MOAC: Mother Of All Crashes

A super cycle options driven melt-up ahead of a long weekend. What could go wrong?

This could be a very expensive Labor Day indeed...

We are witnessing a confluence of the greatest market risks of our lifetime taking place at the end of COVID summer 2020.

First off, market liquidity has collapsed as is typical of this time of year. By Friday afternoon most professional traders will be gone for the last weekend of summer. Several brokerages were offline for part of Monday even though it was a generally uneventful day from an index perspective. Pundits are blaming it on the stock splits of the two mega bubbles - Apple and Tesla. As many of us have predicted, we now face a situation in which a handful of Tech stocks are now controlling the entire market due to ludicrous amounts of dollar volume. While the rest of the market has been stalled for months. 

"Online brokerage platforms at TD Ameritrade, Charles Schwab SCHW, E*TRADE, Vanguard and Robinhood were all down or sluggish for hours Aug. 31. The same thing happened during the stock market meltdown in February and March. This is now obviously a recurring problem that should have you concerned if you lack access to professional trading platforms that don’t have similar problems"

I can assure you that what is coming will crash even professional trading platforms. For my part, I am ensuring that my strategies do not have any options expiring next week. I am also taking pre-emptive positions so that I won't be required to trade through a meltdown. As always, cash is king.

As I write Thursday late morning, the so-called gamma hedging that created this past two week melt-up appears to be unwinding ahead of weekly options expiration. If so, then the hangover will build steadily between now and early next week. Meaning Tuesday due to the long weekend. 

Here we see the five day call/put ratio making a second lower high with Nasdaq new highs also putting in a second lower high (lower pane). Both deja vu of February:

As far as I know, only U.S. and Canadian markets are closed on Monday. Which will put Asia and Europe two trading sessions ahead by Tuesday in North America. Again, short term predictions are a fool's errand, nevertheless risks are too great to ignore this situation.

The risks have been building steadily into this momentous event.

Liquidity collapse

Over-leveraged positioning

Massive short covering

Options driven melt-up

Breadth collapse

Mass complacency

Economic obliteration

Also on Thursday morning it appears that the Tech bubble is rolling over hard. Tesla is down for the second day in a row. Large cap Tech is getting monkey hammered.

Buckle up

The Trump Dump

What dunce comes out at the peak of an out-of-control liquidity driven super bubble during the worst economy since 1930 and claims full credit for human history's biggest con job?

When at first you don't succeed:

The number one thing that Trump supporters constantly forget when they make their carefully contorted historically asinine arguments in his defense, is that he's an idiot. Therefore sadly no amount of regurgitated Faux News pablum for weak minded dunces is going to overcome that fact.

On the other side of this meltdown, Trump apologists will do everything possible to pin the blame for this debacle on the Federal Reserve, however it was Trump who hand picked Republican Jerome Powell to Fed Chief. It was Trump who complained constantly about rate hikes. Trump who cut taxes and lubricated markets in 2018 until they crashed. Trump who used the trade war to manipulate Fed policy. Trump who ran the largest post-war deficit in U.S. history forcing the Fed to monetize the resulting repo liquidity crisis. And Trump who STILL has his base of morons convinced that he is their economic saviour. Continually talking about a v-shaped recovery, while the economy implodes in real-time.

Today's vertical robo market rally was ludicrous. An indication that this Disney market is TOTALLY out of control. The options/derivative is now wagging the dog as this Icarus rally reaches its pinnacle. Anyone with even half a brain would run the other way instead of wanting ANY credit for this latent disaster.

This Bloomberg article explains the underlying dynamics driving this lethal melt-up; however, as I've explained it's gamblers renting capital via the options market that is driving the casino into a momentum feedback loop. Out of the money calls force more market maker buying as the market moves higher.

