Northman Trader: Enjoy the CONfidence Game
"Markets can’t be left on their own. Economies can’t be left on their own. We must always intervene. Our market system no longer functions without intervention, be it central bank or fiscally driven."
The fundamentalists ignore the technicals. The technicians ignore the fundamentals. Economists ignore economics. Politicians lie constantly. The sheeple trust proven psychopaths. It's staggering the amount of risk that can be ignored when central banks are printing money. Our "market system" no longer functions as a market system...
Once upon a time the global economy was slowing at the fastest rate since the Global Financial Crisis. The world's two largest economies were locked in an existential trade war, 1930s style. The stated U.S. goal was to bring China to their knees to force them to sign a trade deal wholly against their interest. China's goal was to push the U.S. into recession to push the sitting president out of office.
Global bond yields were the lowest in world history. Global stocks had peaked 18 months earlier. U.S. stocks were at record valuations, viewed as the last safe havens. Pundits explained away valuations as reasonable due to recessionary global interest rates. "There is no alternative" was the mantra of the day. The U.S. budget deficit was record wide at 4% of GDP while GDP growth hovered at the 2% level. A recession in the hands of any honest generation. China's currency was devalued to a cycle low. The U.S. Energy industry was going bankrupt at an accelerating pace. U.S. retail store closures were the highest in U.S. history. Hard Brexit was becoming more of a certainty with each passing day. Global economic uncertainty was record high.
U.S. stocks oscillated perilously between their 200 day and 50 day moving averages. The average U.S. stock had peaked ten months earlier. Dow Transport theory had failed to confirm the recent Dow high. Stock buybacks were at record levels for the second year in a row, funded by record corporate credit. Recession stocks were leading the "rally".
Five Nasdaq Hindenburg Omens had warned of impending crash as the gap between the average stock and a handful of mega cap Tech stocks grew record wide.
The Fed had begun lowering interest rates as "insurance" against global turmoil. The yield curve was screaming recession, which pundits explained away as being due to the (relative) strength of the U.S. economy. Volatility was at the highest point of the year as 90% down days and low volume short-covering rallies tested the 200 day moving average for two weeks straight. U.S. bond issuance was set to extract ~$400 billion of liquidity out of global markets over the coming six week period. Unprecedented in U.S. history. Active managers had reduced their risk exposure which left U.S. stocks at the mercy of HFT algos well-documented for their increasingly erratic instability. The algos were programmed for only one goal - filling open gaps in the market. By way of proving their seamless reliability at making round the clock markets.
Notwithstanding random "unforeseeable" limit down crashes when key moving averages are broken.
Mind the gap
