45 replies to this topic

[skott]

Looks like breakaway gaps to the downside but you never know. They basically hit support and it's held so far. Rome was not torn down in a day but this seems like a good start.  AAPL below it's 50 day. MSFT above. SEMI's have absolutely crashed through their 50day. Russell 2000 HUGE gap down and barely bouncing. Not a good sign. Transports devastated.

[skott]

Stock market sentiment indicators have approached

or exceeded bearish extremes only seen at

1929 or 2000 market peaks. Following the initial

Coronavirus panic, investors have plunged back into

a very few big-name issues to push cap-weighted indexes

to record highs with historic non-confirmation

from the majority of broad-based indexes such as the

Russell 2000 (at left) and the Value Line Geometric

Index, reflecting average investor portfolio.

The top 5 stocks alone account for over 16% of

the S&P 500 Index, a feat only seen once in stock

market history—the 1999 Tech Bubble.

Only this time, it is not just a tech bubble, but

the bubble of all bubbles, with 8 out of the 11 S&P

economic sectors above the 90th percentile of historic

valuations based on price to sales. This is twice the

total of the Tech Bubble.  The current market bubble is singularly peculiar.

On the one hand, it is historically narrow in the number

companies that are participating in the push to

record highs—only 60% of stocks are even priced

above their 50-day average, with a near-record 16%

weighting carried by just 5 issues.

On the other hand, this bubble is broad-based in

the sense that only 3 of 11 market sectors are not historically

overvalued. During the 1999 Tech Bubble, it

was just the opposite as only 3 sectors posted valuations

above 90% of their historical range. And during

the 2007 Housing Bubble, no sector was above 75%.

Another area where the current bubble is unusually

broad-based is investor mania. The National Association

of Active Investment Managers (NAAIM)

reports an 86% exposure to US equities by its professional

members and the American Association of Individual

Investors (AAII) reports 68% equity portfolio

exposure among its private investor members

(with another 19% allocation to bonds) and holding

just 13% cash. With 10-Year T-Notes within 3% of

their 2012 record peak, investors are full risk-on, facing

massive capital losses when these bubbles burst.

 

So keep reading your textbooks and observing your trading rules and see how well they work when the Market is at historic extremes. No one thinks it can go down. What happens when everything is thinking the same thing?

 

Meanwhile, mutual fund cash allocation dropped

to under 3%, a new all-time low. Facts put mutual fund investor sentiment

in startling perspective as both cash and inverse

(bear) investments are in record low territory.

[skott]

China’s Passenger Car Association said automobile sales in the first 16 days of February were 4,909, which is only 8% of the auto sales that occurred in the same period last year. As the virus continues to negatively impact China’s economy, the effects will become more noticeable to U.S. companies. For example, in 2019, GM sold more cars to China than they did domestically.

[skott]

been seeing lots of posts, emails, sentiment like this in Feb

 

Posted 05 February 2020 - 02:55 PM

At this point all depends on news coming from China, but the market seems unstoppable

 

Liquidity continues to flow into the system, and it is very possible an extended rally towards 3700 SPX before any real correction

 

Simply I can't short this market right now

This rally should last till the end of March or early April

[skott]

for safety's sake I did sell 1/3 AAPL puts bought at 4.90 for 16.95 and half the MSFT puts for 8.85 bought @ 3.30

[skott]

I wish I could find the data on the recent stupid call to put buying ratio.   Meanwhile PMI drops below 50 indicating recession. Japan activity has dropped precipitously. we are using their "model" for stimulating things. BOJ is 80% of the ETF market ,brilliant. They've lost control. 

[skott]

The coronavirus is just the latest in a long series of issues successfully brushed off as irrelevant because all that mattered was that stocks went up. By Wolf Richter for WOLF STREET.

“Complacency” – brushing off big issues as irrelevant or nonexistent because they don’t fit into the buy-buy-buy scenario – has a way of serving up a surprise tab just when the party is hopping at its wildest.

Today, we’re seeing a little of it. Already on Friday, some fallout had hit stocks, following a mild down-day on Thursday. As of early afternoon today, over those three days, the S&P 500 index has dropped 4.8% and the Nasdaq 5.8%.

It’s as if it had suddenly, and I mean from one day to the next, dawned on the hyper-inflated stock market that it is in fact hyper-inflated, and that there are in fact big issues out there that had been known about for many weeks, and some of them for months or even years, but that had been successfully brushed off as irrelevant and had been successfully banished as nonexistent.

Nothing mattered because stocks kept surging higher. Despite the freight recession that spread across 2019 and is still getting worse, with shipments plunging at the fastest rate since 2009, and with railroads laying off people massively amid dropping revenues and plunging earnings, Union Pacific’s shares, upon the news, hit a new high. These issues predated the coronavirus.

 

The auto industry in the US has seen declining sales volume, as measured in number of vehicles delivered, since 2016. This is a huge industry. But no big deal. In the largest market in the US, in California, new-vehicle registrations have dropped 5.5% in 2019, bringing the drop since 2016 to 9.5%. Across the US, new vehicles sales have also fallen for the third year in a row, to below year 2000 levels.

Subprime delinquency rates have exploded in auto loans and credit card loans starting two years ago, and now subprime credit-card delinquency rates spiked to an all-time high, and subprime auto-loan delinquency rates spiked to the highest since the peak of the Financial Crisis.

These developments are not new; they just reached a new high. But the market decided that they didn’t matter, that nothing mattered.

