Wednesday, June 8, 2016

Manic Melt-Up In Progress: Momentum In. Momentum Out

Gamblers are all lubed up on hopium and dopium...


One of the Fed Members opined a couple of years ago, I don't remember which one, that if interest rates are left too low for too long that investors would go into a manic frenzy and overload on risk at the end of the cycle. Voila. The Idiocracy rebranded consumer staples "smart beta" and turned cereal companies into momentum stocks. Friday's ridiculously bad jobs number caused about five minutes of risk reduction, followed by vertical ascent. Janet Yellen's "dovish" talk on Monday added fuel to the fire. Instead of incentivizing caution, Central Banks are "greasing the skids"...



"For the moment, investors are loading up on both bonds and stocks, with the Fed seemingly sidelined and the European Central Bank rolling out yet another easy-money program Wednesday."

It's all fun and games until someone loses an everything. No surprise, 3x leveraged oil has morphed into a pure momentum play, exhibiting a rising wedge technical formation. The rising wedge is bearish because it consists of converging tops and bottoms. Beneath each "low" in oil are stop losses, which accelerate reversals, leading to cascading sell-offs...

3x leveraged oil:


WTI Crude


Of course the largest rising wedge - consumer staples is making a triple top at a level first reached over two months ago, as home gamers go all in on dumb beta and Wall Street capitulates...




Johnson and Johnson is the ultimate "smart beta" stock because it exhibits strong momentum and low historical beta (market correlation). Past performance being no indication of future results...

Late stage melt-up visualized:


Molson Coors, the 200 year old brewery with a 50 P/E ratio:




"It's called smart Beta, you wouldn't understand it"