Sunday, December 30, 2018

Let's go nowhere for a while

We smacked an important .382 retrace in all of the excitement on Friday.  Since all that matters now are the actions of the United States Federal Reserve, it would be useful for everyone at this point to slow things down, get the $VIX back under 20 (15 would be great), and have the market get dull until the next word from the monetary gods.  We need to burn off all of that option theta everyone bought this month, to make speculation great again.

Nice shoes, Bob.

Let's consider Alisdair Macleod's macro analysis, which suggests that we see a spike in the CPI by the second quarter, which forces the Fed's hand (to raise again), in my opinion, at the June meeting.

To get there, we would have already had 3 Fed meetings where essentially nothing was announced, at the end of January, in mid-March, and in early May.  Each of these meetings would leave the policy and schedule unchanged, but only the March meeting would be received as bullish, as it alone has the follow-up press conference, the sort of meeting where raises are normally made.  The January and May meetings, although not hiking rates, by leaving the Fed balance-sheet reduction schedule unchanged, would each be received as super-bearish, resuming the selling.

ecce homo

The only thing that matters now is Federal Reserve monetary policy, not China, not Europe.  And if Macleod is right, in 2019 Fed members will find themselves trapped by actual price inflation following in the wake of the flood of loose credit.

All through next year, we will witness a crescendo of calls from the desperate FIRE sector for the Fed to cut rates again and roll out QE4.  But this cannot happen until the markets are wrecked and ruined, deflated, when the Fed finally has the freedom to intervene.  Longer-term, we're looking at a debt jubilee and large-scale refactoring of our late-cycle civilization, wiping out all of the unsustainable liabilities.  Our credit-money system, political economy based on usury, can only stand so many trips to the well before faith runs out.  Maybe the survivors can discover honest money one day.

Even with a month of sideways, we could finish the entire bearish crash cycle well before the 2020 elections.  What a hoot that will be!

S&P 500 daily


Christian Gustafson said...

The target for the larger doom wave 3 in that chart comes from this channel boundary.

Anonymous said...

"And if Macleod is right, in 2019 Fed members will find themselves trapped by actual price inflation following in the wake of the flood of loose credit" Nah, they're good.

Kevin Wilde said...

The bottom line for Martin A is if markets continue the bear corrective thing into 2019/20 that puts the ultimate top in 2032, and disaster is postponed. If, cycles invert, and we see a rally into the 2020 turn, then expect nightmare and disaster straight after.

Happy New Year!

Randall Beehomes said...

2032? No way they can kick it that far.

Randall Beehomes said...

Im not buying this dip thank you

Kevin Wilde said...

If we remain in wave 3 then SP headed to 2258. Then right back here in 4. Tradeable.

Bryan Franco said...


Randall Beehomes said...

Bull thesis in tatters

Sal said...

SnP: Down to ES2464 and take off to ES2612 and turnaround for drop. See chart:
ES chart

Naz: corrective count
NQ chart

Dow: had higher high new years - last (a) below than previous high unlike above two
YM chart

Randall Beehomes said...

Not touching that fake ass rally off the lows yesterday saved me a boatload which I can use for my car insurance bill.

I expect a touch of 2500 tomorrow. Against all odds.

Kevin Wilde said...

If we remain in wave 3 we should not see a move above recent highs near SP 2520.

If wave 3 ended on Christmas Eve, then wave 4 should complete with a close just above SP 2550.

Where this morning's rally goes answers this all important question.

Randall Beehomes said...

2500. Take a bow

Randall Beehomes said...

Powell just fluffed markets. Opens door to 2618. Back door Betty

umdengineer said...

Still early but we may end up repeating a similar pattern to September 2015 here. We rally briefly, revisit the lows, and then resume rising only to trade sideways for a while. Will depend on whether the shutdown and trade wars get resolved. The longer those go on, the greater the chance we end up in a true bear market.

umdengineer said...

The scenario would play out as follows:
1) Trump gets the trade war with China resolved - market rallies.

2) The shutdown continues. Trump won't budge. Riots begin and the market crashes.

3) Schumer and Pelosi blink. Trump gets his wall in one form or another. They pass a budget or CR - market rallies.

You could get the same outcome if the above order was flipped. The two factors dragging down the market right now is the trade war with China and the shutdown. The economy is not crashing YET so as long the numbers stay good those are the only two problems Trump has to solve right now. After that it's the Fed.

Sal said...


The last (a) on Dow is marked one peak later as there was a slightly higher high than SnP. But the (b) should coincide on both. Here is one potential scenario that might unfold..

SnP Chart

Lot of people are triggered for various reasons so perhaps start off with a little uncertainty where in friday high is a of (c). Drop down maybe all the way to 2450ish for b of (c) and resume upwards with a loop around 2546 and 2492 as maybe i of c of (c). Ok that maybe a bit far fetched.

Ofcourse all this is just an exercise in potential scenario whose end game maybe at 2612 or even 2652.. before another round of humble pie?

Kevin Wilde said...

The big picture charts can go either way, with both the bear and bull patterns suggesting we should see at least one more low before a larger rally would be expected to unfold. Such a break to new lows does not have to be a big one, though sentiment getting crazy scary would provide a nice buy set-up ingredient. Only after the big bounce phase has unfolded - say by the spring next year - will we know whether we have a large bubble peak still to come, or the end of times. The economy, fiscal, and political situations could be anything by then. Maybe China does a trade deal and we rally, then their economy keeps tanking to give us both the rebound and the collapse? Maybe a China deal gives us major new highs, maybe not. Too early to tell what 2019 ultimately ends, though I'm pretty confident we have more work to do on the downside before we get to see, and my current sell the rip stance is about to do a U-turn, where buy the dip is called for. Just not here.

Randall Beehomes said...

I see nothing bearish till at least Tuesday

Sal said...

Another way to look at this: If a is 2552-2438 ~114 pts and lets say b is 2552-2492 ~60 pts which gives us 2612-2492~120 pts for c of (c).