Wednesday, January 11, 2017

Payback's A Bitch

Unwinding the unprecedented global hot money that flowed into U.S.-based junk stocks after the election, will be spectacular to say the least. It all hinges on the dollar which is imploding in real-time...

Algos did their best to crush volatility today following Trump's speech, but Dow 20k remains elusive. In a nutshell, stocks have gone nowhere for an entire month.

Speaking of volatility, realized volatility (bollinger bands) is the lowest since the Brexit top in September:

TRIN (selling intensity) is similar as well:

Hot money implosion:
Under globalization, hot money circled the globe seeking to skim whatever incremental yield it could find. For past decades that meant capital flowing out of developed nations into developing nations, where it would alight long enough to encourage over-borrowing only to disappear as quickly as it arrived, imploding local currencies and bond markets alike. It only took about a decade for the Asian tigers to recover from 1997. However, in this cycle, the hot money has been flowing out of the developing nations to the U.S. This entire fake Trumpflation rally has been driven primarily by hot carry trade money flowing into the highest risk most leveraged stocks in the market. Hence, unwinding all of that will be spectacular beyond any description. 

Here we see high beta junk stocks (black) with USDJPY backtesting the broken support line.

One of these did not get the memo that the risk rally is over. That info may well come in another time zone...

Longer-term view of USDJPY with banks:

The Nasdaq bounced off the upper trendline today and made a new high despite Forrest Trump monkey hammering Biotech with a vague random comment about negotiating drug prices lower...

All very bullish of course...

Oil was bid today due to weak dollar, despite a massive rise in inventories. However, EM currency was not impressed (below). Meanwhile, EM stocks led today's rally, a sign that it's in the 19th inning...

The reflation fantasy continues to unwind in broad daylight 
Staples / Bond ratio:

Just remember: "There is no alternative"

US dollar ETF backtested the trend line today via three wave retracement:

"New all time high in the Nasdaq!!!"

doomed, blighted, damned, cursed

New highs Nasdaq 100: