Monday, February 8, 2016

The Charts Say: "Now Is The Time To Worry"..........

The Charts Say: "Now Is The Time To Worry"

The current rally failed at the previous reflex rally attempt during the late December/January plunge. This failure now cements that high point as resistance. Furthermore, the market continues to fail almost immediately when overbought conditions are met (red circles on chart below
), which suggests that internals remain extraordinarily weak.

The market is currently holding above the recent lows as short-term oversold conditions once again approach. It is critically important that the market holds above that support, which is also the neckline of the current "head and shoulders" formation, as a break would lead to a more substantive decline.

The current topping process combines with enough deterioration in the markets to issue long-term "sell signals." The recent bounce failed much sooner than anticipated. This changes the tone of the market to substantially more bearish.  Current trends, based on historical precedents, suggests that "something wicked this way comes."

Dow: 16,204.83, -211.75, (-1.29%)
S&P 500: 1,880.02, -35.43, (-1.85%)
Nasdaq: 4,363.14, -146.42, (-3.25%)
WTI crude oil: $30.89, -2.62%

In Monday's early trade..... European stocks are getting smoked. Heavy selling has European stock markets under pressure. Greece's ASX is down 5.7%. Financials are being hit especially hard, off 20%. Other European markets are lower, with Germany's DAX weaker by 2.4%. In the US, S&P 500 futures are down 21.25 points at 1,854.00. Shares of Deutsche Bank are down 3.3% in Frankfurt and at a record low. The cost of insuring Deutsche Bank's debt is also surging. After beginning 2016 at about 95 basis points, Deutsche Bank's credit default swap spread has surged to 207 basis points on Monday, hitting its highest level since July 2012. Markets across much of Asia were closed. 

2016 EPS Growth Estimates Slashed By 50% Just One Month Into The New Year.

An important question 
is, how many weeks will it take for full year 2016 EPS be revised tom 4.3% as of the start of the year, to 2.2% currently, to negative,indicating 7 consecutive quarters of declining EPS, something not recorded even during the peak of the financial crisis. Incidentally, an earnings recession is two consecutive negative quarters of EPS: we don't know what the technical term is for seven... perhaps depression!

The almost concluded Q4 earnings season is on pace to confirm yet another earnings recession, with a blended earnings decline of -3.8%, which will mark the first time the index has seen three consecutive quarters of year-over-year declines in earnings since Q1 2009 through Q3 2009, but both Q1 and Q2 2016 are looking just as bad in terms of earnings, the estimated declines for Q1 2016 and Q2 2016 are -5.3% and -0.4%."

It's also worth noting that market darlings Amazon and Netflix have lost more than a quarter of their value over the past five weeks. LinkedIn dropped 44% Friday. The unfolding adjustment cycle will be especially burdensome for beloved companies that generate little or no profits/cash flow – and the Bubble has cultivated scores of them.

What is happening is very reminiscent of the buildup to the 2008 market crash. So far, the public hasn't panicked. Why would anyone sell now when stocks always recover? The Adjustment Cycle is just getting underway.

Our Dysfunctional Monetary System

We are hostage to a dysfunctional monetary system, run by people who don't understand how it works in the first place. No wonder the global economy is in the doldrums, and finance markets are having dyspeptic attacks. Banks aren't creating money now because they created too much of it in the past.

Despite a collapse in yields and implicit plunge in the odds of a rate-hike anytime soon, asset-gathering, commission-taking talking-heads continue to spew unrealities about the economy and where it goes next as excuse after excuse (low oil is good, services trump manufacturing etc) are discarded. What is worse is that none other than The Fed's "owners" - the primary dealers - refuse to play along with The Fed's transitory narrative as their Treasury Bond position is the longest since 2013.

A multi-decade Credit Bubble is coming to an end. The past seven years has amounted to an incredible blow-off top fueled by central bank insanity and the ongoing worldwide collapse in financial stocks provides powerful support for the bursting global Bubble thesis. Financial stocks have mutated from market darlings to shorts. The dominos have started falling. 

Few are yet willing to accept the harsh reality that the world has sunk back into crisis as 
mal-investment, over-investment and associated wealth destruction remain largely concealed so long as financial asset inflation persists. This is true as well for wealth redistribution. The unfolding adjustment process will deflate asset prices substantially so as to converge more closely with deteriorating underlying economic fundamentals and global reality.

Global financial and economic imbalances – already unmatched by even 2008 – have gone to even more precarious extremes. Global Credit growth is moving toward the weakest expansion in at least 60 years. A disorderly unwind of leveraged positions concurrent with selling from derivative-related "dynamic" hedging programs would ensure market illiquidity and dislocation. And such a scenario could easily unfold concurrently on a global basis.

How much longer can governments and banks continue with failed policies?

China Weekly Summary

Lunar New Year, Feb 7 - 13.  All markets, business and gov't closed the entire week in China
.  There will be little news.  All on vacation; many headed home.  Jan-Feb data are always fouled up.
Beijing says 6.5 - 7.0% is the 2016 Real GDP growth target.  In China -- targets 'set' are targets 'met.'  But actual economic growth this rapid -- is implausible at the very best, more insanity,delusion and lies won't save China.
We have seen a giant rise recently in cheerleading stories in China's media by many officials - claiming all is OK in the economy, finance and currency.  This jawboning of confidence is not convincing to anyone.
China's domestic equity markets remain broken.  Friday close 2763 -- down 21.9% YTD; down 46.5% since Jun 2015 peak of (5166).  
The Chinese citizenry can't find enough attractive destinations for their savings.  So, creative new instruments are arriving just in time to fill the vacuum in an environment of -- doubtful regulation, unsophisticated investors, a weak economy and a leadership elite with little 'appreciation of' or 'experience with' market forces.  

China's currency is still on a downward path, albeit with interruptions.  We are using 6.80/USD year-end 2016; now 6.53/USD.  Forex Reserves Jan, down $99 bln, vs. Dec, down $108 bln.  


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