Saturday, April 28, 2018

Idiocracy Meet The Brick Wall Of Reality

2018 Imagined Realities are ending. At this stage, only the most fantastical delusions need apply. As long as GoDaddy doesn't roll over, this will all be fine...

One thing that has not been learned to date by investors of any caliber, between the rival camps of technicals versus fundamentals, is the role of the speculative "observer effect" in securitized markets. Which is to say that when gamblers are triggered to go all in, they are taking part in truncating the rally. They are contributing to the parabolic blow-off top that takes price vertical, hence extinguishing momentum. And yet gamblers individually and cumulatively believe the exact opposite, that their participation is somehow elongating the party. Hence, the continuous river of bullshit that must accompany said positioning. Now imagine 7.5 billion people simultaneously triggered to engage in Ponzi reflation across all risk asset classes at the same time.

Notice on the Nasdaq that momentum peaked in January prior to the final index peak in March. Also notice that new highs peaked in January as well.

Now, at this late stage of the global rally, ironically only the highest momentum and hence most speculative stocks are now keeping the casino aloft. To be sure, short-covering in retail junk stocks at the end-of-cycle has been another latent source of "momentum". 

However, gamblers chasing the last few mega cap tech stocks still making new highs, has been the primary driver. Call this the "Netflix" global rally - wherein only the most fantastical delusions need apply.

As I showed earlier this week, the mid-cap momentum stocks (IBD 50) have carved out a seven month symmetrical top (black), whereas Netflix made a new high late last week.  

While we're on the topic of FANG stocks, Facebook was moonshot on Thursday, compliments of the Gundlach short.

And then Amazon had a moonshot key reversal of fortune on Friday, identical to the one it had three months ago at the all time high. The Monday after was the biggest volatility spike in two years.

Spot the difference this time (lower pane):

Elsewhere in extreme risk, here we see Semiconductors and Bitcoin. Bitcoin peaked in late December, whereas Semis peaked in mid-March. As we see via Semis, global demand for PCs, iPhones, Bitcoin mining, and video games has peaked.

The largest China Tech stocks, which are cross-listed in the U.S., finished the week at a level first seen last September. 

That's the good news.

For those companies that are correlated to the economy versus speculative excess, this past week was not as rosy.

The S&P 500 Industrials failed their "retest" by imploding back below the 50 day and the 200 day:

Companies such as Deere


And outside of industrials, P&G within Consumer Staples:

Which means that GE wasn't ever "wrong", only the delusionists were ever wrong.

"Friday's GDP report, for one, painted a somewhat positive picture. The 2.3 percent growth rate may not have looked like anything spectacular, but it was the first time the first quarter beat economist expectations since 2008"

A good chunk of the first-quarter GDP gains came from an inventory build"

Q1 2008, was the beginning of the recession.

Holy fuck. We're doomed.

"They let it ride on Go Daddy"