Wheeee! Whooopie! Whheeee!. The bull's are enjoying Party Town each day. Whooopie! The SPX prints an all-time record high at 3708.45 and all-time closing high at 3702.25 both on Tuesday 12/8/20. Johnny, the screen printer, is busy handing out "SPX 3.7K" hats and says he cannot keep the "Dow 30K" hats in stock. Traders and investors are expecting Congress to agree on a fiscal stimulus bill any minute. Overnight, the Whitehouse moves forward with a new offer which would provide $600 for individuals and $1,200 for couples. The technicals clearly show a deadly bearish set-up but the party is kept alive on Fed wine and Congressional cognac. With the dreadful chart above, there is only one way to go, and that is down on the daily, and hourly, basis. If the fiscal deal falls through, that will be a catalyst to flush stocks. If the deal is approved, it will either be a sell the news event right away, or, a couple-few days will be needed to readjust, then the spankdown will occur.
Thus, all that said, who gives a crap about the fiscal stimulus bill? Americans definitely since they need help. And investors appear to care with stock prices up but as said, stocks are on borrowed time in the daily time frame. What really matters is the US dollar. And the euro will influence the dollar that will push the markets one way or the other. President Lagarde picks up her favorite blue jacket from the dry cleaners today in preparation for tomorrow's ECB show. Lagarde is under pressure with the euro rising, pushing the US dollar lower, since European exporters, manufacturers and multi-nationals get squeezed from the stronger domestic currency. Germany is the economic powerhouse of Europe and its fuel is derived from the massive export market especially autos.
Madame Lagarde will walk out on stage tomorrow morning, extend her right arm, and turn her thumb up, or down, telling global traders how to trade. Down euro=up dollar=down US stocks as per the chart above. Up euro=down dollar=up US stocks and the bull party continues.
Since the ECB is on tap in 24 hours, US markets may idle sideways today. Maybe there is cold feet as the session plays out and the selling will begin but most traders will be waiting on Christine's words before the US open tomorrow.
Overbot conditions, neggie d (red lines) and the rising wedge say bear time. Price violated the upper band so the middle band, the 20-day MA, at 3619, is on the table as well as the lower band at 3517. Price is extended above the moving average ribbon so a mean reversion lower is desperately needed. The ADX shows that the rally in late August was a strong trend higher but this petered out in September and despite new all-time record highs, the rally is not considered a strong trend. Inflated prices are built on easy money. The Aroon shows maximum possible euphoric bullishness. The green line is pegged at 100 and the red line at zero. It is impossible for traders to become more excessively bullish; the joy for stocks is in a euphoric and giddy phase.
The behavior now is reminiscent of the dot-com bubble top and that would be appropriate since it was all about technology and the internet back then and 20 years later, it is a time when it is about tech and the social internet. Get out of the markets on the long side folks, otherwise, you will be hurt going forward. We are placing a major stock market top between now and February that will likely hold for months and a few years to come, at least until the inflation and then hyperinflation kick in a few years down the road.
Everyone expects that they will have time to exit stocks once the selloff begins. The exit door may look big now but when everyone is panicking at once, that door shrinks in size, and the bodies begin stacking up blocking the exit. If you wake up one morning and stocks are in a flash crash mode, do not be surprised. This is historic price action currently and few see it; which is why it is even more dangerous.
The new moon peaks on Monday coincidentally with the electoral college meeting that summarizes all votes and declares King Sore Lose Donnie the not winner. What a clown show the already crumbling crony capitalism system has descended into. Trump is stuffing his pockets with money (the slush fund people are donating to) by keeping the voter fraud diatribe going. However, Monday is a big day when Donnie may finally pivot. Stocks are usually weak moving through the new moon each month.
If President Trump carries out a military raid or begins a conflict before he leaves office, we are in the window now. With the new moon, if a covert or other operation occurs, it would be between now and 12/20/20. If there is no action by 12/20/20, then there will likely not be any military event before Trump leaves office on 1/20/21. The January new moon is only a few days in front of the inauguration.
There is typically tax loss selling in early December but no sign of that with stocks at record highs. Perhaps when the sogginess occurs, some of the tax loss selling will surface. The CPC is down at 0.65 and CPCE at 0.38. These epic multi-year record lows in the put/calls verify the market euphoria and a significant top at hand. Ditto the NYHL. The option activity is at record levels not even seen during the dotcom bubble days. No one believes that stocks will ever go down again but it will be nutso when it reverses. In 1929, Irving Fisher said the stock market is at a "permanently-high plateau."
Thus, the fiscal stimulus bill and the ECB decision in the morning are the two biggies to watch. The impact on the dollar is what matters. The dollar charts want to rally as Keystone previously explains even though 99% of Wall Street is short the dollar. Even if a handful of those folks develop weak knees, the dollar would receive plenty of short-covering fuel for a rocket blast higher. This outcome would be March redux with stocks and gold tumbling lower. What say you Madame Lagarde? Euro 1.2118. US dollar index, USD, or DXY, dixie, is at 90.80. 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 10:01 AM EST: Wheeeee! Whooopie! The SPX prints a new all-time record high at 3712.39. Happy days are truly here again. Money, its a gas, maaahamoney, baby. VIX 20.25. Euro 1.2093.US dollar 990.92. The pupils of investors' eyes turn green with greed.
