Faceplant! Resurrection! Monday markets crash. But Tuesday, stocks soar
WASHINGTON – As this column’s readers know, I’ve been increasingly nervous about US stock markets in general for the better part of July. Stocks have gone up too much and too fast. This had to end. And last week we got some clear signals that it would. And soon. Which happened today. In an epic faceplant, Monday markets took a Wile E Coyote-style nosedive off their lofty, bullish cliff. But Tuesday morning, the averages did a huge 180, and we’re currently watching stocks soar. Why?
Let’s drill down a bit. Monday, the Dow was off over 900 points at its worst, a nearly 2% decline on the day thus far. The tech-heavy NASDAQ and the broader-based S&P 500 were down less on a percentage basis. But, as of Monday’s close, they still looked feeble, although the Dow recovered roughly 200 points from its worst point.
But now it’s Tuesday morning, and guess what? The Dow is surging, up over 400 points as we write this piece around 10:30 a.m. ET. (Now over 500.) What gives? Seriously? Are we headed back to those bipolar market moves of yesteryear? When stocks soar just a day after they crash?
TRIGGER READER ALERT: Long, somewhat politicized commentary and explanation dead ahead.
What gives? Covid nightmares?
As usual, the answer is likely a variety of things. These, taken together, don’t bode well for the bulls. The government appears to be fiddling with a new Covid-19 terror campaign. Masks anyone? That could hurt the slowly reviving tourist business, including airlines, cruise lines, hotels, restaurants, resorts… you name it.
Like Dracula returning from the grave – again and again – Covid-19 keeps reappearing just when everyone thought we’d killed it. As we’ve been saying in these columns not long after the pandemic was officially declared, Covid-19 and its likely endless variants will be with us forever. The WuFlu is the New Flu. There’s no need to destroy American lives again and again whenever the New Flu’s latest Flavor of the Month shows up. Which it will. Just like Dracula. But the government and the media are scaremongering again. Not good for investor psychology.
Terrorism by media
But for whatever reason, the government has continued to hype Covid-19, focusing its fear-mongering on the “latest” and “highly contagious” Delta variant. The media, irresponsible as ever, dialed the fear-mongering up to 11 over the weekend, and, voilà! The financial media ran with it and helped terrorize traders and investors into panic mode. Hence, at least in part, the Monday faceplant on Wall Street. At least if you believe the media.
But wait! There’s more.
It’s ba-a-a-ack! Inflation, that is. And oil is doomed, doomed I tell you…
Obviously, inflation has also hit the stratosphere. Along with gasoline prices at the pump. What do you expect with all-socialist Washington D.C. pols spending our taxpayer money (and borrowed money as well) like an army of drunken sailors. Modern Monetary Theory (MMT) by stealth?
As for the oil thing… the Saudis, what remains of OPEC, and its fellow traveler, Russia (aka, OPEC+) decided Monday to open the oil spigots they’d closed down last year. They then feared (correctly) that oil prices would suffer from a sudden oversupply. After all, everyone in the world was eventually placed under house arrest by their respective governments. Which, of course, killed tourism travel entirely, and snuffed out much local commuting as well. So per barrel oil prices took it on the nose Monday. So did oil stocks, helping lead that epic Monday market faceplant.
Then, there’s the matter of the (virtual) Biden Presidency
But perhaps worst of all, it’s abundantly clear now even to the (forgive me) cretins who actually voted for Joe Biden that they, along with at least five rogue states, cheated America into “electing” an empty head to the White House.
Today, this presidential pretender bumbles along, breaking china (lowercase) wherever he goes. Worse, he’s aided and abetted by his comical sidekick Laughing Girl. But last fall, this nasty, juvenile airhead hit all the proper, woke checkboxes. That ended up putting her next in line to succeed His Fakeness when the Deep State finally decides to pull the plug on Act 1 of the 2020 Coup. Except that they’ll find themselves stuck with a dilemma. How can you replace Empty Head with Laughing Girl, whose own head apparently contains nothing more than a synaptic black hole?
Existential political disasters have an effect
Don’t underestimate this rolling government disaster. Even the Marxist Lamestream Media is finding it hard to cover up the consistently lethal level of incompetence streaming daily from the Occupied White House and environs. And don’t imagine that the rest of the world’s leaders haven’t noticed America’s current feeble excuse for an administration, particularly after Slow Joe’s weird hijinks at the latest G-7 confab.
Everyone see that this will somehow end very badly for this administration and perhaps for the country as well. Which makes investors increasingly nervous about holding too many overpriced assets. Which becomes yet another reason for Monday’s mass dumpage.
I hate to be bearish. But…
Okay. Maybe it’s just a passing thing. But if you add in a woke and seditious Joint Chiefs Chair to the previous messes, it’s easy to see that this country is teetering on the edge of political and military disaster. Mr Market finally sees this as well, despite all those rampaging bulls
In the free area of Stocharts.com, chart guru Joe Duarte, posted an article Monday detailing the endless layer of problems our now blatantly Marxist central government (my observation) is hell-bent on imposing on our generally (and deliberately) uninformed fellow citizens. And perhaps on hapless traders and investors as well.
“…it’s hard to argue with the price charts at the moment. And their message is that the stock market is at a vulnerable spot. Moreover, that means that everything (MELA) is now vulnerable.” [Defined below.]
