Friday, June 15, 2018

Get Me Bernie Madoff. It's Time For Shanghai Surprise.

Yes, again...

The just ended "most important week of the year for the world economy", was a week of epic hubris: make-believe nuclear deals, raising interest rates, inciting global trade wars, jamming IPOs out the door. All while Emerging Markets imploded in real-time. Fortunately Netflix and Go Daddy were ready safe havens, since the real safe havens no longer exist. Next week could be more interesting....

This week can be summarized thusly via the chart below:
Emerging market credit (local currency) is perched at the post-election stick save level. Meaning that Trump has crashed Emerging Markets twice - the first time just by being Trump. The second via tax cuts and tariffs. The intervening period was the global synchronized con job. The Nasdaq meanwhile is off in imagined realities land, deja vu of late 2015. The smart money (lower pane), is not betting on another con job. Because really, isn't one enough? 

To complete the circuit, the Fed just raised rates deja vu of late 2015: 

In $USD of course, the stick save failed this week. A function of EM currencies getting doubled teamed by Trump and the Fed. In dollar terms, it's already 2016 deja vu.

aka. 1997...

But what happened to implode EM currencies?

CNBC: What's Wrong With Emerging Markets
"I think everything started in mid-April, with the IMF meeting. Everyone went there with one theme in mind — synchronized global growth which would work with rising rates in the U.S."

But then, global synchronized growth turned out to be a global synchronized con job. Which means that threats of further Fed rate hikes were not going to "work". 

In summary, it was the day that International sweatshop workers shrugged, while global capitalism bet the farm on Forrest Trump and Go Daddy...

"Attack, attack, attack, never defend"
- Roger Stone, Trump Campaign Advisor

"Trade wars are good, and easy to win"
- Donny Chump

"For some reason I can't explain
I know St. Peter won't call my name
Never an honest word
But that was when I ruled the world"

I think we all see where I'm going with this...The Manchurian-Candidate-in-chief has picked up some bad ideas along the way. He's learned from the worst...

The signature of the loud mouth buffoon who knows everything by knowing nothing, is the relentless attack, preferably personal. It's the Faux News formula. They have no defense for their massive lies, so they have to be on the attack constantly. Obfuscation is the means by which they muddy the waters to sow mass confusion. In the event, they have mentally exhausted their dementia-ridden base. Who are continuously told that 2+2=5.

Of course, in combat, only the rankest amateur leaves their flank open to counter-attack due to sheer arrogance. 

So to it is in the markets. Ten years of Central Planning for billunaires has convinced today's cadre of neophyte gamblers that they can never lose. Aided and abetted by fake confidence spread far and wide via Twitter and obligatory Groupthink. Therefore, they've decided to bet all of their money on a handful of massively overbought and overowned Tech stocks, the known safe haven from global trade wars. It's the bet on the indefinite Y2K. In the meantime, due to tax-cut driven Fed rate hikes, the defensive sectors including Defense/military stocks, have been pounded relentlessly. The defense has left the field...

Counter-attack is imminent. 

First, gambler sentiment, risk exposure:

Individual, % bearish:

Hedge Fund risk exposure, second highest in five years, only slighly lower than the tax cut:

So much for the dumb money, now for the smart money:

Holy fuck:

Now, turning to risk

Monkey hammered by tariffs, U.S.-listed large cap Chinese stocks are ready for Shanghai Surprise:

Global real estate was monkey hammered by higher interest rates driven by the tax cut.

Ordinarily, financials would rally due to higher interest rates, but now they smell real estate insolvency. Global financials through their 200 day for the first time since Shanghai Surprise 2015:

The Energy sector had a good run, but speculators are starting to take profit on their historically massive oil bets.

Energy will have to be great again next cycle...

Among the defensive/safe haven sectors, Utilities have been hammered by higher interest rates:

As have Consumer Staples, now enjoying a mild short-covering rally:

Defense/Military stocks have been shellacked by the combination of tariffs and interest rates. Their seven year rally is now over...

Which leaves the last proven "safe haven" from global trade wars:

Netflix & Co:

Rule #1: Never go full Donny

But the week wouldn't be complete without a two day 30% vertical ramp in this year's biggest Tech IPO, DropBox, on no news whatsoever. Just to keep the Wall Street pump and dump primed:

All of which chicanery means that the right flank is wide open for Shanghai Surprise...

Doji on the weekly. At best for the bulls, indicates indecision. At worst indicates imminent reversal of fortune. 

This has been my longest standing count ever. Unfortunately, not due to skill as we know, solely because it has taken 3 months to almost recover the March high. For this count to be right, this count has to be right, now. Meaning further rally invalidates this fractal. 

And if it IS right, it's game over, man: