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NYSE and the status of world markets

This article is relevant to equities as well as crypto;

The "Real Reason" Crypto Is Crashing?

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Crypto and stocks tumbled this morning as a number of bearish forces converged on market sentiment. The first of which being yet another economic downgrade from Goldman Sachs following a previous GDP forecast reduction, issued two weeks ago.

The Wall Street bank trimmed its US GDP outlook, citing “fading fiscal stimulus” and the Delta variant as contributors to a slowed post-Covid recovery.

Goldman economist Ronnie Walker said that there would be a “harder path” forward in a Monday note to clients before revealing a 5.7% GDP growth forecast for 2021, down from Goldman’s already-reduced 6% estimate.

Last week’s disappointing August jobs report caused the bank to shift its labor projection, too. Goldman now expects an unemployment rate of 4.2% (vs. its prior 4.1% prediction) by year’s end.

“The hurdle for strong consumption growth going forward appears much higher: the Delta variant is already weighing on Q3 growth, and fading fiscal stimulus and a slower service sector recovery will both be headwinds in the medium term,” wrote Goldman analysts.

Morgan Stanley also issued a downgrade of its own this morning, classifying U.S. equities as “underweight.”

“We see a bumpy September-October as the final stages of a mid-cycle transition play out,” explained Morgan Stanley strategists.

“We continue to think this is a ‘normal’ cycle, just hotter and faster, and our cycle model remains in ‘expansion’. But the next two months carry an outsized risk to growth, policy and the legislative agenda.”

To add insult to injury, cryptocurrencies crashed shortly after stocks opened for trading. Bitcoin, Ethereum, and virtually all other digital currencies fell double digits shortly before noon. Crypto has more or less tracked the S&P 500 ever since the Covid pandemic began. Today’s selling may have been sparked by a poor morning trading session for stocks.

But the majority of the crypto losses that followed were likely caused by something else, as equities didn’t drop nearly as much as crypto.

The market’s “smart money” – investors armed with inside information – could be dumping their crypto portfolios in anticipation of another financial crisis. This time around, though, it’s not an American company (like Lehman Brothers) causing problems.

Evergrande, China’s second-largest property developer, is to blame.

In addition to being a major real estate developer, Evergrande is also China’s largest issuer of commercial paper (very short-term corporate bonds). It earned this title after the Chinese government banned the company from issuing longer-term debt.

Normally, this wouldn't be an issue. But Evergrande is now well on the path to bankruptcy. Creditors have pooled their resources, taking the company to court in an attempt to settle their debts – something that often precedes a bankruptcy declaration. Evergrande has liquidated assets, even selling its corporate headquarters, to pay said creditors.

Sadly, Evergrande’s efforts will be in vain. The company is essentially doomed to default with billions in debt coming due within the next year. Evergrande’s CEO recently held a press conference in which he projected supreme confidence and insisted that the company was doing just fine.

Lehman’s CEO, Richard S. Fuld Jr., made similar statements prior to Lehman’s epic $600 billion collapse.

The difference now is that everyone can see the Evergrande bankruptcy developing. A bailout from the Chinese government will be required to save the company, which owes roughly $305 billion in debt. As of August 31st, Evergrande only had roughly $355 billion in total assets. That’s enough to pay creditors if it’s able to liquidate everything.

Keep in mind, however, that Evergrande just sold its headquarters for a 66% loss. The reality is that the company won’t be able to liquidate enough assets in time nor for what they're currently valued at.

Bankruptcy looms as a result.

I know what you're asking:

"But what does this mean for crypto?"

Tether, a Hong-Kong based cryptocurrency that tracks the value of the US dollar (called a “stablecoin”), is backed by a significant amount of Chinese commercial paper. In fact, Tether claimed earlier in the year that 50% of its reserves come from commercial paper. How much of it is Chinese or specifically from Evergrande is unclear.

But the team at Tether has been very tight-lipped about the origin of the commercial paper. If it’s not from Evergrande, it’s safe to assume that the Tether execs would’ve said so.

Instead, Tether has kept quiet during Evergrande’s descent into insolvency. CNBC’s Jim Cramer went so far as to call Tether a “ticking timebomb” after anonymous “Chinese sources” told him most of the commercial paper was in fact Chinese.

