Thursday, October 3, 2019

Not ... yet ...

This perma-bear may be the only one who believes right now that we still have that one more high left in the tank, and soon.  We are close to the top and the start of the meltdown, but there is a very simple reason why I think we have one last rally and high ahead.

Trump must resolve the stand-off with China.  He simply cannot proceed into the turning of the business cycle into recession with the China tariffs in place.  Any third-rate reporter from the USA Today could mail this one in, about how Trump brought back Smoot-Hawley and destroyed the great Obama economy.  A China deal must happen, any deal, any face-saving compromise, or Trump will be on the hook for what is coming and not see a second term.

And China needs this, too.  They desperately need our food.  The pork crisis in China is dire and threatens food prices and social stability.  At this point, Xi, too, would like nothing more than to settle this for now and take it up later, return to playing the "long game" for a while longer.

The tariffs kick in again on October 15, but I don't think Trump will wait that long.  We through a pin through critical support today and managed to close back inside -- a stern warning that the next break will keep going.

SPX daily

Trump is out of time and must make a deal now with China.  Even subjects like Huawei can be tabled for the moment, because no one is really looking forward to the cap-ex spending on a nationwide 5g wireless network anyway.  What if they eased the limits on Huawei but no one bought their wares?  We do not need 5g, and can't afford to implement it at the moment.

A trade deal, leaked soon and signed over the weekend, completes the rally at 3094 SPX by next week.  There is resistance at 3050, which we will probably take out, an "overthrow" of a trendline.

After October 10, the Fed closes out its latest repo program and we will see if anyone still needs fast cash.  Coincidentally, October 11th marked the high for the year 2007.  There is some symmetry here; let's start by looking at the beautiful 2008 crash tape.

SPX crash 2007-2009

We take the tape and copy it, as a graphical representation, and drag it into the present-day, fit it to the curve and constraints of the giant megaphone top we have drawn since January, 2018.  See the retests and well-proportioned bounces?

SPX daily with 2008 tape overlay

The narrative is plain enough.  We test the lower supports, bounce into January again, with all eyes on the Fed, and when it declines to provide a full QE program at its January meeting, we lose that support and experience something far worse than the last cycle.  Perhaps by the time the Fed is ready to intervene, events and leverage are in motion and a grim trend cannot be stopped.

2020 off a cliff - who knows?

But won't it take more time?  Why should it?  That is the meaning of a true crisis, the point of recognition and scramble for the exits.  Forced selling.  Margin calls.  Who still believes that we can get growth out of debt?  Oh, are there value investors out there prowling for diamonds in the rough?  How about stock buybacks with corporate debt?  Will the VIX break 100?

Trump can blame the Fed, or the Democrats, or Brexit, but he absolutely cannot have the tariff issue around by then if he wants to be re-elected.  He could even be impeached and convicted (of whatever, because reasons) in the Senate.  And I do think he can see a second term, even with this disaster, if he is able to expose and implode the Democrat party apparatus with their scandals and high treason against the nation.

But let's see if we can complete this topping pattern first, on positive trade news.


christiangustafson said...

We really violated that trendline support again today, but, again, closed back inside.

China trade talks continue next week, October 10-11.

john said...

Yep, was just thinking the same thing, he needs to end this tariff stuff right quick. But I don’t think he can get some spectacular deal that will propel the juggernaut forward. It will lurch forward on its own just like all the past no sense buying that has propped it up, foreign buying the only game left, thats it. There is nothing left to buy but the US stawks. Maybe when the chinazis get their fill and Japan cant hide their US stawk buying with freshly pprinted yennies anymore, then yes, your January cometh.

christiangustafson said...

I really do think that Trump can survive a stock market crash in 2020, too. He will have to go all-out and turn the heat up to 11, declassification, document dumps, medieval, unbridled Trumpian aggression.

IOW the political culture will be even more insane next year than we already expect, wild times.

christiangustafson said...

/me adjusts charts. 3090 at the close this Wednesday?

Then we trust in The Force.

Bryan Franco said...

Is 5 shorter than 3 in that pic?

Bryan Franco said...

Oh wait, never mind, it doesnt have to be if 3 is bigger than 1. You can see I haven't done any waving in quite a long time..

Randall Beehomes said...

One Moar high

Kevin said...

I dunno about a deal. Trump and Xi has some pretty big egos and are both stubborn. Easy to see them falling out and tariffs going on. And the market will see right through a fake deal.

Kevin said...

Well, there's your fake deal that kicks the can down the road - assuming Xi is open to signing even that no-deal deal - though now we get to see how much a rally we get before it all comes crashing down.

Lady S said...

It's hard to see the crash happen with the regulation that never stop

sathish said...

Greetings, i've been a follower from 2014, you are perm-bear.. of course in a contrarian perspective its true.. however its not reflecting in the you think your posting is valid?

T.Berry said...

what an october for the markets---in what is historically the worst month of the year the s&p gained an impressive 2%----a true reflection just how strong this bull market is. (still in bottom 6th, bases loaded and no outs-lol)

yesterday was 3rd straight day of stocks hitting new all time record highs . and
the fed was out and continues to define what perfect execution is all about. they knew the perfect time to cut rates and then the perfect time to raise rates, they knew when to start qe and knew when to end qe, and the economy nor stock market has never looked back or better. kudos bernanke, yellen & powell, job very well done

on top on yet another record market rally yesterday, we had a greater than expected gdp print and a solid beat on consumer spending. 2019 holiday sales expected to be up a blistering 4%. think maybe it’s time the doomer media start putting off that recession (again lol). as for the “dreaded” r-word, can’t see one happening before at least 2023.
4000 on the s&p is now just a mere 30% away----well within my target time frame which i called about 12+months ago---we’ll see it hit sometime in 2021 (the nas will be well north of 10K by then. still leaving possibility of an overshoot to s&p 5000 on the table –but wouldn’t happen until sometime after 2021---depends on size/impact of trade deal , timing of infrastructure bill among other things

i’ll repeat what I’ve said in each of the last 5 years, if you’re an investor with 2-5 year time horizon there is zero reason to sell this market. may see a nice dip (3-4%) to buy between now and the year end rally or maybe not given the strength of this economy. just ask the Donald lol best ever.

keep buying dips--- this strategy has worked 100% of the time.