"Strong demand for bullish derivatives on the biggest tech names has spurred dealers to bid up both stocks and their implied volatility indexes...This happened as overall volume declined on the New York Stock Exchange, pushing speculative trading as a share of overall turnover “through the roof”

When shares fall, market makers are likely to unwind hedges at an increasing speed, spurring more losses"


Here we see that this volatility vortex has dragged the S&P 500 to multi-year overbought - worse than the 2018 VixPlosion. We also see that the implied volatility futures are rising with the market:

According to that same article, one observer points out that the volatility bid is not coming just from bulltards. It's coming from real money betting on a major crash:

"This latest bid to implied vol has not come exclusively from the call side; we’ve seen a material increase in hedging demand over the past two weeks”

Despite this robo rally which has seen the S&P 500 up 9 of the past 10 days, the majority of the market ex-Tech STILL has not confirmed the S&P 500 new high. Including the all-important Dow Industrials, Dow Transports, Russell 2000, and global stocks.

Here we see that today the equal weight S&P 500 finally took out the June 10th high, and spiked into the open gap from February 24th. However, we also see bond yields rolling over hard.

An indication that the fake reflation rally is running on glue fumes and non-stop Twitter bullshit.

It's clear that a lot of today's gamblers were not around in March 2000 when the Nasdaq exploded at all time highs. It was spectacular.

When Tsar Bomba explodes the same way this time, these are the safe havens  (Utilities, Consumer Staples) that money will rotate into - the stocks that have the clearest third wave (down) pattern:

In summary, I suggest that this long overdue revelation of Trump's true moral character, is not going to help Trump's popularity among his devoted base of true believers.

At least the wealthy ones I know who are about to get wiped off the map financially. 

Only a gifted con man could pull this off

Waiting For This MAGA Circle Jerk To Explode

MAGA is without question the most over-lubricated circle jerk in human history...

These are by far the most bizarre and insane times in my 52 year lifetime. Those people who are going on with their lives in the normal fashion are the ones who have gone truly insane. Now we see how important consistent belief, routine, and habits are to human sanity, no matter how dire the circumstances. Adaptation never enters the picture for most people. Today's ubiquitous consumption zombies have no answers because they have no questions. There is literally ZERO introspection in this society. Non-existent historical perspective. Those of us who question the new norms of insanity are the ones who are deemed on the fringe. People STILL don't understand why I don't believe in this gong show aka. "the system".


Orlov: License To Kill:
"As the endgame approaches, those still nominally in charge of the collapsing empire resort to all sorts of desperate measures—all except one: they will refuse to ever consider the fact that their imperial superpower is at an end, and that they should change their ways accordingly. George Orwell once offered an excellent explanation for this phenomenon: as the imperial end-game approaches, it becomes a matter of imperial self-preservation to breed a special-purpose ruling class—one that is incapable of understanding that the end-game is approaching. Because, you see, if they had an inkling of what's going on, they wouldn't take their jobs seriously enough to keep the game going for as long as possible."


I have questioned this bonfire of the sanities for over a decade straight, during the continual descent into madness. And here we are.

For those who don't remember, The Running Man was a Stephen King book turned movie about a game show host president who used violent spectacle to keep the domestic populace under control.

Sound familiar? Trump is an expert at inciting BOTH the alt-left and alt-right to violent anarchy. The anger of these two camps feeds off each other in an escalating conflagaration heading into this existential election. 

No one with a brain in the Democrat party sees Biden as any type of saviour. There is no question he is not competent to be president. Nevertheless by comparison to Trump he is eminently more qualified. One man has a flagging memory, the other man pollutes and distorts the truth with purposeful deceit. 

No archaeologist/historian looking back on this time from the distant future will understand how Trump got elected the first time much less a second time. Of course he would not be the first aspirational dictator to lead his blindly loyal base straight into the dumpster of history. History is replete with demagogues who preyed on fear and racism in order to gain popularity. The 1930s spawned several well known fascists. They all ended extraordinarily BADLY.

The Republican Party is now the party of Trump. Those former Republicans who won't back Trump, no longer have political affiliation. Those who DO back Trump have overwhelmingly indicated they don't give a damn about democracy or American institutions. To them, their Trumptopian fantasy is all that matters.

Of course if Biden wins he will be saddled with one hell of a mess, because MAGA is nothing more than a four year (?) delusional orgy of greed and profligacy on a biblical scale. An exorbitant vacation from responsibility tacked onto the end of the economic cycle. Which will end with human history's biggest financial explosion. 

