This is comical; it is the third time the CPCE or CPC chart is shown over the last couple weeks with the red flame warning. We are about to watch something very spectacular occur in the stock market. It may be historic and prepare for a potential flash crash, or Black Thursday, Black Friday, Black Monday, or other Black Day event.
The complacency is off the charts as it has been for over a month. The stock market is printing a significant top right now. Actually, the little pull back in stocks in early June remedied some complacency before that but let's say this bullish euphoria is ongoing for a month. This is atypical price behavior. The CPC and CPCE signals have been soiled slightly due to the Federal Reserve and other global central banker's non-stop intervention since 2009. The central bankers are the market.
The bottom call in March was dead-on. The panic was in full swing. Timmy Trader told his coworkers he could not take the selling pressure anymore and losing his clients money so he ran to the window. Two coworkers tried to stop him but he jumped out; luckily they were on the ground floor. So the panic and fear shown by the spike high in March tells you a bottom is coming and it is time to nibble long; a tradeable bottom is at hand. The peak and flattening in the 21-day MA occurs which nails the bottom in the stock market. From then to present, it is one big upside party.
Like all parties, its fun and games at the start. Once the band is warmed up after a couple-three tunes, the booze is flowing, the ladies are dancing and the mood is rising. Bomp, bomp, bomp. Traders buy stocks with the Fed's easy money. Chairman Powell fills the punch bowl with fresh easy money whiskey and investors are swigging it down and buying stocks without a care in the world. Powell turns the crank of the golden printing press in the basement of the Eccles Building keeping time with the techno-beat of the markets. However, all parties must end. Someone is about to puke on the white sofa.
The uber low put/calls are displaying historic complacency in markets; multi-year record low complacency. Traders and investors completely believe the Fed can always back stop the stock market and move equities higher. Moral hazard has arrived. Novice investors and pandemic-idled folks are setting up trading accounts and blindly buying AAPL, AMZN, TSLA and other hot stocks afraid they are missing the train that has left the station. They will end up as hobo's.
Typically, the S&P 500 will pull back from 40 to 200 points after low put/call readings. In the past, the top usually occurs within a few days, usually no more than 2 weeks, after the low print in the put/calls. The early June selloff occurred with the low print. But with the central bank largess in place since the near stealth collapse in financial markets during September-October, the stock market tops due to the low put/calls (complacency and fearlessness), are taking a few extra days.
The US Monthly Jobs Report is Friday. The ADP data will be interesting this morning. Traders may be trying to keep the stock market buoyant into Friday morning. Keybot the Quant is short but has been itching to go long since Friday. There is very odd price action occurring in markets right now. This long stint of complacency is another example of market oddities. Keybot may flip back long today but considering this obscene ongoing complacency, one would think the algorithm would then flip back short again in a day or two. Every hour of trading going forward is super critical and something nutso may happen at any time.
The CPCE is down to 0.42. David, a manager at Wal-Mart that always corrects people if they call him Dave, invested his entire life savings in Apple and Amazon stock yesterday. Today he brings in doughnuts for everyone telling all about his great fortune. He said in a few short months, he will be sitting on mountains of money. David encouraged everyone to do the same and Sally, that has a crush on David, and Old Frank, that works in sporting goods, said they will pull all their money out of the bank today and buy tech stocks. The three perform a dance of joy while wearing masks and social distancing. Other coworkers now think they should start buying stocks too. Emily, that was saving money for a car, decided to ditch that idea and buy NFLX stock instead; now she is asking David if he can provide a ride to work.
All this action in the stock market over the last month is fantasyland. It is fascinating to watch play out daily. The stock market is about to start dropping and once it starts it may be something for the record books, hence, the flash crash and Black Day warnings above. These are not things ever mentioned willy-nilly or touted regularly. These are special times right now, over the last month or so, and mentioning these potential dire outcomes is the only way to get the point across. Think of the stock market at a high just like late February.
The 21-day MA signaled the June bottom but lo and behold, the put/calls remain uber low and darn if that 21-day does not come down even lower. Folks, it is very unlikely that the moving average can go lower. What that means is the top is now. Do not be surprised if the SPX dumps from 200 to 500 points this month. Get out of your longs and bring on shorts; there is zero time remaining. Timing is the question. Does the stock market top out today, tomorrow or Monday? 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.
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