Super Cycle Crash

Conditions are perfect for a bidless market...

Begin with the all important Tech sector. The Nasdaq, along with all of the major U.S. indices, has a three wave corrective appearance. It's a deep correction indicative of the level of shock and awe to come. Similar to the February top, new highs (lower pane) diverging:

As measured by the number of 1.5% days or greater, the Nasdaq (100) has never been more volatile in the past decade than it has been in the past three weeks:

Bueller?

Apple is now leading this rally again, with its new product launch tomorrow of Dumbphone 12, which is one better than 11.

The other big mover was Amazon ahead of Prime day tomorrow:

Of course the Biden rally is supposedly all about the growth to value rotation. What I call the value trap.

Major banks report earnings this week, and no sector more clearly demonstrates the end-of-cycle economic damage:

Here I show banks with volatility going back to 2008:

Large cap value "leading" back to June levels:

Regional banks

We've seen this movie three times now - every two months like clockwork:

At least the TARP was real. This current stimulus rally is running on glue fumes:

In summary, the last asset classes are peaking now:

The decade-long monetary addiction phase is over. The stimulus junkies have now moved on from monetary heroin to something far more deadly - Monetized Fiscal fentanyl. An addiction that will ultimately doom the U.S. dollar. However, between now and then, stands a deflationary margin call on global risk assets.

In the meantime, compliments of unprecedented Federal Ponzi borrowing at 17%/year, gamblers are now pretending that the recession is already over. 

Had all prior U.S. administrations been as profligate as the Trump Administration, there would have been NO recessions in U.S. history, and the Great Depression would have been as ignored as this clusterfuck is being ignored right now. 

The dollar would be already worthless. And Banana Republicans would be living in a country named after their party.

End Of Cycle, End of Circus

Betting against mass delusion is never easy. It's always easier to run with the crowd...

This week, to the pain of skeptics of Disney markets, the entire election risk premium was priced out of markets, despite the ongoing stimulus clusterfuck. Ironically, risk was priced out DUE to the stimulus impasse making a blue wave far more likely. 

Trump tried all week to cut a deal with the Democrats but he was blocked every step of the way by his own party. The Republicans are of the belief that only blue states need Federal aid, which remains the key obstacle to a deal. Today Trump said he was open to a larger package, but McConnell shot it down. As it was in 2008, this is a fatal miscalculation. 

Since the debate and in particular since he got COVID, Trump's approval rating has imploded. Trump is losing his key demographic due to his cavalier attitude towards the virus which selects against older people. This week, having undergone several million dollars worth of royal medical treatment over the weekend, Trump exhorted his base "Don't be afraid of COVID". Those people most likely to die at home alone with the virus were not amused by his latest publicity stunt:

"In 2016, exit polls showed that 52 percent of voters ages 65 and older supported Trump. This year, polling suggests they’ve lurched heavily against him. A CNN poll this week showed Trump winning over just 39 percent of the same age group, compared to 60 percent who support Joe Biden — the latest in a series of polls showing seniors breaking in favor of Joe Biden."

If it's one thing Joe Biden understands it's old age. 

Ironically, the "blue wave" scenario that is now priced into global risk markets, is DUE to the stimulus impasse and GOP unwillingness to help states. Not exactly how Ted Cruz explains the situation mind you - he blames Nancy Pelosi for not throwing the election to Trump with three weeks to go:

"He blamed Rep. Nancy Pelosi and Sen. Chuck Schumer for holding up a deal to provide a new round stimulus and direct payment checks to Americans during the coronavirus pandemic, although it was President Trump who abruptly called off talks earlier this week."

This is yet another example of gamblers front-running stimulus and thereby making stimulus far less likely. When the market is 30% lower, we can expect urgency on a deal. All of which means that risk is massively mispriced, both in terms of the economy and the likelihood of an imminent stimulus bailout. What I call human history's biggest bullshit trap.

