David Nichols 28JUL03
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David Nichols 28JUL03
MONDAY a.m.
July 28, 2003
Macro Events
by David Nichols
There hasn't been too much going on in the stock market since the June 6th spike high. The market has had some great chances to break down, and some equally great chances to break out. Neither event has happened.
Thursday and Friday of last week were a prime opportunity for the market to sell-off down through support. The market had reached a perfect chaotic balance point, where the merest push was ready to trigger a cascade down. Yet instead the energy push came to the upside -- sending the S&P 500 straight back up into the middle of the range.
It's hard to make too many conclusions out of the charts right now. Not breaking down after such a big run is, in general, a bullish sign. A market that consolidates sideways can be storing up energy for a further push higher.
But this bear market has churned at the highs before, unable to penetrate higher, but in no hurry to break down either. In fact, the Nikkei precursor we've shown from the early 90s spent many months churning around the 21,000 level, tantalizing bulls with dreams of breakouts, but never able to get up and over.
The big problem remains sentiment. The move up has created too many bulls. Friday's move up saw a renewed sense of bullish euphoria. If the market is going to really and truly break-out above the highs at SPX 1015, then we'll have to see some doubt and skepticism enter the mix from here.
The VIX closed the week under 20, at 19.94. That's the very definition of complacency. Yet if the VIX can manage to rise if the market pushes higher from here towards the top of the trading range, then a breakout would actually have a chance, and we'll adjust accordingly. Otherwise, it will be a good shorting opportunity.
The real action lately has been in the bond market. The sheer size and scope of the wealth destruction in the bond market makes the stock market look like a penny stock bulletin board. The scope of the moves up and down in bonds has been absolutely staggering, especially in terms of dollars won and lost.
The question is where is all this money going as it comes rushing out of bonds? It's not going into stocks, which have simply moved sideways. If this were truly a case of the financial markets prophesizing a major economic recovery, stocks should be soaring in direct response to this bond market sell-off.
Perhaps tellingly, the U.S. dollar has also been selling off along with U.S. treasuries. So a case can be made that foreign capital is simply pulling out of the U.S. markets. Greenspan's jaw-boning has cost them hundreds of billions of dollars, and they're tired of it.
If this foreign capital flight is indeed occurring, then it is vitally important from a big picture "macro" perspective -- because foreign capital in-flow has been the thing propping up our economy, making up for the lack of savings in the U.S. If foreigners lose their desire to finance our asset- based economy -- and it looks like this bond sell-off could be the first warning of this -- then a destructive chain reaction could be in the works for global financial markets.
A lot of people will be badly burned if this scenario unfolds, so I'm pointing it out now in the hopes that we aren't among them. I'm planning on monitoring this as closely as possible.
The destabilization of the bond market by the Fed has to put everyone on red alert that we are now living through an incredibly difficult and dangerous investment environment. At the very least, things are not as rosy as the incredibly seductive Wall Street hype-machine is leading everyone to believe.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Drained 4 points on Friday to 0.3% full of negative sentiment.
SHORT-TERM: Hourly gauge closed the week in an advance phase.
MID-TERM: Sits at a neutral 50% with the Confidence Diffusion Index at a bullish 1, just barely into bullish territory, but pretty darn neutral.
LONG-TERM: Remains at a neutral 95/5 with the weekly CDI at 0.
BOTTOM LINE: The VIX dropped to close the week under 20. The Put/Call Ratio on Friday was 0.67, which is low in the recent range, though not extreme. The sentiment tank is all but empty. Meanwhile the SPX remains locked in a horizontal consolidation pattern. There could be one last blowoff breakout from here, powered by the Fed's fire-hose of liquidity. However the more likely scenario from such an extended point in the sentiment story is for the market to put some fear into the hearts of the complacent bullish majority by at least threatening to break down.
July 28, 2003
Macro Events
by David Nichols
There hasn't been too much going on in the stock market since the June 6th spike high. The market has had some great chances to break down, and some equally great chances to break out. Neither event has happened.
Thursday and Friday of last week were a prime opportunity for the market to sell-off down through support. The market had reached a perfect chaotic balance point, where the merest push was ready to trigger a cascade down. Yet instead the energy push came to the upside -- sending the S&P 500 straight back up into the middle of the range.
It's hard to make too many conclusions out of the charts right now. Not breaking down after such a big run is, in general, a bullish sign. A market that consolidates sideways can be storing up energy for a further push higher.
But this bear market has churned at the highs before, unable to penetrate higher, but in no hurry to break down either. In fact, the Nikkei precursor we've shown from the early 90s spent many months churning around the 21,000 level, tantalizing bulls with dreams of breakouts, but never able to get up and over.
The big problem remains sentiment. The move up has created too many bulls. Friday's move up saw a renewed sense of bullish euphoria. If the market is going to really and truly break-out above the highs at SPX 1015, then we'll have to see some doubt and skepticism enter the mix from here.
The VIX closed the week under 20, at 19.94. That's the very definition of complacency. Yet if the VIX can manage to rise if the market pushes higher from here towards the top of the trading range, then a breakout would actually have a chance, and we'll adjust accordingly. Otherwise, it will be a good shorting opportunity.
The real action lately has been in the bond market. The sheer size and scope of the wealth destruction in the bond market makes the stock market look like a penny stock bulletin board. The scope of the moves up and down in bonds has been absolutely staggering, especially in terms of dollars won and lost.
The question is where is all this money going as it comes rushing out of bonds? It's not going into stocks, which have simply moved sideways. If this were truly a case of the financial markets prophesizing a major economic recovery, stocks should be soaring in direct response to this bond market sell-off.
Perhaps tellingly, the U.S. dollar has also been selling off along with U.S. treasuries. So a case can be made that foreign capital is simply pulling out of the U.S. markets. Greenspan's jaw-boning has cost them hundreds of billions of dollars, and they're tired of it.
If this foreign capital flight is indeed occurring, then it is vitally important from a big picture "macro" perspective -- because foreign capital in-flow has been the thing propping up our economy, making up for the lack of savings in the U.S. If foreigners lose their desire to finance our asset- based economy -- and it looks like this bond sell-off could be the first warning of this -- then a destructive chain reaction could be in the works for global financial markets.
A lot of people will be badly burned if this scenario unfolds, so I'm pointing it out now in the hopes that we aren't among them. I'm planning on monitoring this as closely as possible.
The destabilization of the bond market by the Fed has to put everyone on red alert that we are now living through an incredibly difficult and dangerous investment environment. At the very least, things are not as rosy as the incredibly seductive Wall Street hype-machine is leading everyone to believe.
Sentiment Dashboard
by Adam Oliensis
SENTIMENT TANK: Drained 4 points on Friday to 0.3% full of negative sentiment.
SHORT-TERM: Hourly gauge closed the week in an advance phase.
MID-TERM: Sits at a neutral 50% with the Confidence Diffusion Index at a bullish 1, just barely into bullish territory, but pretty darn neutral.
LONG-TERM: Remains at a neutral 95/5 with the weekly CDI at 0.
BOTTOM LINE: The VIX dropped to close the week under 20. The Put/Call Ratio on Friday was 0.67, which is low in the recent range, though not extreme. The sentiment tank is all but empty. Meanwhile the SPX remains locked in a horizontal consolidation pattern. There could be one last blowoff breakout from here, powered by the Fed's fire-hose of liquidity. However the more likely scenario from such an extended point in the sentiment story is for the market to put some fear into the hearts of the complacent bullish majority by at least threatening to break down.
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- Registado: 3/12/2002 17:45
- Localização: Portugal
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