overnight gains, which saw the majors bounce between quarter and half a percentage point as of 8:30AM. We saw jobless claims come in hot at 779k claims, but better than the 825k expected, along with 4.592MM continuing claims. I love how analysts are still expecting over 800k claims each week, while they simultaniously, and almost unanimously, suggest that the economy has recovered. When all this debt binging ends, (if ever), and stimulus payments aren't enough to replace GDP, what then? NIRP? According to the ECB, banks should start preparing for NIRP. I guess the ignorance at the central banking level knows no bounds. On another note, unit labour costs came in more than double the expected 3.3%, at 6.8%.
Vix continues to get battered, and is back at the ascending support trendline, and descending green dotted trendline, which went from resistance to support on Jan 27th. We should see strong demand for risk protection at these levels, especially considering the dollar (DXY) is extending it's recent breakout, and hit a new high of 91.485 moments ago. We're now seeing some light selling as we approach the open. But, with rates (10Y yield is retesting the recent highs, and we saw a 1.155% print earier this morning, before pairing some gains), and the dollar gaining momentum, we may continue to see pressure on bond markets, and equity valuations in the near term.
Gold has lost the 200 day MA ($1,851.32), and is looking quite bearish at the moment around $1,819/oz. We're in a medium term descending channel, and the recent low is back in play at $1,764.73. Silver is also taking a beating, with the SLV back at a 24 handle, after hitting a 27 handle on Monday. Bitcoin is looking strong, but also may be topping, as we revisited a 38k handle this morning, while Ether almost caught a $1700 handle earlier on.
SPY continued it's rebound yesterday, with another solid, but short lived retest of the upper band of the white channel (around 383.70). The 21 day EMA, is sitting at 377.60, and barring a break above the white channel, this is the next logical target, which suggests a notable pull back in the immediate term. We're also seeing quite a few light supports on the hourly, with the 21EMA (h) at 380.64, the the 50 MA (h) at 379.16, and the 200MA (h) at 376.87. The lower band of the white channel is now sitting around 372, and has seen persistently heavy support at this level. This is my target for EOW. We look poised to open near the gamma neutral zone, around 383, and we'll see if upper white channel resistance can hold off the infinitely deep pocketed bulls. If the bears successfully defend this level, we're going lower...
Thanks for your time today guys, and I hope you enjoyed the analysis! Stay tuned for our live daily play-by-play to begin shortly at hedgeoftheworld.com/live-analysis. Cheers, Michael.
*The information and analysis shared in this post is not financial advice. Always conduct your own analysis and research. I am/ we are currently holding positions in UVXY, HUV, HQD, QID.
VIX reaction last week to the GME fiasco shows how ready people are for this market to pop... but I still think there needs to be an instigating factor, otherwise, people just love this melt-up.
Hedge_Of_The_World
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@mcrobbie, Ya I agree. The complacency is simply amazing. The government seems to be convincing people that it's main job is to give away free cash like it's a Coca-Cola truck in Zimbabwe.
Dr_Roboto
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My personal belief is that the correction has started and we are just seeing a double top. VIX is getting pounded because everyone thought last week was going to be it and the rally has them bailing out. I think last week was Wave A. This rally was just the buy the dippers for a Wave B. To be clear I am not talking full scale March 2020 Wave ABC, just some level of corrective pullback (10% maybe). Right now it is a lower high. I think we are seeing some sideways movement at the top and expect something more significant next week. Tops are funny like that. We could bounce up and down with sell off and buy back rally every few days or so until one of these days it will not rebound. Technically Elliott wave theory says that a Wave B can go as high as 1.236, so a new ATH is not out of the question, but I am very confident this is the start of something bigger.
Thanks again for the great info.
FYI, it looks to be testing the bottom of the rising wedge that it dropped out of last week.