The entire US shale-oil-and-gas sector has been getting crushed again, but no problem. Manufacturing output has been declining for most of last year. But no problem.

Brick-and-mortar retail – particularly “mall stores” such as department stores – has been getting wiped out store by store, chain by chain, this time not by problems in the economy but by a structural shift in how Americans shop by switching to ecommerce, which is booming. Thousands of big stores are getting shuttered every year, with big chains, such as Sears Holdings, getting liquidated, along with innumerable smaller ones. But no problem.

Mall properties have declined in value, but not by much, and most mall REITs hung in there, as investors figured that this whole concept of the brick-and-mortar meltdown was overblown and that it would somehow go away.

Sector after sector has run into problems over the past few years, but it didn’t matter because stocks would just go up and up and up, and so who cares if these companies lose money forever, or burn cash forever or are outright doomed. So long as stocks go up….

Now comes the coronavirus outbreak. It’s just the latest issue. It’s a big issue for Corporate America, and it’s a horrible issue for China. This became clear in January. But US stock indices kept wobbling to new highs while the economic and business issues of the de-facto economic shutdown of much of China were just blown off as irrelevant because they didn’t matter as long as stocks go up.

Apple reached a new high in mid-February despite the clearer-than-daylight problems in China, with demand for iPhones in China collapsing, with Apple stores closed, with iPhone factories in China shut down. And yet, it didn’t matter. Then on February 17, Apple announced what everyone knew it would, but had blissfully brushed off: That it had huge problems in China, and that both, demand for iPhones and its supply chain of iPhones in China had collapsed. Since the February 12 high, shares have dropped only 8.6%, including today’s 4.4% drop (as of early afternoon).

And then suddenly it matters at least a little bit, as complacency turns into confusion among stock jockeys. This wasn’t supposed to happen. Stocks were guaranteed to only rise. That was the deal. Nothing else mattered. And they’re frazzled. How come all this crap suddenly matters? How can Tesla’s ludicrously-priced stock suddenly drop 7.5% out of the blue?

The whole auto sector is getting crushed – component makers and automaker. Here are some samples, as of miday: GM (-5%), Ford  (-3.6%), Honda (-3.9%), Toyota (-3.4%), Delphi Technologies, the former component maker of GM (-3.9%), Visteon, former component maker of Ford (-6.5%), American Axle (-5.8%), Lear Corp (-5.3%), Veoneer, maker of automotive safety and electronic components (-7.4%), Adient, maker of seating and other automotive components (-4.8%), Cooper-Standard Holdings (-3.1%), Modine (-5.5%)….

Auto sales in China, the world’s largest market, have come to a near-standstill due to the coronavirus, after having already plunged 13% in 2018 and 2019 combined. GM sells more vehicles in China than in the US. China is also the manufacturing hub for components used by assembly plants globally. And those components are not being manufactured because the factories that have been shut down. But this has been known since January.

But it didn’t matter because nothing mattered because stocks always go up. Until they don’t. The sudden turnaround of the stock market is confusing our coddled traders. How could this happen? Didn’t the Fed guarantee that stocks would never fall?

Then there’s QE-4, that $400 billion in liquidity that the Fed threw at the market between mid-September and the end of December. The market kept hyping the certainty that it would last forever. But it suddenly stopped at the end of December. And the Fed’s balance sheet has been essentially flat since then, turning from Big-Fat QE into No-QE:

And that shift from Big-Fat QE to No-QE too has been known since January 1 because the Fed posts these numbers daily and weekly, and I report on it regularly, but the market just brushed them off, preferring to believe the misbegotten stories in the financial media about endless trillions of dollars still being created in repo liquidity.

So here we are. The drop in the market is still just a dip in the overall scheme of things. But the evil smell of reality has caused the market to puke today. That doesn’t mean that a new bout of complacency won’t set in. It’s always surprising to rational observers how long and to what ludicrous extent this complacency can be driven.

[skott]

I said we'd test the early Feb lows.  For the REAL truth of what is happening look at the DOW and the Russell 2000. The former is BIG money and the latter is the broad market. Both look really bad and have crashed thru the Feb lows. Russel is negative for the year and so is the DOW by comfortable margins. I can't believe these idiots telling you to be bullish because of what? the greater fool theory??  The market was not cheap and is not cheap. So many danger signs like calls vs. put buying, cash levels, margin levels, PE ratios. PMI going negative, Fed is basically out of bullets. Don't go crazy shorting but be prepared for a very real crash possibility. There will be ups and downs but the market will likely decline by at least 2/3rds from the highs. It is absolute stupidity to say it can't happen when it has happened so many times before. Have you geniuses forgotten 2008 and 2000 already??

[skott]

It's wednesday so we could have or will put in a bottom (for a bounce) since we have hit some extreme support levels. If so I would expect at least a bounce into friday. The alternative is we at least do some testing of this low into friday and possibly go a bit lower. I said before we'd have rallies and bounces but this unfortunately is just getting started. Get your life in order. It's that serious.

[skott]

The decline was so harsh, so scary that even gold was taken down and the miners hit fairly hard depending on which you look at. Mostly what occurred was a breakout above strong/long term resistance in the miners. This happened as the correction in the stock market was just getting started. They went on to new multi year highs and have now come back down to test those breakout points. for flagship GDXJ it was a 10% correction, no big deal. I think you will now start to see funds will really start to flow into the sector.