Wednesday, December 16, 2020

Manias, Pandemics, And Mother Of All Crashes (MOAC)

This entire stock market crack high now depends on Banana Republicans. If they are too stingy with the impending stimulus bill, the casino will spontaneously explode at high altitude deja vu of the TARP vote in 2008. Ironically, it's the fat and happy stock market that will cause them to underestimate the need for more stimulus. The market has priced in an amount of stimulus that will only come to pass if the market crashes. History will say that the GOP criminals fucked it up all over again, and this time they paid the full price for their signature inhumanity...

The main thing we've learned over the past decade is that bubbles are invisible to those who are buying them with both hands, which happens to be nearly everyone at this juncture.

Normally I don't blog twice in the same day, but this week I am on red alert. As of this writing, most gamblers are positioned for the Santa rally, which technically begins the day after Christmas and continues into early New Year, but this year they've been front-running the Santa rally since Halloween. Every single day they've been expecting a stimulus bailout.

Here we see the S&P 500 in a rising wedge pattern as the algos work overtime to keep this gong show bid into the New Year and hence past Wall Street bonus payout. Last year it worked great - the rally continued into February and then it exploded on everyone else. However, this year we are seeing the same spike in new highs (lower pane) coming two months earlier:

What we are seeing right now is an eerily similar confluence of factors that marked the melt-up on the left shoulder in 2018, this time pulled forward into December. A confluence of factors which if they all ignite at the same time will create the MOAC: Mother of All Crashes. 

Consider these similarities:
Exactly three years ago this week, Bitcoin skyrocketed to an all time high in December 2017, then it crashed. Then, like now, it was one of the most crowded trades of the yearWhat makes this scenario more lethal however is that this time global stock markets are now highly synchronized to the timing of Bitcoin. Whereas in 2018 stocks continued rallying for another month after the Bitcoin crash, this time they are overbought at the same time.

Whereas Bitcoin made a new all time high this week, here we see that combined Crypto market cap is three wave corrective relative to the December 2017 high:

This software company Microstrategy, just borrowed a massive amount of money to put into Bitcoins, so if you want a safe way to short Bitcoin, you buy put options in this company. This is not a recommendation, merely a suggestion. The company is now a call option on Bitcoin. What could go wrong?

Next, we revisit the BofA sell signal which I wrote about yesterday:

"The surveyed investors were also the most optimistic on equities since January 2018"

Allocation to emerging-market stocks increased 19 percentage points to 55% overweight, highest since 2010, the survey’s most-preferred region"

Of course the key similarity is this fake reflation trade that was on in record size ahead of the tax cut and is now on in more record size ahead of the vaccine and stimulus. Not only are banks signaling a weaker economy than what abided in the 2018 fiasco, but as we see via the various overbought indicators, this fraud is even more overbought than any time prior. And of course, there is the wave count. Three corrective waves in 2019, and three corrective waves in 2020:

Below is a full size view of the equity call/put ratio which has reached an off the charts record:

In summary, here is what this entire fraudulent "stimulus" rally comes down to - if you think that Mitch McConnell is Santa Claus with his puny stimulus bill, then buy this rally. However, if he turns out to be Ebenezer Scrooge and injecting far too little stimulus far too late, then expect end-of-cycle meltdown. The stakes have never been higher, and this meager stimulus is the most priced in event in market history.

"With a week to go until Christmas, the place to get a gift from Santa is Capitol Hill"

"Pinning hopes for a fast and lasting bounce in markets on massive meager stimulus from the government? While no two episodes are the same, that’s not what happened during the financial crisis."