Tomorrow the Selling Should Resume
It’s imperative to keep in mind that we’re now in a “Sell all rallies” kind of market. Bear markets are laden with twitchiness, and abrupt, violent rallies. What we’ve seen in recent days is characteristic of bear markets, of “Sell all rallies” markets.
FINRA Margin Data was quietly released for the most recent month (Feb) this morning. A few calculations on it reveals Net Free Credit Margin Balances. I then invert these numbers, and express them relative the market. The chart speaks for itself:
Yesterday’s Fed Meeting was the expected (bad) joke outcome. For about 25 years I have been maintaining a model which takes as inputs, unemployment and inflation data, and the output is what 90 day T-Bills ought to yield. As you can see below, it used to track quite well, until the ZIRP and QE nonsense began. Now, based on the historical relationships of these variables, 90 day T-Bills should be yielding 12%. The Fed is so incredibly far behind the curve (only when you attempt to quantify how far behind they are, does it become mind-blowing) that one can only guess they are clueless and playing games (as a matter of fact, the balance sheet, as reported tonight expanded upwards to a new all-time high, increasing 43 + billion over the past week in junk and MBS. Given what junk was doing last Friday, I can only surmise the Fed was a very heavy buyer in there this week over the announcement window - more game playing)
The thing about the Unemployment and Inflation Model for 90 day bills is that it resolves in favor of the direction of the model going forward. Unless unemployment shoots up dramatically, or inflation gets crushed, the model indicates we are in a for a very long stretch of rate hikes.
Lastly, Industrial Production came out today, up a small amount, but up. As I mentioned in the past Industrial Production is the dance partner to the big indexes, as evidenced in the following chart:
Of note the two move in tandem, yet, Industrial Production is only about 1% above its 2008 top. This does not bode well for the longer-term value of equities and is consistent with many other valuation metrics right now.
Back to the short-term, enough with the data that came out today (yes, AAII sentiment came out, which is meaningless unless the All Bulls number is less than .2, which it wasn’t, nor the NAIMM sentiment data that came out today, and weekly new claims data was uneventful). F4-F7 Vix is still (marginally) negative, the 20 day average range of the S&P is at its highest as of tonight, at about 2.3% (bear market seloff characteristic) and although we didn’t see 4% new lows today, it’s not at all unusual in protracted selloffs to go 1-4 or 5 days without registering 4% or more of total issues traded on NYSE as hitting new lows. We are still working off of the flurry of “Floorbanger” sell signals we had several weeks ago
Most importantly, however, is that we had a “Volume Bar” day today, in both NYSE and SVXY (a good proxy for NYSE volume, especially when they both show concurring signals), which I define as a days volume that is highest or second highest, or lowest or second lowest, of the past 13 days. Short-term turning points occur on or just after such days, and a violent run-up, as we have seen this week, terminating on a low-volume day like today, is significant when the market is short-term oversold (especially in a “Sell all rallies” environment).
Any strength tomorrow, anything above today’s close, ought to be a prime selling opportunity. If not tomorrow, then likely Monday, but most likely tomorrow.
UPDATE March 18, 9:28 a.m. Eastern:
SVXY total shares outstanding exploding higher….this is a common characteristic when markets begin to selloff hard, historically, further buttressing the case made herein:
More as conditions warrant.