Happy Thanksgiving to all! Beware the tryptophan; you don't want to fall asleep in Aunt Sally's mashed potatoes. The November rally continues higher fueled by Soybean Donny's happy trade deal tweets. The bears have thrown in the towel resigned to eating franks and beans on this Turkey Day. The bulls are celebrating at Itchycoo Park, what great fun it is, the bulls dance while singing, "It's all too beautiful."
For the last two weeks, we have been looking for the top, the elusive Godot Top, since the uber low put/calls, low volatility, record short VIX positions, and other parameters verify the off-the-charts euphoric bullishness and rampant market complacency. Complacency marks a top which did occur, followed by three or four days of downside, however, if you blinked, you missed it. The negativity was gobbled-up by the ongoing US-China trade deal hype.
Traders remain relaxed about all-time record stock market highs since even if equities choose to sell off, the global central banks will collude and step in to save the day as they have for over a decade. Money managers, traders and investors sing Praise and Honor to the Four Horseman of the Perpetual Rally; the white Fed, red BOJ, black ECB and pale PBOC. During any stock market downturn, these modern-day Money God's, that guard the Temple, ride in to save the day to protect the wealthy elite class.
These harbingers of near-term gratification at the expense of long-term capitalism, the central banks, have engineered the longest recovery and rally in stock market history. The world remains awash in liquidity. Easy money fuels stock repurchase programs (buybacks) that artificially send earnings numbers, and equity prices, higher. It is a fantastic world if you are wealthy and own a large stock portfolio. Too bad for the one half of Americans that do not own one single share of stock.
The low put/calls hint at a potential 150 point, or more, sell off on tap, but humorously, it may occur after rising 70 handles. The SPX daily and 2-hour charts lined up with neggie d a few days ago which identified the short-lived top, and now price is higher at new records again (only due to trade news since the chart indicators do not want the SPX to move higher). The SPX, the US stock market, the S&P 500 cash index, prints an all-time high at 3154.26 and an all-time closing high at 3153.63 on Wednesday, 11/27/19, the day before the Thanksgiving Day holiday, in light volume.
The Dow Jones Industrials (INDU; DJI; DJIA), Nasdaq Composite (COMPQ), Nazzy 100 (NDX), the tech sector (XLK) and consumer staples (XLP) all print new record highs. Sound the Seven Trumpets!
The Semiconductor Index (SOX) did not print a higher record high this week thus far; ditto the XSD and SMH. The RUT small caps and trannies (Dow Transportation Index; TRAN; DJT) lag the broad stock market. Real estate (XLRE) and consumer discretionary (XLY) also do not move above their prior highs. Real estate and utes are defensive plays, along with consumer staples.
Utilities (XLU) have not printed higher record highs since late September. This is a big, big deal. Keystone always preaches about the utes. Utilities topped out 2 months ago. If you see utilities roll over and drop from here, it is very likelly that the broad stock market is about to have a religious experience. Watch the utes like a hawk over the next couple weeks. If they fail lower, it is over for the stock market. If utilities rally in the days and weeks ahead, the stock market bulls will be on easy street.
Nothing has changed in the SPX daily chart above. The overbot conditions have opened the door to a move lower. The red rising wedge pattern is ominous. The red lines show universal negative divergence. Price made it to the new highs on light volume and fumes. The SPX nails the upper band at 3153 so the middle band at 3100, and rising is on the table, as well as the lower band at 3046 and rising. Price is way extended above its moving averages requiring a mean reversion. Usually stocks would be expected to be weak the last couple days of a month that went all up. Tomorrow, Friday, is EOM. For the last few days, it is all systems go for the bears but Soybean Donny keeps tweeting every couple hours that the trade deal is almost ready. It is in its final, final, double-quadruple final stage.
King Donny promised that the US-China trade deal is in its "final throes" which lit a fire under markets to the upside. Xi and Trump talked on the phone so the deal looked like a done deal. Comically, in true Trumpian fashion, an hour after waxing optimistically, Donny says he is holding back a deal to get a better deal. Obviously, he continues talking out of multiple sides of his mouth and tells the crowd in front of him whatever they want to hear.
President Trump insinuated that he waits until the team comes up with a deal then he will review it to make a decision. It is surprising that he is not more directly involved. Then again, it is not surprising at all; he is a politician. Donny is employing plausible deniability. If the trade deal blows up, he blames Mnuchin and Lighthizer for not handling things correctly. If it is successful, Donny will brag and bloviate that he directed the process at every turn and of course he will announce it as the greatest trade deal ever known in the history of mankind.
So the stock market prints its joyous highs and then sly ole Donny Boy, hiding in the bushes, the evening before Thanksgiving, quietly signs the Hong Kong bill that sides with the protesters. Dictator Xi told Donny for the last five months to not meddle in Chinese affairs. Again, in true Donny fashion, he signs the bill and says he is doing it to help Xi who probably blew a head gasket when he saw that message.
S&P futures immediately dipped -10 and sat there overnight and on Thursday, Thanksgiving Day, morning are hanging around the -5 to -10 area a paltry drop considering the implications of signing the Hong Kong bill. The thinking is that the bill will not have much impact in the near-term, so perhaps a deal can get done, and then worry about the impact of the bill on Hong Kong and China and US relations down the road.
Trump had no choice but to sign the bill since it has huge bipartisan (republican and democrat) support and his veto can be overridden. Donny took his medicine and signed the bill in the cover of darkness. It was odd to not see Trump hold a gala signing event. He usually demands that his loyal cabinet kneel in a semi-circle around him applauding each stroke of his Sharpie.
China does not celebrate Thanksgiving. Perhaps Donny forgot about that. So the signing of the Hong Kong bill is a direct slap in Xi's face in real-time. 'Hey communist Xi, are you going to take that off of Donny? He wants to fight you in the parking lot behind the stock market.' Equities will be on eggshells, probably into the weekend since the US Friday session is a half day, waiting to see how China retaliates.
Watch that RSI that is trying to sneak out a higher high. That would be bullish for another day or two if the bulls can pull it off. Price has gapped-higher for three consecutive days, however, and the MACD line lags, so the expectation would be that the RSI will stall. As always these days, the stock market direction takes its orders from what President Xi and President Trump say about the trade deal. The chart says down but Soybean Donny's tweets say up.
Perhaps Dictator Xi will be the fly in the stock market ointment going forward? Xi cannot afford to look weak and Donny's signing of the Hong Kong bill and the patronizing words afterwards makes Xi look like a little b*tch. The communist dictator plans his retaliation. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
Note Added 7:44 PM EST: S&P futures -4. Dow -35. Nazzy -8. Russell -5. WTIC oil flat. Brent oil -0.3%. Gold 1455. Silver 17.01. Copper sinks -0.9%. 10-year yield 1.78%.
Note Added Friday Morning, 11/29/19, EOM, at 4:56 AM EST: S&P futures -7. Dow -57. Nazzy -25. Russell -6. WTIC oil -0.2%. Brent oil -0.3%. VIX 12.35. Gold 1456. Silver 16.98. Copper sinks -1.1% to an ominous 2.666. Treasury yields are; 2-year 1.62%, 5-year 1.62%, 10-year 1.76%, 30-year 2.18%. The 2-10 spread is down to 13 bips. The 2's-5's yield spread is flat or call it inverted if you want.
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