Santa Rally brought us straight up to resistance levels. With today’s news on the European Downgrade out of S&P the market is feeling nervousness again. The slow no volume melt up over the past weeks made people comfortable running positions they don’t actually feel comfortable with. The Volatility collapse has attracted way too much dumb money chasing long only ideas.
This “strange” market is feeling more and more like the market we experienced in 2008. We just need a big bank failure, and we are back to where it all started. Lehman moment imminent?
Chart comparison with 2008 below, or is this time different?
Every now and then it makes sense going back to basics. Look at charts in the most simple way, and you might actually see the big picture without the noise. Vix has collapsed, while the markets have been grinding higher, led primarily by HFT no volume “stress the shorts” action. Are we reaching the inflection point, where the opposite is about to happen?
“Buy options when you can, not when you need them” (Taleb)
Simple charts below.
So we reach that point once again. The bears become the bulls, everybody sees market NOT moving because Vix is not a fear index anymore. Nervous gold bulls regain confidence after gold bounces, and voila, the perfect ingredients for another sell off in the markets.
Quick short term charts below. We will be back with the daily chartology later. For must read Techncials outlook 2012, click here.
AAII Investor Sentiment for the week ending January 11, 2012 remained relatively unchanged and firmly net bullish. Those with a bullish view over the next six months rose to 49.1% from 48.8% the prior week while those with a bearish view remained unchanged at 17.2%.
Putting these values in perspective the historic average for bullish views is 39% contrasted with 30% for bearish views.
The chart below shows the five period moving average of percent bears versus the SPX. Data has shown since 2008 decreasing bearish views are actually bullish for equities yet at extreme levels as we currently have (this is the second lowest reading in over six years) caution is warranted. Combined with the massive fall in NYSE short interest the long side of the trade appears to be getting rather crowded.
While the markets are stuck in a tight range, it is worth watching the video on America’s lost ability. From Capitalism without Failure.
On American Greatness: There is a feeling today among Americans that we might not make it. The feeling of inevitability of American greatness is gone… that we have become Britain or Romeor Greece. A generation ago, Reagan rallied the nation to deny a similar charge by Jimmy Carter. Reagan was right. But it is different today. Not that we as a people have lost anything of our potential. But we as a Republic have.
On America’s ability to govern: Our capacity for governing seems to have come to an end. The thing we were once most proud of, our Republic, is what we have learned to ignore. Government is an embarrassment. It has lost the capacity to make the most essential decisions. A ship that cannot be steered is a ship that will sink.
This is a multiparty frustration. Left and right. As policies get systematically blocked, we must seek out the Thoreauvian root skill.
Must see video by Lawrece Lessig below.
Both Gold and Silver have put on a nice bounce lately. After bouncing off the 50 and 100 day averages on the weekly charts, we have traded up to the first resistance levels. Many of the rather ”scared” investors at the end of 2011, have now regained confidence, and we are once again hearing the old bull arguments. “Gold will never trade below 1500″ etc.
Bank of America has told the US Federal Reserve that it is willing to retreat from some parts of the country if its financial problems deepen, the WSJ says, citing people familiar with the situation. Executives put the potential move on a list of emergency scenarios submitted to the Fed in 2011 http://ftalphaville.ft.com/thecut/2012/01/13/831771/bofa-raised-possibility-of-retreat-from-some-regions/
Would-be Apple customers in Beijing, who had endured an overnight weight in below-freezing temperatures, reacted with fury after the company’s main store in Beijing’s Sanlitun district failed to open,http://ftalphaville.ft.com/thecut/2012/01/13/831721/beijing-apple-store-pelted-with-eggs/
Spain and Italy successfully sold about €22bn of government debt at sharply lower costs than at previous auctions, easing tensions in financial markets and underlining the tentative improvement in investor sentiment towards the eurozone, http://ftalphaville.ft.com/thecut/2012/01/13/831531/draghi-hails-tentative-stabilisation-after-bond-sales/
In his second meeting as chairman of the Federal Reserve in May 2006, Ben Bernanke heard a Fed governor warn about the nation’s mortgage market. But Mr Bernanke described the cooling of the housing boom as a “healthy thing”, http://ftalphaville.ft.com/thecut/2012/01/13/831541/feds-2006-minutes-rich-with-irony/
The World is changing fast. Latest on the big geopolitical and economic trends. From Stratfor.
There are periods when the international system undergoes radical shifts in a short time. The last such period was 1989-1991. During that time, the Soviet empire collapsed. The Japanese economic miracle ended. The Maastricht Treaty creating contemporary Europe was signed. Tiananmen Square defined China as a market economy dominated by an unchallenged Communist Party, and so on. Fundamental components of the international system shifted radically, changing the rules for the next 20 years.
We are in a similar cycle, one that began in 2008 and is still playing out. In this period, the European Union has stopped functioning as it did five years ago and has yet to see its new form defined. China has moved into a difficult social and economic phase, with the global recession severely affecting its export-oriented economy and its products increasingly uncompetitive due to inflation. The U.S. withdrawal from Iraq has created opportunities for an Iranian assertion of power that could change the balance of power in the region. The simultaneous shifts in Europe, China and the Middle East open the door to a new international framework replacing the one created in 1989-1991.