The cost of this epic con job will not merely be measured in terms of a collapsed asset bubble, it will be measured in terms of a collapsed economy, a depleted Treasury, and most costly of all, confidence in the system. Those still betting on this Circus are call options on the end of the cycle. This widely accepted chicanery, is putting them right back where they were in the Fall of 2008, behind the eight ball.

On Friday, another gap open melt-up rally within an ongoing melt-up rally.

While the election risk premium is coming out of the volatility futures, the spot Vix remains bid into the impending volatility explosion:

The chart of the week is this one, showing Momentum Tech stocks. Here we see they have had a melt-up rally into the beginning of the past four months. And then a crash:

In summary, the wave count remains intact:

Any questions?

Reaching The Point Of Explosion

"It was all going so well..."

Yesterday I laid out a technical case showing a similar waterfall decline as 1929 and 1987, with the timeframe eerily the same. Yesterday and today the S&P closed above one month resistance. Squeezing bears and creating a bull trap deja vu of those two infamous prior crashes.

“You’re getting some upside follow through which is welcome for traders. [Wednesday] was the day to put risk back on. The market proved it could still have some commitment to the move that started Sept. 24,”

The hook is set.

Then today, I made the analogy to 2008 when that third wave October crash - similar in magnitude to '29/'87, created extreme volatility into the end of the year and then a slow steady decline to the early March low. What I expect to happen this time.

Now, I will discuss the short-term technical indicators, bearing in mind that the greatest risk faced by markets is a mercurial Donny Trump who is now on the war path. A desperate man will resort to desperate measures, and it's only a matter of time before he crosses the point of no return for markets. He's been doing his best to implode markets for a week. I give him an A+ for effort. 

Here I show the Trump/Biden melt-up sequences vis-a-vis Stay-at-Home Tech. As we see lower pane the broader Nasdaq peaked in early September. What I call wave '3'. It took a mere three days to erase a one month melt-up rally. Then the Biden melt-up began, which I call wave '5' aka. the end of the road. A new melt-up high confirmed by only the riskiest most overbought Tech stocks. 

As far as the cyclical/small cap end-of-cycle short-covering rally, it's important to note that the Nasdaq is four months overbought via the McClellan breadth oscillator. At the same level it was at the last time the cyclical trade exploded, in June:

With respect to gambler positioning, as we see via the equity call/put market manipulation ratio, having been duly pounded in early September, gamblers are once again ALL IN.

Move along, nothing to see here:

In summary, this gong show is living on borrowed time and money. It's overdue to explode spectacularly.

As we see vis-a-vis 2008, Republicans didn't see it coming that time either.

Of course this circle jerk is even bigger than that one. Bigger clown, bigger lies.

The dislocation in March was a picnic compared to what's coming:

Make Lying Great Again

Trump has told more lies than all other U.S. presidents combined. He is aided and abetted by like-minded acolytes who have no respect for the truth. To say that their vacation from responsibility will end badly, is an asinine understatement. History is closing in for the kill...

These people learned nothing from Bush who exited the White House at the lowest point in the cycle. Trump will suffer the exact same fate. 

"It was all going so well"

On Tuesday this week Trump had a temper tantrum and said there will be no further stimulus talks until after the election. When markets tanked he walked back his comments after hours and promised a targeted stimulus bill. This morning on Fox News he said that talks are going great. Nancy Pelosi just came out and said that talks on a targeted stimulus bill are not on the table. We've never encountered anyone who lies as casually as Trump. Nor have we been held captive by a cabal that sold their soul to a sociopathic liar in order to achieve greatness.

Typical headlines these days:

Over the past week, the market has been monkey hammered by this series of Trump lies, and of course his miraculous COVID U-turn. Nevertheless, the casino has maintained its overall bid led by a vertical robo rally in small caps. Tracing back to the start of this melt-up rally, it began two weeks ago when Biden surged in the polls. That surge kicked off a massive rotation out of growth into cyclicals/value, which has continued this week even through all of the negative headlines. 

I looked back for another time when we had this level of economic risk, a critical election, political impasse, a sidelined Fed, and a reflationary headfake rally. 

The last time was October 2008. 

Then as now, gamblers didn't see it coming. Why? Because there were too many liars in the Financial Services cartel talking up stocks in the face of imminent collapse. As there are right now. According to these serial psychopaths, you have to dance while the music is playing. And with record debt issuance and muti-year high IPO issuance taking place right now, the music is loud.

These people always say no one can predict the future.

These people have a unique inability to predict the present as well. 

Despite the overwhelming and well known risks, today's gamblers are massively complacent. Convinced they can ride out depression. They have been fully euthanized by central banks and the virtual simulation of prosperity. Everyone knows the economy is in shambles - far worse than 2008. Everyone knows the political environment is gridlocked, and yet they still believe in fake reflation. All a testament to the fact that today's sheeple far prefer fairy tales over anything approaching reality. No one can sell them something they don't want. 

The market is now pricing in a Biden win and MASSIVE stimulus to follow soon after. However, here again the 2008 analog is instructive, because it took over a month past inauguration to deliver enough stimulus to put a floor under the market. Which is exactly what we should expect now.

In the meantime, it appears that higher reflation expectations have monkey hammered the bloated bond market.

Moving to a closer timeframe, this Biden surge is the second melt-up we've seen in the past two months. The first melt-up was in late August during the RNC when Trump shot up in the polls. Betting odds had Trump tied at 50% for the first time. Since that peak September 1st which coincided with the S&P 500/Nasdaq peak, his odds have collapsed down to 35%, versus 65% Biden. It's a testament to today's Financial Services cabal that they have managed to flip the script and keep this party going, compliments of sector rotation.

It won't work. Absent immediate stimulus, the deflationary pulse will return with a vengeance. Which will coincide with a bond market explosion, and layoffs on a scale we've never seen before. As it was in 2008, by the end of the year the underwear will be mighty stained.

Good times.

 

Revisiting October Crash

The most likely scenario is a massive October crash deja vu of 1929 and 1987. The MAGA Kingdom expectation is for happily ever after. And if it doesn't come true, it will be a Deep State conspiracy. We will soon find out who wins, human history's biggest circle jerk of like-minded fools, or inconvenient reality. Because it can't be left to the Democrats to fuck this up again...

I can tell that weak bears are getting impatient with the length of time it's taking for market reality to show up for work. It's been over a month now since the market peak and the S&P just scored a new month-high close. Today's super lubricated gamblers should be aware that the same pattern emerged in 1929 and 1987:

Here is the 1929 Dow:

The 1987 S&P 500 is actually more similar to the pattern now, because the rally is bisected by the 50 day moving average:

Today's S&P. Below.

What each scenario has in common is a spectacular FOMO melt-up rally into late August, followed by a September mini crash. A weak rally back that lasts 4-5 weeks...

So far:

Here we see that most skeptics of Disney markets have thrown in the towel. They are less protected now than they were at the top in September:

Some would call me an alarmist to question the standard happily ever after narrative.

After all, Trump true believers have everything they want: An Anti-Christ immune to COVID (As I surmised all along). A headfake reflation rally in a virtual economy. An imaginary stimulus deal that is at least four months away. A manic reach for risk. 100% faith in printed money. And a chart pattern that emulates the two largest crashes in U.S. history.

But what they really want is another rigged election. 

Unfortunately, you can't have everything. 

The Age Of Criminality Is Rigged. To Explode

We have the right president for the job. At this juncture, Trump is more likely to be in jail than the White House one year from now. And he knows it...

I've noticed a few articles on Zerohedge lately lamenting the end of the era of great criminality. The sad end to the great shift to the right that started under Tricky Dick 52 years ago. However, for most people this gilded age of corruption has been a serial nightmare. The strip-mining of the middle class to increase returns on capital. When it all explodes and central bank pump and dumps are rendered helpless, then the equation will rebalance back towards the middle class. What today's criminals call "the end", for everyone else will be the "beginning".