Note Added 10:13 AM EST: Whoopsies daisies. The S&P 500 gives up the ghost and turns negative. SPX 3695. VIX 20.90. Senate Leader McConnell is moaning about the fiscal deal. He says House Leader Pelosi and Senate Minority Leader Schumer are moving the goal posts. Pelosi refutes such an accusation as she tries to hide her hands that are stained with yellow paint. Nothing to see here, move along, move along, stocks are back to flat on the day.
Note Added Thursday Evening, 12/10/20, at 8:30 PM EST: CNBC celebrity Jim Cramer says shorting the market is crazy. Cramer says the economic picture ahead is great. Bloomberg analyst Gina Adams says same the other day and expects the stock market will head higher. GS analyst Kostin achieves his SPX 3700 target this year but will the 4600 target actually appear in 24 months or less? Kostin proclaims that investors should expect significant equity market upside in 2021. The list goes on and on; one bullish analyst after another. Federated Hermes analyst Phil Orlando proclaims that the SPX will tag 3,800 by year end which is only 14 trading days away. Everyone is all-in on the bull side ready to sample Uncle Johnny's special holiday eggnog. The bullish giddiness is off the charts. Even those cautioning about euphoria do not realize that they are actually euphoric.
Note Added Tuesday, 12/15/20: Yale Nobel laureate Bob Shiller's CAPE ratio is above 33 which is higher than all prior stock market tops except for the dotcom bubble (2000). Humorously, Shiller goes against his own ratio and believes the rally has more legs. In a CNBC interview, Shiller proclaims, "The market is highly priced, but it's not so high that I wouldn't consider it as an investment." Even Shiller is happily imbibing in the euphorically bullish eggnog. GS continues cheerleading stocks higher telling folks to jump aboard. The major investment houses and banks are releasing their stock market projections for next year and not one of them predict a down market. BMO's bullish strategist Brian Belski proclaims SPX 4,200 for next year. Analysts across the board proclaim S&P 500 targets between 4,000 and 4,500 in 2021. All the bears have left town and given up. The Federal Reserve is on tap tomorrow and stocks are higher about 80% of the time for the day or two into a Fed meeting.
Note Added Thursday, 12/17/20: Federal Reserve Chairman Powell delivers a case of easy money wine to market participants. Powell proclaims, "Stock prices are not necessarily high considering the low rates." CNBC commentator Jim Labenthal proclaims, "I am very much risk-on!" He expects double-digit returns in 2021. Fundstrat's Tom Lee decrees SPX 4,300 as his target saying "a lot of tail winds" will send stocks higher. The bullish calls are coming in waves but there is not a bear to be found.
Note Added Saturday, 12/19/20: The bullish chatter continues. CNBC commentator Josh Brown says markets are the "good kind of overbot." Brown proclaims, "Do not be a contrarian!" He wants investors to remain long and strong. Blackrock's Rick Rieder decrees, "I think the equity market is going higher." Rieder cites the continuous central banker intervention so no matter what happens stocks will keep moving higher. Renaissance Macro strategist Neil Dutta says, "The risk is to the upside." Dutta proclaims, "The bears do not have much of a story to tell." He believes that consumer spending will lead the way. Everyone on Wall Street is expecting a banner year in 2021. The party is in full swing and the dancing girls are taking the stage.
Note Added Monday, 12/21/20: The SPX prints the all-time record high at 3726.70 on 12/18/20 and the all-time record closing high at 3722.48 on 12/17/20. With US futures tanking -2% and more, MKM Partners strategist Michael Darda says, "Buy the dip." Futures recover before the opening bell and stage an intraday rally during the regular session. Traders are buying the dip with full faith and confidence in the Fed. The Fed is allowing banks to do buybacks again so the financials rally bringing the broad stock market higher off the lows. MS strategist Mike Wilson says the banks may be the next momentum play. Everything is rainbows and blue skies. Well, not everything. Over 12 million Americans are unemployed plus millions of gig workers. Retail sales are stalling. The poverty in America grows from 9.3% in June to nearly 12.0% now. 27 million people need more to eat. 85 million people say they are struggling to pay bills. Bad news is great news since the Fed's money printing will continue forever. Wilmington Trust strategist Meghan Shue appears on CNBC and proclaims, "We're the most bullish on the market that we've been in about a year." She advises buying emerging markets and small caps with both hands. BNY strategist Liz Young tells investors, "You have to stay in this (market)" and "do not exit the market here." JPM boasts a SPX 4400 target next year. GS says 4300 and Barclay's proclaims 4000 or higher. The intent of the above examples is not to single-out any individual strategist or analyst, but instead to highlight how euphorically bullish Wall Street is; the level of joy is historic and typically only occurs at significant stock market tops. But, that would mean everyone listed above is wrong. As Timbuck 3 sings, "The Future's So Bright (I Gotta Wear Shades)." .
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