This matters because Tether accounts for almost 80% of the volume of all crypto transactions. If the commercial paper that backs Tether fails, the actual value of Tether (USDT) could plunge below its 1-to-1, 1 Tether-to-1 US dollar ratio. In addition, the Tether team could also dump its sizable crypto holdings (including Bitcoin) to cover its commercial paper losses, hastening a massive crash as liquidity simultaneously shrinks.

This outcome assumes that China allows Evergrande to bankrupt.

If the Chinese government bails out Evergrande instead, Beijing would become the company’s newest business partner. Recent private sector crackdowns by the CCP suggest that the government would more than happy with this outcome.

Should this happen, China would need to settle those debts with US dollars, not Chinese yuan. This is important as Beijing would then be forced to buy over $300 billion dollars, spiking the value of the dollar in the process.

That could then lead to an overnight “haircut” for all asset classes as the dollar surges, including both crypto and equities. In addition, a bailout may reveal a deeper “shadow banking” industry that involves other major Chinese corporations. There very well could be more companies like Evergrande out there (albeit smaller ones) that have yet to hit critical mass with their toxic debt issuances.

So, either by way of bankruptcy or bailout, 2021’s speculative mania has officially entered hazardous territory. Let’s not forget that a Fed taper is coming down the pipe in the near future as well.

“Smart money” investors could be trying to exit early, prompting this morning's correction. Or, it could simply be a case of waning bullish enthusiasm.

Regardless, Evergrande still poses a significant threat to nearly all investors if it's the latter. And not just those involved with crypto.

Bottom line:

A major reckoning is developing in the Far East and the mainstream financial media hasn’t given Evergrande the emphasis that it deserves. This will all change, of course, when China steps in to save the company and asset values hit a sudden “air pocket.”

But until then, the market will remain focused on the numerous Covid variants threatening to reactivate lockdowns.

Even though a lack of government stimulus has had a far more profound effect on bogging down the US economy, which Goldman (and others) finally admitted this morning despite a far bigger story - the Evergrande bankruptcy - simmering beneath the market's surface.
 
Below is a weekly chart showing that the S&P has been powering up since the Feb/Mar Covid crash and it still looks strong.

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I’m waiting to see what happens this week . We need lift the bonnet and look inside the S&P500 to see want’s happening.

S&P500 with 50, 100 and 200 day lines
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Today’s Big “Miss” Just Shocked the Market

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Stocks dropped again this morning as the major indexes retreated further from their recent highs. The Dow, S&P, and Nasdaq Composite all fell while tech stocks took the brunt of the damage. Some Wall Street analysts believe there could be more selling in the weeks to come.

“We see a bumpy September-October as the final stages of a mid-cycle transition play out,” said Morgan Stanley strategist Andrew Sheets in a recent note.

“The next two months carry an outsized risk to growth, policy and the legislative agenda.”

Equities initially opened trading for only a small loss. But at 10 am EST, the Job Openings and Labor Turnover Survey (JOLTS) was released, cratering tech (and the rest of the market) in the process. The Bureau of Labor Statistics (BLS) revealed a massive 10.934 million job opening print for July.

The data blew away the FactSet estimate of 9.9 million openings after the US economy added 4.2 million of them over the last seven months. Healthcare (+294,000), finance (+116,000), and food services (+115,00) saw the largest job opening gains in July. One could speculate that Covid vaccine mandates potentially chased otherwise willing workers away from both the healthcare and food services industries.

More shocking than the number of openings, though, was the discrepancy between those openings and continuing unemployment claims. Analysts expected openings to outpace continuing claims by 1.7 million.

Instead, there were a record 2.232 million more job openings than unemployed Americans (8.384 million) in July. Worse yet, the quit rate – the percentage of private-sector employees leaving their jobs to move to new ones – ticked back up to the all-time high of 3.1%. Historically, high quit rates have coincided with pressure to raise wages. This is because employers need to retain employees via wage hikes as quits climb. This, in turn, can cause inflation to rise.

The July JOLTS report supports the theory that the unemployed simply don’t want the jobs that are available. As a result, it’s highly unlikely that the Delta variant caused the major August jobs report “miss” – something the US government (including President Biden himself) said last week.

Emergency unemployment benefits mercifully expired on Monday, which should help fill millions of those openings in September. Small businesses (those with less than 50 employees) have been hit the hardest by the labor shortage and could spur on a “hiring blitz” by month’s end.

Critics of the decision to not renew unemployment benefits have cited studies suggesting that the elimination of benefits doesn’t necessarily lead to job growth. This argument is principally flawed for the current situation, however, as the problem with US labor has nothing to do with job growth. It’s all about unemployed Americans not wanting to work.