What price charts? Joe puts up a few of his own. But I prefer to post the latest charts tracking the McClellan Oscillator. It’s an excellent directional predictor when markets reach overbought and oversold extremes. For balance, we’ll look at the corredponding VIX volatility charts. When rising steeply, this measure indicates wild, often bearish market action looms ahead.
A tale of four charts
Updated after COB on each trading day, the latest available McClellan Oscillator chart was compiled after last Friday’s nasty close. Check out the disaster on Friday’s chart below. Its trail continues its jagged trip to negative oblivion, indicating Mr Market was heading for a faceplant. Which we promptly endured on Monday.
Below, we see that the Oscillator promptly plunged into doom territory as we expected. Its chart did a real Wile E. Coyote cliff dive Monday, hitting its lowest negative reading this year. By far. Compare. Another faceplant ingredient confirmed, as the Oscillator took a rapid, nearly 100 point dive from Friday’s sickening close.
Meanwhile, quite suddenly, the VIX also sprang to life last week, particularly in the later innings. But in a different way. Monday’s mid-afternoon reading, which appears below, indicates a strengthening spike upward. In an already negative market like this one, that suggests markets have suffered at least some serious near-term damage.
But, unlike our McClellan Oscillator chart, our VIX chart is continuously updated during each trading day. Like Tuesday. Today. And behold:
There it is. As you can see by the downward red-colored hammer highlighted in yellow, much of Monday’s spike suddenly reversed. Result: Tuesday stocks soar!
What’s going on with Tuesday’s reversal?
You want an honest answer? I have no clue. However, we can spot some truth when comparing Monday’s Oscillator Chart to Tuesday morning’s VIX reading. Generally, when the McClellan Oscillator plunges dramatically below the chart’s X-axis (the zero line), it very reliably signals that a sharp rally — snapback or long term— will happen very soon. Often the next day. And that’s exactly what’s happened here after Monday’s obviously climactic faceplant. If the rally continues through Tuesday’s close, we should see a reversal in the Oscillator’s direction. A modest reversal means today’s rally may not have legs. A sharp reversal might mean a return to the market’s bullish pattern, in which case we get to watch stocks soar. Again.
The current Tuesday morning downward reversal in the VIX tends to confirm that today’s rally may hold, at least for awhile. As volatility cools off (drops to a lower number), market sentiment often reconfirms its earlier trend. In this case, that trend was up. So the VIX and the Oscillator have confirmed one another, at least for this writer. And at least for now.
But that still doesn’t mean we’re out of the woods yet.
Joe Duarte’s Three Boogie Men
Duarte gets a lot more specific about what’s likely happening right now that could kill our recent market rally, turning it back into Monday’s massive faceplant. With a vengeance.
“Up until last week, the stock market had been focused on whether the Federal Reserve would start tapering its QE. But now there are three new boogie men in town:
“-“The specter of higher taxes
-Reports that COVID-19 is making a comeback, based on both rising case counts and an increase in reported viral-related deaths, and
-a disturbing breakdown in the market’s breadth.” [see below for details]
The MELA theory
“If stocks are the lifeblood of MELA, the complex adaptive system composed of the markets (M), the economy (E), people’s lives (L) and the algos [high-speed computer trading algorithms] (A), then think of bonds yields as the primary influence, outside of the Fed on L. That’s because borrowing costs are based on bond yields, and the most important borrowing costs are the interest rates attached to big purchases, such as car loans and houses.
“So it emerges that the problem with the homebuilders may have to do with the fact that, even though yields are low, they may be falling because bond traders are betting that consumers (L) are about to pull back since the stock market (M) is faltering. This, of course, suggests that the economy (E) may be heading for a stall. And, of course, it all comes together when the algos (A) sense a change in the order flow of stocks – from bullish to bearish – and, of course, act accordingly by selling and selling short.”
Are we in for some kind of cluster eff?
In other words, a large cluster of businesses are utterly dependent on one another. And if you fiddle with even a part of that dependency, things fall apart. Add to all this the fact that the United States of America is now being run by an unelected far-left Politburo and you begin to see the effects of a Federal government that has lost all touch with an American electorate with which it no longer has anything in common. Save for mutual contempt.
But as Joe Biden noted, he (and his controllers) have all the nukes. Comforting thought. And maybe that’s trickled down to the mass of investors who busied themselves with pulling money out of the US stock market Monday.
So after all that Monday Faceplant Doom and Gloom, it was probably time for us to bail out of all our remaining holdings Tuesday. Right? Right?
All three major averages are currently back in a bullish mood. All three are up 1% or more at the moment as stocks soar once again. The Dow is currently up some 560 points, about + 1.6%, regaining much (but not all) of Monday’s faceplant close. The NASDAQ and the S&P 500 are not quite as irrationally exuberant, but who knows? Which leaves all investors absolutely clueless about what should come next.
CNBC, which seems to have answers for everything, has zero answers in its online Tuesday columns thus far.
Talk to the Tylers
But the Tylers at ZeroHedge seem to have a better grasp of the market’s bipolar nonsense thus far. In a chart-laden, almost wordless “article” entitled “Traders Are Now Panic-Buying Stocks & Puking Bonds & Bullion,” they seem almost at a loss for words, opining thusly…
“Presented with no comment really… it’s just a farce of a market!
“Stocks are exploding higher since the cash open…”
… and then concluding with some genuine, if a bit technical, Wall Street Wisdom.
“As one veteran trader exclaimed, ‘this market is a f**king joke!’”
Yeah, it is.
Back again when I can grasp what the heck is going on here. Faceplant tomorrow. Comedy tonight.