Sunday, October 25, 2020

FOMC: Fear Of Missing Crash

Ahead of the existential election, stimulus addicts are fully lubed up for more stimulation. Real or imagined...

Stoned gamblers, high on monetary heroin, have a perfect track record of never seeing it coming to maintain. 

The past four years has been one hell of a roller coaster ride for gamblers. Going into the 2016 election, gamblers were tentative as to what an assumed Clinton victory would bring. When Trump got elected, the overnight futures crashed but then rallied back to open green when gamblers were assured of impending de-regulated corruption and massive plundering of the Treasury. The Trump rally lasted over a year, right up until the tax cut came into effect, Feb. 2018. Here we see the MAGA rollercoaster vis-a-vis the Ameritrade Investor Movement Index:

"The Investor Movement Index, or the IMX, is a proprietary, behavior-based index created by TD Ameritrade designed to indicate the sentiment of individual investors’ portfolios. It measures what investors are actually doing, and how they are actually positioned in the markets."

We notice that positioning generally follows the path of the average U.S. stock which peaked in 2018:

Then they got pounded by VixPlosion and took their exposure down substantially. As the rally resumed into the 2018 election, they increased their exposure. Then the market tanked in the fourth quarter of 2018.

Which is where this all gets interesting. Going back two years ago, gamblers were assured that stocks always go up after the election:

Nov. 2nd, 2018

100% Chance Of Rally After Election

The market tanked. Investors got out. Throughout 2019 as the market rallied back gamblers were reluctant until the top in February 2020. They got long just as COVID was spiking. The market crashed. Now, we see above a similar rally back to the same level of allocation.

In addition, throughout the past several months, gamblers have been using record call options to manipulate the market higher. Forcing options dealers to hedge their call option exposure by buying stock. We've seen this every month since June, with the exception of September. It always ends badly. Every moron since the beginning of time believed they could bid up their own stocks. 

Here we see via the one day call/put ratio, the reason the market is still holding up, is because options gamblers have been BTFD:

Semiconductors are at the happy intersection of Technology and cyclicals. Which is why they have outperformed the Tech sector overall, because they benefit from both the deflation and reflation trades.

And yet we see they are rolling over. 

The leading ETF of 2020, Solar stocks, got pounded this week on massive volume:

What's coming next is Global Financial Crisis 2.0. The misallocation of capital at the end of the cycle.

Corporate debt, quarterly change, $billions:

As a crude measure of economic activity, we can use crude oil demand as an indicator. Currently back at 1994 levels: