10 replies to this topic

[risk_management]

I understand there is always some kind of disconnect and some kind of divergence going on out there but I really don't recall seeing anything like this. Junk has gone down and is close to oct lows while market continues to power upwards. It's really odd. I understand there is weakness in junk land due to oil but I am seeing this across the board. Can we attribute all of it to oil? I don't think so but what do I know. Anyway, let me say few words about the market. The T that I have is expiring today/tomorrow depending how you draw it. I think we are on the verge of decisive move. If we go up tomorrow on strong breadth, the topping will probably take few more weeks at least. And if we go down tomorrow, possibly with floor giving out, the decline should only accelerate from that point on.

[dasein]

thanks for your insight - i also think the JNK divergence is very odd.

[fib_1618]

If you think the junk bond arena is poor, you should see the investment grade bonds...they're even weaker!

What it means is that market liquidity is very poor right now...even with the harbinger of the FED tightening in December hanging over our proverbial heads.

Then again, we've already known for years now that liquidity has been drying up by the path of which gold has been taking since 2011.

Fib

Charts through Friday and are reviewed each week in the "Weekly Breadth Review":

Edited by fib_1618, 25 November 2015 - 07:33 AM.

[orange]

What it means is that market liquidity is very poor right now...even with the harbinger of the FED tightening in December hanging over our proverbial heads.

I don't have any experience in this field. Can you explain?

I have a bonds book which I probably should have read a long time ago.

[fib_1618]

What it means is that market liquidity is very poor right now...even with the harbinger of the FED tightening in December hanging over our proverbial heads.

I don't have any experience in this field. Can you explain?

As you know, when liquidity is poor, it hurts high yield bonds, and by extension secondary growth issues, in two ways. First, companies that are high in debt are more likely to default. Second, there is less money (liquidity contraction) around to invest in everything, and so it tends to move more toward higher quality instruments...like Government backed bonds and equity issues that provide value by paying a dividend (and why the NYSE Preferred A/D line is at all time highs). Problem though right now is that we're also dealing with a competition factor where investment capital is chasing the maximum total return on this same capital. This would help explain (at least partially) the latest run up in stock issues while the underlying data of cumulative money flow remains in a weakened condition. Eventually, something will have to give...either the FED floods the market with fresh liquidity, or the vacuum created by this lack of underlying support will be filled with equity prices moving sharply lower.

Fib

[dasein]

Thanks for the added insights Fib.

[Data]

19 percent of junk bonds is in the energy sector. The average yield on those bonds is around 14 percent now.

[orange]

19 percent of junk bonds is in the energy sector. The average yield on those bonds is around 14 percent now.

14 percent... naaaaaah

[orange]

either the FED floods the market with fresh liquidity, or the vacuum created by this lack of underlying support will be filled with equity prices moving sharply lower.

I think we both know whats going to happen.
They were worried about deflation a few months ago. It drives me nuts that it changed.

Edited by orange, 25 November 2015 - 01:40 PM.

[risk_management]

either the FED floods the market with fresh liquidity, or the vacuum created by this lack of underlying support will be filled with equity prices moving sharply lower.

I think we both know whats going to happen.

Please tell us.

Here is my update after yesterday. While NYSE breadth was still anemic, especially considering volume. Russell and NASDAQ was solid. I am now ready to draw T based on early Oct McOsc high and mid Nov McOsc low. That would project this strength into Dec 21/22. I would still like to see where the McOsc up thrust is going to finish to get some additional projections but this is what I have as of this moment. Junk also found some bid yesterday.

Beware that I am a good fade and that my short got stopped overnight. Happy Thanksgiving everyone.