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TOPIC: S&P500 - Macro market discussion

S&P500 - Macro market discussion 9 months 4 days ago #1

  • TraderMatt
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The intent of this thread is to initiate a discussion on where the broad market might be headed and the macro factors which may drive it - what should we be looking for to confirm a given thesis?

To kick off the discussion, I've provided a snapshot of the S&P500 weekly chart - Is the profile shaping up similarly to what we saw during 2007/08; or will intervention and other factors change the script?

Was the massive 2% move higher overnight a sign of new found confidence in Central Bank intervention? Is the broad market still following Oil? Was it an extension of the short squeeze where head-strong negative sentiment is too high and people were left 'short and caught'?

Thoughts?


Last Edit: 9 months 4 days ago by TraderMatt.
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S&P500 - Macro market discussion 9 months 3 days ago #2

  • ErikTownsend
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Matt,

Thanks for jumping in and starting new discussion threads - just what we need to kick things off in our new forums!

My take - it's a relief rally/short squeeze. I thought it would stop at the 50-DMA, but I was wrong. So far the 100-DMA is holding. If that breaks, not too far to the 200-dma.

I think that once the sentiment runs out of steam, and particularly if oil rolls over, equities too will reverse to the downside. Full disclosure: I'm short ES futures.

There is a big caveat. If oil prices were to break higher, I think that could be the catalyst to actually allow SPX to rally to new highs. Now as you know I have been an outspoken bear for several weeks, and I think WTI should be $10 lower than it is. But the fact remains that today the market shrugged off the biggest inventory build in 11 months. The massive 10.4mm bbl inventory build was bad enough, but what Art Berman and I discussed last week was what really counts is Cushing inventory. And Cushing saw a 1.2mm bbl build. That's well over 10% of the remaining capacity as of last week.

So we just used up more than 1/10th of the remaining capacity at the most important tank farm on the planet, AND saw an overall national inventory build three times analyst's expectations, and WTI is about to close up on the day?

My extremely bearish opinion of the fundamentals has not changed. But we just got a punch-in-the-face inventory report and the market completely shrugged it off. Why? Apparently because the Venezuelan oil minister made more inane comments about a meeting this month about a completely meaningless production freeze, which has nothing to do with a production cut, but the price action is responding as if they were equivalent.

If WTI moves above $36 it could really ignite a short squeeze. I think it should be below $26 never mind $36, but so far the propaganda is winning. It only has a couple more $ to go before the rally could become a self-fulfilling prophecy on short covering alone. We've seen seemingly meaningless statements from oil ministers move the market more than $2 in the matter of an hour. We could be just one more well timed propaganda release away from a move that takes us into the $40s on WTI.

Again, nothing here changes my extremely bearish fundamental view. But exactly what Art and I are warning about was delivered on a silver platter today in the form of a 10.4 mm bbl inventory build, and the market still closed markedly higher than before the data came out. That says to me that this oil market is running on emotion not reason, and anything is possible. $36 is a very important technical threshold in WTI.

If WTI were to hope-rally into the $40s, I think the equity rally could extend, possibly to new highs. I don't see that outcome as likely, just one I'm starting to pay closer attention to. We've had plenty of data releases now basically revealing that Art and I called this right, but yet the price is still testing cycle highs. The market isn't being rational, but markets often aren't rational. If gravity (read: economic fundamentals) is going to set in here, it needs to happen soon. A WTI Rally past $36 will become self-sustaining if it happens.

Best,
Erik
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S&P500 - Macro market discussion 9 months 3 days ago #3

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Thanks for the insight Erik - I completely agree with your perspective on this one. The current market price-action is certainly keeping me on my toes at the moment.

What I've found most interesting over the last week or so is that I'm struggling to find a real reason for the move *other* than a short squeeze.
The most bullish news I could find was that Japan introduced negative interest rates for their 10 year bonds, and that the People's Bank of China lowered the Yuan by 0.16%.

The only other conclusion that comes to mind is that as gold is catching a bid, and global fundamentals keep deteriorating (oil as a prime example), I wonder if the market is pricing in expected upcoming Central Bank intervention. The irony there might be that if the markets recover losses on the expectation of intervention then it may not happen and send the market lower.

To be honest, I'd really be surprised if oil managed to get above 41 and the S&P500 above 2050. Certainly if it gets up to those levels, any sign of a turn down and I will be attacking it pretty strongly on the short side.
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S&P500 - Macro market discussion 9 months 1 day ago #4

  • levineam
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All of the points made so far are good I would just like to approach it from a slightly different angle--a different narrative if you will. Another important macro level consideration is confidence. There are really two influences on the price of any asset. The first is the fundamentals. If the economy is filled with good companies, of course, the SP500 is likely to go up, but it's not a sure thing because of the second influence: confidence. If the fundamentals of an asset or sector are sound, but confidence in it is low, it will not experience a bull market. Often the two factors are intertwined because strong fundamentals lead to high confidence. Recent history, however, has demonstrated ad nauseum that these two factors are not always linked. The dollar being a prime example. Despite record money printing, contrary to what many expected, the price of the dollar went up, not down. The reason appears to be, at its core, that despite the money printing which would traditionally weaken a currency, confidence in the currency is at an all time high. This is because confidence is a relative thing. It doesn't matter how much money printing we do, as long as people have less faith in every other currency, and continue to lose faith in them, we should expect the dollar to go up in value. In other words, the value of the dollar will go up as long as investors' confidence in its competitors is going down.