Hedge_Of_The_World
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@Dr_Roboto, Nice work buddy. Appreciate you sharing! It looks like we're oversold on the Vix. Hourly RSI hit 24 this morning, and we're currently around 29. Something's got to give very soon. Imagine Vix popped 61% last week, on a 3% pull back...
stonkasaurusrex
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@Hedge_Of_The_World, I keep thinking this and agree wholeheartedly with your and Dr. Roboto's analyses (you are actually both my top accounts to follow), but I've started to become jaded due to all the spxu losses I've piled up since this correction started and I thought it would continue. I now believe that the market is fundamentally broken in ways we don't yet understand. Whether it's unprecedented liquidity, insatiable euphoria, low interest rates, abuse of margin accounts, or a mixture of these and a variety of other things, I'm beginning to believe that charting and traditional analytics do not matter or work anymore.
I respect what you both do very much and think that you're spot on with the last several weeks of charts and dialogue, but it's become evident to me there's a large disconnect between reality and a healthy, semi-pattern based market. I think that this market is behaving more like a very sick person, spiking a fever, breaking it, spiking another one, pumped up on more drugs than they know what to do with, and steaming full throttle towards a catastrophic health event because they continue to refuse to take care of themselves properly. It was my mistake for going short right before this mini correction if you can even call it that - the better play would have been to wait and to buy back in long, but it is what it is. Now that I'm taking a step back to look at everything, I don't think a slow creep up to 4,000 will be the end of it, I think we get to 4,250 or 4,500 before all the fireworks start because this thing simply will not go down nomatter how bad of news comes out, how bad the fundamentals look, or how high the buffet indicator gets. It's disgusting.
I'm going to try to hold my spxu until next week in hopes this week was just a postponement of the inevitable correction coming before the big one later this year, just wanted to give you all some food for thought. Thanks for doing what you do and please keep the charts coming!
@stonkasaurusrex, this market is truly once in a lifetime. You are right that the irrational investors just seem to keep buying. My solution is to be neither buy to go long or short. I don't trust the market either. I hate how much the market moves in the after hours. I have made numerous trades that hit my stop and I am so glad they did. Betting against this market is not for the weak.
What I have been doing is just playing some simple day or two trades. Wait for VXX to get really low and get a pop. Those quick rallies off a low are a simple swing. I refuse to put any sizable amount of money in the market right now. I have just been playing with very small amounts.
My sRSI strategy works quite well now that VXX seems to have found a bottom. I take a look around 9am and look for a buy/sell on the 1h and keep a safe stop when I buy. Basically when the cRSI cross above the MA (turns from red to green).
I hope things work out for you. I guess "don't fight the fed" tuned out to be the right call for the past year. I really have a feeling that we will see something next week. In one of my posts I noted how much the market thrashes at the top, drastically up one week then down the next.
Hedge_Of_The_World
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@stonkasaurusrex, Very well said, my friend. I appreciate you sharing, and thanks for the love! It's a history lesson unfolding, for sure, and like you said, it's essentially like trying to fight infinity, and we have to keep zooming out to make sense of the technicals. Fundamentals died a long time ago, but I think they'll make a come back eventually, or there won't be an economy left to save. The dollar is the only way the US continues to control the world, so I have to imagine it makes a come back at some point as well, along with the risk free rate. All that money tied up in bonds and debt is doing nothing for the economy. We need a debt restructuring, and a redistribution of wealth via a risk asset correction/market crash. It's coming, but timing the big correction really does seem impossible. I'm still positioned for the worst case scenario, and if I have to, I'll work my position to stay as neutral as possible, until the time comes. There's no where else to put my money. Cash is on fire, and most assets are on the 499 lap of the Indie 500. Lol.
PJSantorin
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@stonkasaurusrex, Market is behaving irrational because of huge influx of new participants in the stock market. Also its very important to factor in social media into your calculations.
When i look at multiple forecasts, then also look on the social media, i can in a lot of cases, nearly all (considering i get enough information input) predict where the market is going for a certain stock, only the percentage i cant calculate as off yet.