What will also end when this gong show explodes, are sanctimonious hypocrites hiding behind fake patriotism, fake religion, and false prophets. The conservative movement over time morphed from personal responsibility to self-aggrandizement. The elevation of self-interest over altruism. Over time, the worship of greed became more and more corrupt until it self destructed. The End. At least that's what history will say. And no question, these people have a long way to fall. They are the furthest thing from greatness in U.S. history.

Trump's brush with COVID and the copious drugs he is taking have given him a false sense of invincibility. It's only a matter of time before he exhorts his base to ultra-violence. 

“Trump is already casting doubt on the legitimacy of vote by mail which tells me that he may try to dispute the result legally or by decree or who knows by what means,"

As we approach the existential election, Trump has been acting out in an erratic and truculent fashion, as he watches his ratings tank in the polls. Yesterday he threw a temper tantrum and declared stimulus talks over until after he wins the election - as in you will only get stimulus after I get re-elected. No blackmail there. But when he tanked markets, overnight he demanded an immediate stimulus mini deal. Putting a bid back under futures.

However, Republicans remain in massive denial over the state of the economy. 

Here we see Republican consumer sentiment remains higher than at any time under Obama, despite mass unemployment:

Notwithstanding Trump's kiss and make up tweet, economic reflation remains a gambler fantasy. 

The umpteenth headfake rotation from growth to value.

On the subject of the changing of the guard, clean energy stocks continue their parabolic run at the expense of the fossil fuel sector.

In summary, the stock market now mirrors the broken economy. Cyclicals rolled over in early June, and the Nasdaq rolled over in early September, leaving the only stocks making new highs right now, the stocks that have left everyone else behind. 

The virtual economy.

What else?

This Is Going To Be One Hell Of A Crash

The biggest risk to markets right now is toxic politics which Trump has assured us will endure before, during, and after this election...

Gamblers are wondering, what will lead this next rally leg higher - cyclicals or momentum? The answer is neither, we have no leadership in markets or the White House.

I listened to an interesting analyst on Bloomberg this morning (no video sorry) saying that any real stimulus is several months away, given the current political quagmire. She also said that even the Democrat package of $2.2 trillion is inadequate given the rising economic deflation. If Trump wins the election, he becomes a lame duck president who will never pass another tax cut again. If Biden wins he has to wait until inauguration to pass a middle class stimulus package, assuming he can get one through Congress. Which means that best case scenario, real reflation won't come until mid first quarter 2021. 

Pending riots.

As we know, markets always "price in" the future ahead of time. Which is why they are pricing in reflation now, given Biden's massive lead. It appears that many people remember 2016 when Trump and his tax cut got elected and the market ripped higher led by cyclicals, even though the tax cut was over a year away. The difference is that back then the economy was not in a depression and in dire need of middle class stimulus NOW.

Which is why gamblers are taking an asinine risk betting on asset reflation while economic deflation is increasing by the moment. Of course this week yields are backing up as the bond market got sucked in to this new Ponzi reflation rally, caused by the spike in Joe Biden's election chances:

"A victory of Democratic nominee Joe Biden in the U.S. presidential election could herald the start of a rotation toward parts of the equity market that have been left behind by the rally"

However, we've seen this movie before, and each reflationary impulse grows weaker and weaker. The last time yields backed up, cyclicals peaked and crashed back in June. Since then they have been making lower highs:

Could this fake reflation rally go on for a while longer? Sure. But one should note that the equal weight S&P 500 peaked on the third trading day of September. Which is today in October terms. Those two gaps will get filled sooner rather than later.

What this all points to - headlines and algos aside - is a market that is approaching third wave everything down:

Value / cyclicals:

Momentum / Tech:

"Safe havens"

And gold, which peaked back in late July when the stimulus ran out.

Could gold catch a bid at the beginning of a major stock selloff? It did back in March, but it soon joined the downside party.