When it comes to the SP500, that index is representative of the private sector. In that case, when the fundamentals of the private sector as a whole are strong we should expect to see the value of the SP500 go up. That being said, if there is sufficient reason to lose confidence in the private sector it will lose value despite strong fundamentals, for example, if there is a financial crisis with systemic risks which threaten to bring the global economy to a grinding halt (as was the case in 2008). In the case of the dollar we looked at its competitors i.e. other currencies. Therefore, when looking at the SP500 (i.e. the private sector) we must also look at its competitor: the public sector. Applying the same logic we find that when confidence in the public sector goes up relative to the private sector we should expect to see government products (currencies and bonds) go up in value and we should expect to see private products (equities, commodities, etc.) go down in value (again relative to its competitor, not necessarily in absolute terms). While many news items and political jawboning may have some effect on prices, we should be careful to group these influences into tiers. They do not all have equal impact. While the words of a central banker or politician may have temporary impact, I do not believe there is any evidence that they can completely move markets over the long run. Therefore these influences should be grouped into a tier below those influences which can move markets over the long run. People losing faith in their government, on the other hand, is something that can influence markets over the long run. It seems clear to me that the American population (and seemingly the global population as a whole) is spiraling away from faith in their governments. The popularity of candidates like Bernie Sanders and Donald Trump are evidence of this. Movements like #BlackLivesMatter (whether justified or not) are evidence of this. Many of us believe that the US is very likely to go into recession around the same time that the price of oil will go up. If that happens, regardless of who is President, how will people react? The approval ratings of politicians are already insanely low. We can already see the cracks forming and every macro level indicator tells us that things are only going to get worse. Once a critical mass of people lose faith in their government (let's remember that a great many already have as evidenced by the record number of independents) they will remove their capital from government products and redirect them toward sectors which they have relatively more confidence in. That's when the SP will really rally IMO.
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S&P500 - Macro market discussion 9 months 19 hours ago #5

  • AldenTyrell
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First post here. Thanks guys for putting this forum board together. I think having a dedicated thread to actionable trades for the small time investor will be an invaluable resource. Shorting the e mini contract unfortunately doesn't fit that criteria. However, if we play close attention to the charts, with a little technical analysis, I think buying some SPY puts in the not too distant future might be a good way of allocating some funds to play the downside. I suggest SPY puts for their liquidity.
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S&P500 - Macro market discussion 8 months 3 weeks ago #6

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Is this the beginning of the next leg down?
(For disclosure: I'm short this market - I've entered a modest futures options put position - if the market asserts a move down, I will build a larger position likely with a direct futures position)

To be honest I wouldn't be surprised if we saw a bit of back and forth between the bulls and bears around the 2000 level for a few weeks before a direction is in and a new move takes off.

Weekly S&P500 E-mini Futures chart:
Last Edit: 8 months 3 weeks ago by TraderMatt.
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S&P500 - Macro market discussion 8 months 3 weeks ago #7

  • ErikTownsend
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This morning's action in ES is disconcerting. As I've said, my outlook is bearish and I think this is a great big short squeeze. But the 200DMA was the last obvious "line in the sand" for the bears, and it was violated to the upside today.

It will be very interesting to see what happens after next week's FOMC!

Erik
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S&P500 - Macro market discussion 8 months 3 weeks ago #8

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Is it wrong of me to have been laughing at the talking heads on CNBC and Bloomberg after the Draghi episode this week? Buy? Sell? Good? Bad? The market is utterly confused...

Image courtesy of zerohedge:


If I step back and look at the weekly trend from a broader perspective, the current channel indicates to me that although battered and bruised, the bear case is still in tact for now. I personally am very light here as I feel we are at a decision point in the market - certainly the outcome of the FOMC meeting might be the catalyst to choose the direction of the next move.
Weekly S&P500 E-mini at 12th March 2016:
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S&P500 - Macro market discussion 8 months 3 weeks ago #9

  • tankumo
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Louis Yamada just said we are having a bear market rally.
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S&P500 - Macro market discussion 8 months 2 weeks ago #10

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This is interesting. This analyst thinks the market is heading higher.

Last December Jim Puplava said we are in a bubble phase up, now he retracts, he thinks we are heading down.