The one we are expecting any moment now.

Anyway, that's what history will say about this time. It was just one massively lubricated circle jerk. 


Let's get to some ludicrous charts:

The parabolic stock du jour is Zoom Video which more than any other company epitomizes the work from home mega bubble. Last night this stock "beat" earnings expectations and today tacked on +40% to its parabolic COVID rally:

Yesterday I wrote about the Tesla mega bubble while mentioning Apple briefly. Today, the Apple mega bubble exceeded the entire Russell 2000 small cap index in market cap.

Apple is now record overbought (see top pane) and is of course the prime beneficiary of dumb money index inflows AND algorithmic futures-based market manipulation.

Software sector

Momentum Tech

Here we see Chinese internet stocks overlaid with U.S. Momo Tech. 

The fate of the U.S. and Chinese casinos is now inextricably bound. What Donny does to China will ricochet back on U.S. markets. 

As I've said many times, there is only one reason for this pump and dump - to mine the bank accounts of those idiots buying a Tech bubble during a depression:

On the topic of Running Man, gun sales are through the roof:

Trump is set to join the pantheon of GOP presidents who over-lubricated gamblers with de-regulated corruption and easy money:

The Biggest Fool's Rally Since The Great Depression

Ponzified gamblers just bought the largest wealth gap in U.S. history, with both hands. The Casino Class always assumes that everyone else will go under the bus to make them wealthy. Now they ARE everyone else...

The month of August began with millions of unemployed workers seeing their monthly incomes crash as the Federal stimulus stipend ($600/week) ran out. An event which sparked the best August rally in 36 years (1984), and the best 5 month stretch in 82 years (1938).

"This is the best rally in 82 years"
"It's just getting started"

Most people are apparently unaware that there were ten bull markets(+20%) and ten bear markets (-20%) during the 1930s. We can expect the same thing now - hyper-volatility. Central banks are no longer in control, they have the illusion of control. The broken stock market is now a mirror image of the broken economy - massively ignored disparities between the haves and have nots with respect to economic sectors. 

The equal weight S&P 500 has gone nowhere for almost three months, since the June 10th FOMC meeting. Notice below that this index has been stalled at the open down gap from the February crash. That STILL OPEN down gap was Monday February 24th, so let's take a trip down memory lane:

February 24th, 2020:

That tweet was at the beginning of a -35% decline (sideways green arrow):

Of course things have gotten far riskier and far more ludicrous on the rebound.

Within the mega Tech bubble, Apple and Tesla have become super bubbles within a Tech bubble:

Today BOTH Apple and Tesla stocks split, and to celebrate both rallied massively. While the broader market rolled over.

Tesla traded 2 x Apple in dollar volume, and 10 x Microsoft in dollar volume, despite the fact that Microsoft is 3x larger in market cap.

Tesla is no longer a bubble, it's a runaway super bubble that will take down the entire market.

This stock has been manipulated higher by options speculators, creating a momentum vortex as options sellers and short sellers get squeezed mercilessly.

See: Massive Call Option Volume Driving Tesla Higher

This $400+ billion market cap stock is not profitable from operations. Only by selling their excess electric vehicle credits to other car makers do they achieve "profitability". It's the largest unprofitable company in human history.

"This puts the S&P committee in charge of adding names to the 500 in a real bind, because while to the letter of their 'law' Tesla qualifies for inclusion this is purely due to regulatory arbitrage," Colas said, adding that "even a modest downturn in demand" could push Tesla "into the red again."

Zooming out to the broader Tech bubble, here we see that the Nasdaq has been record overbought since that key FOMC meeting in June. Why was that meeting key? Because as we see in the equal weight chart above that is when the broader market imploded lower and that is when Tech exploded higher.

Increasing DEFLATION was the fulcrum for a three month melt-up in the "work-from-home" gambling bubble:

Now, let's overlay Treasury bond yields onto the equal weight chart to understand why June was significant. 

Here we see that fake reflation peaked at that pivotal June meeting, AND it also lower peaked last week at Jackson Hole:

Etc. etc.

