We’ve noticed Money Base vs. Price action of SPY is highly correlated to future price action. US has entered a tightening cycle, and as of recent no communication from FED to expand the money base. In fact, the training wheels of QE where taken off EOY’14, which marked the FED jawboning comments to prop markets as valuations deteriorating.
Countless Hindenburg Omens are issued signaling an unfair high. On a multi decade basis point of control is 131. Price prints on a distribution attempting to revert, but the FED’s experiment of jawboning the market thought vocal communication levitates. We simply wait for a reversion, as a market clearing is needed to healthy future price action.
Price Action in QE of constant liquidity vs. Price Action in conditional liquidity of no-QE. The jawboning movements is a central bank experiment of vocal commands misleading the market. Valuation are tremendously skewed, along with FED credibility is rapidly deteriorating. A reversion is in the process some know it as a topping maneuver, we use the analogy of a paddle wheel.
Bullard Bounce Developing SPX rounding top. 1800 is the liquidity floor as central banks trend to over react as such levels generating a forced short squeeze. On a Large Timeframe, we are witnessing the topping process prepping the market for a reversion.
|March 24 16 Oil Note-|
We are issuing an unfair high warning as our price ceiling of 36.50-40 from prior Oil Note (March 6th) has been achieved. Further appreciation in WTI is not sustainable in current domestic and foreign fundamentals. The recent advancement was built on speculation as OPEC/Non-OPEC members failed to deliver. Such speculation caused a forced short squeeze unwinding shorts in a 40-session +60% move. Higher prices are attracting higher output, re-hedging, strengthening balance sheets, and disposing of inert inventories. This is a self-defeating process of rebalancing the market, as the next market clear will be more abrupt to phase out the excess.
WTI fundamentals are bleak on an intermediate basis. We expect the market to clear in 2Q16. The clear will stem from storage issues at Cushing PADD2, which is exceeding operational capacity. There is ample evidence of capacity bottlenecks due to storage requests denied, and rerouting inventories to PADD 1/3/4 (Genscape).
Paul Horsnell, global head of commodities research at Standard Chartered . “People are worried about a short-term issue, particularly in the U.S., particularly at Cushing.” As we’ve progressed from Feb to March nothing of significance has materially developed to skew domestic or forgeign supply and or demand. Actually the picture is deteriorating, and it’s only a matter of time before forced delivers will re-enter the market like Phillips 66 Feb debacle.
WTI Price action continues to be confused as a drop in production has offset massive builds. 9.36m barrels was logged in the build this week, the 2nd highest of FY’16. In addition, Cushing’s development of a draw is great news, but inventories are only being shifted to other PADDs.
Back in Jan’16, Moody’s put a half trillion dollars in energy debt on downgrade review. In Feb, default rates rose to 3.3% surpassing the Lehman crisis primary due to energy. In March Fitch raises US HY default rate forecast to 6%; Energy to 20%. The current deleveraging phase is a given due to a tightening cycle of the US Economy, which started in December 2015. Money base of the US Economy is not increasing, as the FED has no intentions on expanding the money base in the intermediate timeframe. We expect equities to revert to the 1700-1750 region in conjunction with WTI to the low 30s. Possible near term triggers for a WTI Clear stem from USD appreciation, equity devaluation, GDP data, WTI fundamentals, and HY debt. US Equities are forecasted to report a decline in 1Q16, which will be the 4th consecutive quarter of declines since 2008. Global growth is deteriorating as the IMF, OECD, and BIS have issued warnings in the past 30 days. Shortage of USD across the world, as well as most of the world’s central banks are easing should appreciate the USD. In return, EM decline, commodities decline, and a further devaluation by the PBOC of CNY will add headwinds for global economies.
Added Bonus: The Dome of S&P500
Thur, March 24, 16
08:45 ET Update: [Stockboardasset] S&P futures -54bps
08:45 ET Update: [Stockboardasset] Nikkei -92ps
08:45 ET Update: [Stockboardasset]FTSE100 -100bps DAX -117bps
We are issuing an unfair high warning for SPX and WTI. Recent advancements were artificial in nature producing unstable structures. The month long inclines were primary forced by short covering, central banks, and headline chasing crowds on speculation. Fundamentals were completely disregarded, which this is a symptom of a dying breed. The month long phenomenon took place in most developed economies around the world. The Shanghai Accord last month of central bankers most likely played apart. Massive short squeezes in risk assets and commodities flourished in an unexplainable fashion. We’ve seen the story before as longer timeframes do not believe the current market structure as forced buy-in exhaust to only revert back to the liquidity floor to be only jawboned by a FED speaker. Rinse and Repeat (Bullard Bounce). This time, we have the BIS,IMF, and OECD issuing stark global warnings of over excess monetary accommodations and lackluster growth. The global economy in sync is in a stall, and or contraction. From Brazil, China, EU,EM, and even the US the warnings are on the wall.
Wed, March 23, 16
08:45 ET Update: [Stockboardasset] S&P futures +2bps
08:45 ET Update: [Stockboardasset] Nikkei +12ps
08:45 ET Update: [Stockboardasset]FTSE100 +26bps DAX+117bps
Global Equities continue to show their resilience after Brussels’s worst terrorist attack in history. The EU has a whirlwind of economic, and now apparent non-economic headwinds. The IMF labels geopolitics, terrorism, refugees, and global economic spillovers from the middle east for EU’2016. This comes at a time where IMF,BIS, and OECD are warning global economies of Stall Danger, and excess monetary issue. In the duration of the ZLB, economic and non-economic shocks are the norm these days. We are on watch for a Moody’s downgrade of D Brexit fears have reentered the limelight, and the Brussels’s event produces a stronger case for the exit. GBPUSD and EURUSD continue with sell pressure. The Guardian overnight has labeled top firms in the UK could be at risk for downgrade in light of a BREXIT. Then Lautenschlaeger appears overnight saying the ECB’s rates can go lower! What’s comical to us is Lagarde’s call of NIRP saving the world, but IMF/OECD/BIS warn of such accommodative measures. Nevertheless, German’s officials cut FY’16 GDP overnight +1.5% vs. +1.6%.