Correlation is not Causation. It's Annihilation

Wall Street will be the last to know when an asset collapse is imminent. Not only do they have trillions in Fed money to play with and a year-end bonus in sight, but in addition the Fed has completely eliminated any feedback loop between the economy and the stock market. Which means that the financial media who have their nose up Wall Street's ass, will realize the risks only well after the fact. And the Dow watchers at home, multi-tasking The Kardashians, will figure it out sometime after that...

(Those reading this blog who assume I'm an elitist prick, at best are only half right i.e. I'm not an elitist...)

I noticed very recently that a lot of the top tech names e.g. The Four Horsemen (Facebook, Netflix, Tesla, LinkedIn) were starting to stumble. At the same time, the consumer staple stocks such as paper stocks (Kimberly Clark) etc. are now outperforming. At that point, I realized that the usual feedback loop between the economy and stocks had been totally broken by Fed policy. There is no way that Chinese internet junk stocks should be leading one week and toothpaste makers the next week. Usually those two groups are on very different economic cycles and hence peaking at very different points in time. So, I decided to compare the 2003-2007 rally to this current rally to determine if there was any divergence in terms of correlation between industry groups. When I saw the result, I almost shit a brick...

First, some single stock charts...

Fadebook: Breaking Bad

Chinese internet stocks:

Sohu: Again, no idea what these names mean...

XLP: Consumer Staples ETF - New All Time High (i.e. usually peaks right before recession)...

2003-2007

Consumer Staples (red)

Semiconductors (green)

Transports (purple)

Health Care (blue)

All Peaking at different times, as you would expect - Semis early, health care next, trannies late, consumer staples last...

2009-Now

No Comment:

Everyone out the same (very narrow) door at the same time

The QE debt monetization programs are sending the wrong signals about the economy aka. no signal. Therefore, there has been literally no sector rotation. No sector rotation means that all sectors are concurrently overbought and there is no where left to go within the stock market. Nowhere, except out of the market to "cash", which as I explained here, itself is not 100% safe (albeit a lot safer than stocks).

No Way Out of this Glitch Ridden Casino

Today another glitch on the Nasdaq. Despite the lowest volumes in a decade, the current set of systems can't handle the HFT-dominated trade flow. The legacy systems were not equipped to deal with ultra-fast computers spewing phantom quotes and otherwise jamming the system with millisecond orders. All of which means there is no way out of this casino some call the stock market. If the systems are breaking down now, just wait until selling pressure picks up...

Nasdaq with volume (200 DMA) (red line)