The 300 Club

Thanks for below to Matt Mc Abbey:

New World Volatility

What’s most astounding about the latest dive in the markets is how widespread the selling has been, pretty much across all asset classes and regions.

That’s a sign that the fear currently gripping investors is universal and that the traditional safe havens are no longer perceived as such.

It’s also why equities of all stripes are losing ground, including the best yielders, why bonds and cash are slipping, pulling the dollar down with them, and why commodities are losing steam after several months of fairly good momentum.

Some people point to the increasing probability of a Trump presidency, with its great walls and bellicose rhetoric as the cause of the decline – an outcome that’s only been encouraged by the revelation of Hillary’s latest illaries.

Others point to the Bank of Japan’s next policy meeting on the 21st of the month, where it’s expected that… well, nobody knows exactly what to expect, and that’s the issue. Will they go deeper into the negative with interest rates? Will they spend more on equity market purchases? Will they maintain their current bond purchase program? cancel it? expand it? replace it? They’re not letting on. And that’s scaring a lot of traders, particularly those who deal in Japanese Government Bonds.

And of course there are others who point to the ‘deep state’ and its tentacled representatives in the major brokerages who are trying to bury the market in order to hasten the outbreak of a third world war and create a New World Order on its remnants.

The real story is much simpler.

And it goes like this –

We’re experiencing a minor reset here. Nothing more. After the Brexit dump and subsequent extraordinarily swift climb to new highs, the markets required a cooling off period. It may take another week or two or even three, but we’re fast approaching a resolution to the tremendous heat we experienced through July and the subsequent lock on prices that obtained through Labor Day.

Have a look at the Dow for the last six months –

According and particularly the RSI and MACD indicators , which have once again arrived at their midway waterlines, we’re now at a point of balance. Generally speaking, when these two indicators are trending above their waterlines, the underlying security is in bull mode, and vice versa when they’re below.

As of the latest volatility, RSI and MACD appear poised to slip below their respective waterlines into a bearish posture.

We, however, don’t believe it’s going to happen.

If there’s a theme that’s been consistent over the last seven years of this bull market, it’s the following: that the powers-that-be hate volatility.

That includes sitting governments and central banks, primarily, but also the major broker dealers, who are regularly drafted by their government sponsored peers to act in the market to forestall volatility.

And today, directly before perhaps the most meaningful presidential election in the last half century, you can bet your skid bucket that the current slide is over.

Kaput.

Finito.

We repeat – this could happen because all that was required was a cooling, and a new round of buyers are about to step in to make purchases. Or, it could be that another heavy-handed intervention is about to occur.

Either way, the question’s moot.

This is not the beginning of an ice age for stocks. We’ll get there, to be sure, but it’s not yet time.

We note, too, that at its recent low at 18,000, the Dow effected a perfect Fibonacci retracement, giving strength to the hypothesis that it’s all guns a’blazing as we head back toward new highs.

So are all asset classes are going to rise?

We’rebettingonequitiesrising because both the Fed and the sitting administration have an interest in propping up the stock market, a reality they believe will boost consumer confidence and get folks borrowing and spending, not to mention voting Democrat in November.

Does that mean the bond market and commodities, including the precious metals will also see better days ahead?

There could be some enthusiasm spilling over into those domains, but because the Anti-Volatilians aren’t committed to higher bond and gold prices per se, we don’t see it as likely.

If anything, the current Fed stance on interest rates would dispose them toward lower prices for fixed income – and higher rates.

Now we wait for good news.