I put this chart on Twitter earlier this afternoon. It shows the volatility futures having the highest correlation to the S&P 500 since VixPlosion 1.0 (2018).

As I said on the weekend, what I expect is a mega clusterfuck, not a minor one. Not to say that trading will be impossible but at times may be difficult depending on one's broker. Gamble at your own risk.

Central banks have lost control over this Frankenmonster bubble so the impending declines and rallies will be massive.

By the end of the roller coaster ride the public will have lost all confidence in Wall Street, central banks, and Disney markets.

What happens to Trump's approval rating will depend on the degree of rioting and whether or not the masses enjoy watching Running Man on TV. So far they seem to be loving it.

Here we see that what used to be the ceiling for volatility is now the floor.  

Here is the chart I didn't show, yet.

The S&P 500 is the most overbought since VixPlosion as well. All of which is an indication that reach for risk is the same now at the end of the Big Top as it was at the beginning two years ago:

In summary, contrary to UBIQUITOUS belief, deflation has already won the battle. The only inflation is in Ponzified brokerage accounts.

A middle class bailout is coming eventually, however, there will be major dislocation between now and then.

This event is going to get EVERYONE on the same page regarding America's exceptional inequality problem.

And the fact that color of one's skin has nothing to do with it. 

Trump Casino Is Rigged. To Explode

Having been ignored forever, America's exceptional inequality gap has now reached Banana Republican proportions. Trump's greatest ever MAGA financial WMD is about to fix that problem. In the process a lot of people are about to learn the hard way that poverty in America is not really about race...

"Four more years!"

https://money.cnn.com/data/fear-and-greed/

All of America's unresolved problems are backing up like a sewer. The problem with make-believe "exceptionalism" is that it precludes any problems from ever being resolved. Instead, the same failed ideas are recycled over and over again, each time by bigger idiots. Today's pantheon of exceptionalists are wholly unaware that they are merely the lazy, entitled, and spoiled progeny of far greater generations.

Since his inauguration - long before actually - Trump has been fanning the flames of racial discord. It all started years prior with the Obama birther movement, which is what welded Trump to his alt-white base. Subsequently under his watch, the race war has exploded out of control. The Antifa left is now doing everything possible to help him get re-elected. By painting every non-black person as a modern day slave owner they are rapidly alienating their traditional moderate white supporters while at the same time bolstering Trump support. It's a failed gambit that seeks to eliminate all implicit bias by emboldening far greater explicit prejudice.

Amid this extreme inequality and race wars, Trump's thermonuclear financial weapon of mass destruction is now ready to explode. 

The Tsar MAGA bomb


"No moron saw it coming"

I doubt that this detonation will resolve this toxic 1930s existential culture war, however I know that it will go a long ways towards resolving inequality. The same way that COVID did more to reduce carbon than any 10 climate conferences could possibly imagine. Just give this corporate Idiocracy long enough denial and inconvenient reality will show up out of nowhere and solve all their problems for them. 

Now that the MAGA Kingdom is record lubed up for another four years, here is what I predict they have bought with both hands:

Extreme volatility

Limit down futures. Limit up futures. Trading halts

Robinhood platform crash

Brokerages offline for hours at a time. Class action lawsuits

Public panic

Central bank panic

Massive rallies, massive declines

In summary, a wholesale clusterfuck with plenty of blame and dissatisfaction to go around.

As I've said many many times, all that matters at times like these when the Casino Class is partying like it's 1929, is that Wall Street takes full advantage of the pump and dump:

"A stampede of companies have filed to go public in recent days, as they look to take advantage of a rapid recovery in U.S. capital markets, in a flurry of activity reminiscent of the heady days of the dot-com boom of 1999."

A global total of 241 initial public offerings has been recorded so far during the second half of 2020, marking the fastest start to the second half of the year since 2007"

Proceeds raised during the eight weeks since the start of July total $36.7 billion, up 140% compared with last year and a 10-year high for this period"

As I showed earlier this week, the S&P 500 double topped in the second half of 2007 (Oct. 11th, 2007). This week, the S&P gapped above its February all time high and rallied straight line higher Monday to Friday.


