Today the casino melted up into the FOMC meeting minutes, tagged +300 on the Dow, and then cratered to the lows of the day -166 Dow. If Daneric's wave count is correct, then today's key reversal of fortune began the third wave down at all degrees of trend. Which assumes that the fifth wave melt-up rally in January was a manic blow-off top in every asset class known to man. Which of course it was...
Donny's tax cut came into effect February 1st, the day the wheels came off the bus. As long as the 200 dma holds, this should all be fine. Otherwise, it's game over man...
I've variously compared this juncture to 2014 for its deflationary brick wall. 2008 for the end-of-cycle Fedplosion. 2015 for the smash crash. Y2K for the tech bubble. 1987 for the mega crash. And 1929 for the depression that followed. This will be the sum of all of the above.
Here is where it gets interesting. The casino just fell -10% and rallied back to the .618 fibo retracement line. Which is what happened both in 2015 and 1987. So, what is it going to be, door #1 or door #2?
But first, a typical bedtime story from the car salesmen who have herded the sheeple into record risk at the end of the cycle:
"Until recently, the U.S. stock market had been the gift which keeps on giving. Investors loved the compelling simplicity of record highs, which handsomely rewarded them as the market trekked higher without a pause.
Then in January the Dow experienced its biggest one-day drop ever. The subsequent recovery since has made for an extremely volatile investing climate, reinforcing the belief for many that this bull market has finally reached the end of its golden era. Hogwash"
In other words, he starts off by admitting that the market just performed an historically unprecedented levitation trick. But then he concludes with "And they lived happily ever after".
Comparing now versus 1987 and 2015, the first thing we notice is that in 1987, the casino had not yet pierced the 200 day. In other words, then as now, gamblers had been "handsomely rewarded as the market trekked higher without a pause". However, when the rally off of the initial dive stalled at the 50 day, the casino exploded when it hit the 200 day:
Below, 2015, using S&P instead of Dow, same idea. Here we see that the initial crash took place below the 200 day. In other words, in both 1987 and 2015, the 200 day was combustible. Nevertheless, in 2015 the market successfully double bottomed on the retest.
The real recession stocks (Consumer Staples) have already tapped out. So, the next rotation is back to bonds...
China is back online, so should be an interesting next 48 hours...
This portends badly for happily ever after...
