May

12

Granted, es's test and failure failure from last Friday's unemployment-spike-high cannot be ignored, but still, the market has been going sideways for around 3 months (and is still priced in the upper-half of the range); yet, the cognoscenti appears to be convinced there has been a regime change. Methinks everybody is a) a bit TOO bearish, b) believes everything they read, and c) is prone to a multitude of cognitive biases and faulty heuristics.

Let's take a look at comments from zero hedge this a.m.

*It has been a very quiet session so far, and despite the slow-mo levitation in the USDJPY, its impact on US equity futures has been minimal if not negative. In fact, following yesterday's latest late day tumble, which Goldman summarized as follows, "Equities tried and failed again to break 1885, it continues to be the level that we can't escape"… it would appear we are increasingly changing the trading regime, and as Guy Haselmann explained simply, markets are slowly but surely coming to the realization that the Fed's crutches are being taken away (that they may well return following a 20%, 30%, or more drop in the S&P is a different matter entirely) and that the economy will not grow fast enough to make up for this. Perhaps the most notable "event" is the sheer avalanche of banks pushing up their forecasts for an ECB rate cut (and or QE start) to June following Draghi's yesterday comments. And so the 1 month countdown begins until the end of forward guidance, or until the ECB "shatters" its credibility as expained yesterday.*

My thoughts:

1. I wouldn't trust Goldman's "opinion" even if Donald Sterling were to give me all of his money.

2. Guy Hasselman is "assuming" a) the 5 yr equity rally was "entirely" a result of qe, simply based on correlation b) taking that stimulus away will prohibit the market from continuing higher and c) earnings growth will not be able to keep up with the market.

Here are two opinions that essentially meaningless, if not self-serving, but because it is in print on a widely recognized site, they will be taken as gospel by the herd. Indeed, the market looks like crap, largely in part to momentum stocks that got way ahead of the market, and are still in the process of getting re-priced to acceptable levels.

What they fail to take into consideration or fail to say is:

continued low interest rates are:

- improving(shrinking) spx dividend yield/10yr yield ratio
- taking the "pressure" off of earnings growth
- making equities under-valued as risk-free rate drops
- and even more undervalued if equity-risk-premium drops
- helping fund buy-backs

…driving price, and keeping equities undervalued on a relative basis

and, as long as the ten doesn't get back above 3.00%, the bull market may be tougher to derail than most people think

granted these too, are all assumptions

but that's the point…isn't it?

p/c ratios are split, breadth is struggling, $vix is still bullish, the indicators are mixed, and the outlook is neutral, but the bull trend is intact. both the bulls and the bears had their chances to assert their dominance, but at the end-of-the-week, all we are left with is an inside week

key levels look like this:

1900

1885(6)

1875

1862

1850


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search