For Those Wondering What I’m Thinking

(For new readers, here’s a brief description for the following. For those who’ve been following for a while – you can just skip directly to the chart and following commentary.)

Over the last year or so when the markets are at extremes, or what many deem “moments of indecision” I get asked by readers and more, “What do you think of the current “market?”

As older readers have come to know I’ve been posting and annotating the following chart with my thoughts and/or observations. As always: before hand, and before any subsequent moves that may or, may not occur. Then letting the chips fall where they may. The results of those subsequent calls speak for themselves.

However, I feel the market is on far more tremulous ground today than previous posts. For as I implied in earlier notes – “This last move back to the highs was based more on Wall Street shenanigans dealing with Qtr. ending and more, than anything which resembles a healthy economy.” Below is my latest take. To wit:

S&P 500™ (Via the SPX) as of market close 5/16/16
S&P 500™ (Via the SPX) as of market close 5/16/16

I received a call this evening from a friend who asked me what I thought about the “markets” as they sit today. As we spoke I detailed what I inferred as I was looking at the chart above. As I explained my thoughts and reasons – even I was struck by the current movements. For I hadn’t looked all that closely since my last observations a few weeks ago. However, once I did – I thought it was worthy of another update for those who may be interested. (as it seems quite a few are.)

If you look at the above chart you need to remember that I have been moving the “#10” and its corresponding text to the right for months now. The “double line” area that it marks I drew back sometime in February of this year in earlier posts, then marked it with “#10” and a reasoning for it when the markets were coming off the lows at what is now known as “The Bullard Bottom.” I stated then, as I have since, that this is “the area to watch.” And as the weeks and “market” action have clearly shown: this is now a demonstrable fact.

I have marked the recent moves back to this area and the resulting “market” reaction with 3 ovals to the left of “#10.” As one can now clearly see, this area seems to be the demarcation line for what happens next. For as I stated and marked with “#11″ it’s all about this area.” And it still is, but (and it’s a very big but) I believe we may be at the precipice of the resolve. And I’m of the opinion – It’s not going to be good.

Today the “market” fell straight down out of the blue once the minutes of the last FOMC meeting were released. Was there anything “new” to be had?

Well not really, except for one thing: it seems there was a little more chatter between members as to raise rates than was thought at first blush. Add to this, once again, we are hearing Fed. officials jawbone “they’re ready to raise” and the “market” is once again getting nervous that they may indeed “just do it.” The problem?

There’s been nobody, and I do mean, no-body buying into this market as it has levitated higher. In fact last week marked the 16th consecutive week of record-setting – sellers. The higher we’ve gone – the less people have bought – and more have sold. You think there’s not going to be a day of reckoning with a stat like that? That’s a stat that should send shivers down a policy makers spine, not give them backbone. Yet, that is exactly what it seems to be doing in this bizarro world we now know as “monetary policy.” But I digress.

We are currently in what is known as an options expiry cycle which ends Friday. During this period the markets can move up or down violently as positions need to be either rolled, exercised, or closed. There are also more Fed. speakers on tap to jawbone their latest interpretations of bizarro world tomorrow as well.

If for some reason the “market” interprets that the Fed. believes “everything is awesome” and may in fact raise rates (or even heavily contemplate the idea) I feel the markets could indeed selloff in a way not seen since August of last year when everything went haywire. (Yes, and I’m not being hyperbolic for some effect either.)

As I’ve iterated many times previous: we are at a greater risk of a possible extreme event for the exact reasons of why we are at these levels to begin with. There’s no economic rationale or reason to support being at these levels. Couple that with: And there are fewer and fewer people participating i.e., buying!

If there were (e.g. more buyers) you could not have an ongoing record of the longest back-to-back weekly selling in history. It just can’t happen unless something has gone awry. Period. And you are currently in week 17. Want this to be another one for the records? Suddenly “record” anything pertaining to the “market” is met with “Wait…what?” And not in a good way. And that’s not good. (Sorry, but the pun writes itself. For that’s how bizarre these markets truly are today.)

If the “market” gets spooked by either a Fed. speaker or anything coming out of Asia, I believe the “markets” have more than a fair chance of cascading in a waterfall type event straight down to where I marked my latest thought with “#12.” As I’ve stated before: If we break below that area marked with “#11” with conviction? I am of the opinion the markets may indeed not stop until that new square area I marked #12.

Remember: What will or won’t happen is anyone’s guess. No one knows. And if you find someone who says they do? As always – Run! Don’t walk.

© 2016 Mark St.Cyr