Which means this MAGA overthrow is the biggest bull trap in human history:

Speaking of squalid, politics have kept the latest stimulus bill in limbo indefinitely:

The exceptional inequality gap between the haves and have nots in the U.S. has reached Banana Republican proportions. Now it will get resolved. 

The hard way. When a generation of con men realize their time has come, and gone. 

Double Or Dog Food In Trump Casino

This week true believers in criminality went ALL IN the biggest pile of steaming bullshit in human history...

"What a fool believes he sees, 

no wise man has the power to reason away

What seems to be, is always better than nothing"

What bothers me the most about the modern conservative movement is that it's 100% bullshit. Which is why it now requires a circus clown to sell it. After George W. Bush's meltdown, for a while they were out of tricks. This re-pricing event will be an ENDGAME lesson for true believers in serial criminality.

First off, yesterday Fed chair Powell delivered an entire speech on the topic of the Fed's willingness to let inflation run hot in the worst economy since 1930. It's no wonder copious dunces today view inflation as the main threat, even the Fed is clueless on this subject. Powell didn't mention one word about the real problem, deflation. They have a solution for the problem that doesn't exist, and not even the slightest clue that the real problem is the exact inverse of the problem they are attempting to solve.

Super idiots.

Hot labor markets are the new problem with tens of millions unemployed:

Gold spontaneously imploded on this steaming pile of bullshit. Today, it made a modest comeback to complete the third retracement at every degree of trend:

In Trump Casino however, Fed bullshit kept the fake reflation dream alive for one more week.

This is the official wave count

From an extreme positioning standpoint, here we see that Active Managers raised their risk exposure this week to the highest level since just before VixPlosion 1.0 (Feb. 2018):

Here we see the call/put ratio is making a double top. The last time it peaked was June 11th when the NYSE rolled over. This time the Nasdaq AND the NYSE will be rolling over at the same time.

Despite the relentless robo rally, volatility is starting to catch a bid - at the exact same level that sparked wave (iii) down in March:

It's only a matter of when, not if this entire delusion explodes with extreme dislocation:

The last time we saw volatility rally with a rising market was Feb. 2018, VixPlosion.

Which is why global spontaneous VixPlosion 2.0 is now my base case scenario

Bueller?

Economic AND financial disintegration are now WELL advanced in the U.S. and globally. Only a handful of massively overowned MAGA stocks are keeping this delusion alive.

What else?

This week in summary:

"Four more years!"

Smoking Crack Used To Be Illegal

I have learned a few things by watching the Republican National Convention. First off, Joe Biden is a one legged man in an ass kicking contest. Why? because the Democrats will never be a fraction as vicious as the good Christian Republicans. Which is why the RNC has turned into a hate filled fear festival, with Barbie and Ken doll taking turns on stage. If Joe Biden is elected, we are told that AOC will run Treasury, Ilhan Omar will run the State Department, all guns will be confiscated, and there will be no police whatsoever...

This is what history will say about the Republican Party circa 2020:

Using this proprietary GOP attack methodology, were he to stoop to their same fear tactics, here is what Joe Biden would say will happen if the Anti-Christ gets re-elected to complete the Tribulation:

1) They will plunder Social Security and Medicare by directing all FICA payroll deductions to tax cuts for the ultra-wealthy

2) They will destroy Obamacare leaving millions of jobless with no access to healthcare in the depths of the worst depression and pandemic since 1930.

3) They will open up all Federal lands to fracking and continue to destroy the environment. Including the Arctic National Wildlife Refuge in Alaska, which was approved for drilling last week. 

4) They will further deregulate Wall Street by final destroying the Volcker Rule and Dodd-Frank protections put in place after 2008

5) They will destroy what's left of America's reputation on the global stage, forcing everyone to put Canadian flags on their luggage when traveling overseas

6) They will signal their undying support for white supremacy and ensure that the highly profitable corporate prisons are fully stocked with black men, while white collar criminals plunder the country with impunity

7) They will destroy democracy and ensure only deranged circus clowns get elected and all hooker payoffs are tax deductible

8) They will create human history's biggest sugar stimulus stock market bubble, thus widening the wealth/income gap beyond Third World levels

All of the above. 

Too late.