Wednesday, April 29, 2020

The New Bullshit Market

Gamblers are celebrating the new economic depression with a vertical stock rally. What else?

It's rare that one gets to see the exact same level of denialistic irrational exuberance twice in two months. The prior instance of insanity coming late February at the all time highs. Right before total implosion.

This week, the grand re-opening of the economy and various other fake news, has sparked a MASSIVE rotation from deflation/recession plays back into cyclicals. In other words, as it was in February, over-zealous shorts are now driving this market higher. When Jeff Gundlach said he was shorting the market earlier this week, that was the kiss of death for weak-handed shorts. Once they are out of the way, this gong show will final implode.

We got news via Zerohedge this week that the REAL job loss tally is closer to 50 million. FULL Grapes of Wrath territory.

Yet what else could that mean but a new bull market has now begun?

It was the fastest we’d ever seen a bull market turn into a bear. But within 11 short days after the bear market began, stocks surged by more than 20% to exit bear market territory and officially begin a new bull market. And that was the shortest bear market we’d ever seen."

Sure. Unfortunately, a 35% decline from the TOP, requires a 55% rally back to breakeven, from the BOTTOM.

What today's financial Ponzi schemers appear to have forgotten is Economics 101. The inconvenient truth is that this virus and corresponding lockdown has flattened the curve - the economic multiplier curve. Which have the effect of dampening economic "stimulus", and turning it into economic life support.

Further to the reflation delusion, this is what Senate leader Mitch McConnell called the notion of a middle class MMT bailout: 

"Tangential left wing daydreams"

Which is why ironically gold is not taking part in this week's fake reflation rally. Because it's fake. 

Gold lovers will be happy to know that McConnell is standing between them and reflation of their brokerage accounts. 

The fact that food banks are running out of food this week and otherwise shutting down, is more jet fuel on the funeral pyre of the status quo. As we head for the inevitable confluence of explosion - failed bailouts, rising food insecurity, and bidless market crash.

Here we see market leader Amazon is looking very similar to February at the top:

This last rally is driven by Millennials who don't know a bear market when they see one.

Everyone has to go through it for themselves and experience the joy of margin calls. First hand. 

Speaking of which remember when Tesla tanked gold in February due to margin calls?

Good times are here again.

"Corona what?"

We've actually seen this same movie TWICE in the past two years.

Below we see the S&P 500 has had three FOMO melt-up rallies. Followed by initial declines, then three wave counter-trend retracement to back-test the 50 day moving average. Followed by re-test of the lows. Note that the second re-test (December 2018) was not successful. The third re-test is now on deck, per Jeff Gundlach's prediction this week. 

This two year topping pattern is called a broadening top:

"In the broadening top formation five minor reversals are followed by a substantial decline"

Broadening Top:
"It is a common saying that smart money is out of market in such formation and market is out of control. In its formation, most of the selling is completed in the early stage by big players and the participation is from general public in the later stage."

"I bought for the Coronavirus, but I doubled down for the credit crisis"