But this guy here thinks we are in a bubble up situation!

blog.smartmoneytrackerpremium.com/2016/0...to-short-stocks.html
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S&P500 - Macro market discussion 8 months 2 weeks ago #11

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On a fundamental basis, I think the stock market is overvalued here, but the market is being rigged higher by the boyz so I expect that they'll keep the stock markets rising all this year, at least until the November elections are over. A rising stock maker will make things look good, which will help the Democrats stay in power by getting Billary elected come November.
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S&P500 - Macro market discussion 8 months 1 week ago #12

  • ErikTownsend
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Feels like both SPX and Crude oil are finally losing steam here. It will be interesting to see whether they roll over next few days or power even higher.

I've seen quite a few research notes in the last few days, all saying this is a bear market rally soon to end. That's certainly been my view for several weeks, but there was obviously far more upside to this move than I first thought.

Erik
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S&P500 - Macro market discussion 7 months 2 weeks ago #13

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I'm currently sitting here watching the S&P500 shoot through 2100... Did not expect what I viewed as a "bear market rally" for short covering to get to these levels.
I'm on the sidelines at this point until I get a clearer indication of a pause and either a continued move higher, or a breakdown in price action.

Looks like Oil moving higher (even after Doha meeting failure) and the US dollar moving lower is what is carrying the S&P500 higher.

I'm not planning on fighting the tape, but jumping on a long trade from here if the price continues higher feels like a hard trade to make...
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S&P500 - Macro market discussion 7 months 2 weeks ago #14

  • ErikTownsend
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We're pretty much on the same page, Matt. The S&P rally makes no sense whatsoever. That leaves one with the choice of vehemently exclaiming that the market is "wrong" while staying loyal to your short position and LOSING MONEY, else stepping out of the way until things start to seem to make sense again. The sidelines are the place to be here. I think the big move down is still coming, but the fact remains it hasn't happened. Time to hurry up and wait!

Best,
Erik
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S&P500 - Macro market discussion 7 months 1 week ago #15

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There seems to be a fairly decent divergence here between the price action and volume which has been building since late March.
Also for those that use oscillators (i'm not one) but I had a peak and the divergence seems to also be supported with MACD and stochastics when compared to price action over the same period.

Could we see a self fulfilling prophecy of the adage "Sell in May and go away"... Let's see what unfolds over the next 2 weeks!
Last Edit: 7 months 1 week ago by TraderMatt.
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S&P500 - Macro market discussion 7 months 2 days ago #16

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Things are starting to look very interesting now...

A few moves that I can see starting to take shape...
- SPX could be starting a new leg down -> I'd like to see it below 2050 to have more conviction
- 10 Year Treasuries could be starting a new leg up
- Aussie Dollar could be starting a new leg down
- US Dollar starting to look interesting, might be having either short covering or perhaps even starting to turn around
- Gold has had a massive move up to 1300 but if the US Dollar moves higher, we could see gold start to stumble here and potentially see weak long positions exit and gain momentum downwards
- Oil is starting to pull back a bit as well -> I'm keeping an eye on how the price action moves relative to the US dollar - I've also read a few articles suggesting that lots of hedges are starting to come into play at around $45 which could put in a ceiling. That coupled with a potential dollar move higher could bring Oil back down?

Early days, but certainly interesting to watch.
Last Edit: 7 months 2 days ago by TraderMatt.
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S&P500 - Macro market discussion 6 months 1 week ago #17

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ok what's the deal with S&P500... I will own up and admit that it faked me into an E-mini trade down below 2050 and spat me out as it pushed up passed 2080.
I'm calling 'uncle' on the S&P for now... whipsaw's all over the place.

On another note, my Aussie Dollar short, US Dollar long, and Gold short calls are all working out quite nicely at the moment.
Oil has also surprised me with it's strength up to almost $50. Interesting discussions going on with Oil on the other threads - the bottom could very well be in with any dips giving a buying opportunity... or will we see some sideways movement. Keen to watch the price-action on this!
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S&P500 - Macro market discussion 6 months 1 week ago #18

  • ErikTownsend
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Matt,

I'm totally confounded by the SPX as well. I guess the reason for all the strength in the tape is that market expectations of a Fed rate hike in June have collapsed to something like 4% probability. That unto itself seems to make sense... Until you consider that the collapse in hike expectations appears to be entirely in reaction to (1) Fed governors being CRYSTAL CLEAR in their public statements that this is a LIVE meeting and a rake hike is "definitely on the table", and then (2) several people like Jeff Gundlach expressing disbelief that they could possibly mean what they said, clearly, over and over again. Dude, I don't get it...

Erik
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S&P500 - Macro market discussion 5 months 1 week ago #19

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U.S. GDP Growth in First Quarter Revised Up from 0.8% to 1.1% Rate



<sarcasm>
We're all saved - We ask for your compliance in ignoring the trend. Nothing to see here. Blue skies as far as the eye can see...
S&P500 has rallied almost 50% from the Brexit lows - nothing to fear. A buyers market!
</sarcasm>

Did someone request a short squeeze? If this can retrace above ~2070 which was the start of the pre-Brexit ramp then I will be in awe of the central bankers ability to control prices in a period of such uncertainty.
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