Thursday, December 22, 2022


Every risk market on the planet has now been Ponzified. What return can be gained will always come at someone else's expense. Bullish pundits have no problem with this new primary investment thesis...

Get used to it. Get good at it. Because the Ponzi theme will be with us for the foreseeable future as markets will be stuck in a trading range for years if not decades. In 2023, the trading range will expand dramatically which will present great opportunity for two-way traders. However, most people will not have the stomach for the impending degree of volatility.

Exhibit A of Ponzified markets is this recurring belief in a Santa rally. Cramer informs us that "the charts" indicate a Santa rally is likely this year starting TODAY. To arrive at that conclusion he uses last year as his example. It turns out that last year's Santa Rally was the ALL TIME HIGH for the market. Clearly getting people out of trades is never of any concern to Ponzi schemers:

"To explain Williams’ analysis, he examined the daily chart of the S&P 500 futures from November 2021 to January 2022"

Cramer then compared these findings to the data shown in the daily chart of the S&P futures from September of this year until now"

I made a very bold and cheeky prediction on Twitter that markets would explode (VIX 200) before the end of THIS year,  which is still highly possible. Nevertheless, even if that doesn't happen in that tight timeframe, I would argue that buying into a Santa Rally may not work out too well either.

If last year is any example:

On the topic of Ponzi markets, why is it that Cathie Wood is still a regular guest on CNBC? Do none of these people remember Mary Meeker and Henry Blodget circa Y2K, both of whom were super star Wall Street analysts during the bubble years and were subsequently ostracized for hyping overvalued junk Tech stocks?

Several of Cathie Wood's Ark ETFs are making new one year lows this week. Lately she's been doubling down on Tesla as that stock implodes. Nevertheless, she asserts that in the long run innovation always wins. After Y2K it took 17 years for the Nasdaq to recover its prior high. 

It's all part of this era of corruption in which rampant fraud is accepted and embraced as "the system". 

Meanwhile a new risk emerged this week as investors continue to ignore all conventional wisdom by simultaneously fighting the Fed, the ECB, BOE, BOC, and now the BOJ. This week, the event that bulls said would never happen arrived with the first steps towards tightening in Japan. In the event the $USDJPY got monkey hammered below the 200 dma for the first time since March 2020. As we see below, U.S. bond yields went in the other direction as the usual correlation was temporarily broken. It's a sign that global markets are not YET in risk off mode. However, given that the trend in U.S. bond yields has reversed from up to down, it's only a matter of time before U.S. bond yields and the Yen carry trade are back in synch to the downside as they were during the extreme crash of March 2020. Which means that overnight risk is now extreme. There were six S&P futures limit down overnight gap opens in March 2020 as most of the downside from that era occurred off hours.    

The locus of risk is once again Asia:

In summary, the stock market crash began a year ago at the end of the Santa rally. The first wave down ended in June featuring the worst first half decline since 1970. The second wave retracement took place from June until the end of November. However, it was a weak rally due to the implosion of the Tech sector. Now, third wave down has begun and will accelerate into early 2023. Which means that maximum selling pressure is imminent. Whether that means 2022 or early 2023 won't matter in the fullness of time.

Based upon the magnitude of the first wave decline, this third wave will likely decline a minimum of 50%. It will soon test central banks beyond their limit as they one by one must turn policy by 180 degrees to rescue markets. As we see, the breadth pattern in the lower pane confirms my technical interpretation. The rallies in 2019 and 2020 were both straight shots higher. This rally since June has been a three wave debacle featuring a second lower high for 'c' wave. 

2022 was the warning to avoid this greatest fool's market. The Santa rally was a sucker's bet. Those who make the same bet this year will soon get finished off.