Thankfully, now that the majority of benefits have expired, the labor recovery should see a nice bump to finish out the year. Wage growth may even recede as well, limiting its impact on inflation. So, even though the August jobs report was a bit of a disaster, investors could be treated to a true “Goldilocks” September jobs report in October.

July’s jobs report delivered a big payrolls “beat” while wages refused to budge. It was exactly what bulls wanted to see. Come October 8th, the BLS should unveil a similarly bullish data set just a few weeks after the Fed is expected to speak on tapering (or a lack of tapering) following its September FOMC meeting.

Which, ultimately, could spark another market-wide rally right on through to the holiday season.
 
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Will Powell Actually “Do It” on September 22nd?

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Stocks traded flat this morning as tech recovered slightly from yesterday’s big losses. Equities ticked higher (albeit barely) after the latest batch of weekly jobless claims data rolled in. Initial claims clocked in at 310,000 last week, officially bringing the number of Americans on jobless benefits below 12 million.

This may have shifted sentiment in a more positive direction. Most unemployment benefits expired on Monday, which should improve the US labor situation moving forward.

Whether or not that impacts the Fed’s taper timeline, however, remains to be seen. Last Friday’s dismal August jobs report had analysts questioning when Fed Chairman Jerome Powell would issue an official taper warning. Prior to the jobs report, Wall Street assumed there would be a warning declaration on September 22nd following the next FOMC meeting.

But in light of the August jobs “miss,” some strategists believe Powell could instead announce a taper delay.

“A surprisingly low jobs number this morning clouds the tapering outlook considerably as only 235k jobs were added in August, likely giving the Fed pause and pushing out their plans to announce their bond taper plans,” explained Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in a note last Friday.

“Many people believed that the Fed would announce their taper plans at this month’s FOMC meeting and that is no longer likely.”

If weekly jobless claims continue to sink, though, Powell might go on ahead with his taper warning anyway.

Regardless, the European Central Bank (ECB) beat the Fed to the punch this morning when it announced its own plans to reduce asset purchases.

“Based on a joint assessment of financing conditions and the inflation outlook, the Governing Council judges that favorable financing conditions can be maintained with a moderately lower pace of net asset purchases under the (PEPP) than in the previous two quarters,” said the ECB in a statement.

European stocks, rather than sinking, pared-back their initial losses following the ECB’s press release. A taper warning from the Fed would undoubtedly have the opposite effect on US stocks when it arrives.

Much of the blow to European equities was softened by ECB President Christine Lagarde, who insisted that she “[wasn’t] tapering.”

“We are recalibrating, just as we did back in December and back in March. We are doing that on the basis of the framework, which is a joint assessment,” Lagarde said.

“We looked at the financing conditions and we concluded that they remain favorable, and we do that on the basis of the inflation outlook.”

The ECB said it would raise rates if inflation hit 2% “well ahead of the end of its projection horizon and durably for the rest of the projection horizon.”

In other words, it won’t happen unless a sudden inflationary blast rocks the EU. That doesn’t change the fact that Lagarde did in fact issue a taper warning, even if she claimed it wasn’t one.

If Powell can deliver a taper warning with similar finesse, US stocks might not instantaneously crash. However, should he provide investors with a specific date on which the Fed plans to reduce its bond-buying programs, a major slump seems likely to follow.

Powell could also follow Lagarde’s lead and simply say “we’re not tapering” right after he says the Fed’s going to taper. It worked on European bulls. American traders would probably eat it up, too.

But this level of uncertainty could contribute to an explosive monthly options expiration (OpEx) date, coming up on September 17th. The last few OpEx dates have seen rapid dips followed by even quicker recoveries to new highs. A correction this time around might last a little longer, though, with the FOMC meeting concluding five days later on the 22nd.

Nonetheless, the strategy of selling pre-OpEx and buying back in post-OpEx could still provide trades that outperform the major indexes, just like it has for most of the year.

Even with Powell hovering closely over the bull market, ready to unravel it at a moment’s notice after the FOMC meeting wraps up.
 
Did Biden Just "Kill" US Labor?

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The market opened for a significant gain today before economic uncertainty dragged equities lower. Apple (NASDAQ: AAPL) led the way down (-1.8%) as all three major indices remained on track to close out the holiday-shortened week for a loss.

Covid cases and a Thursday taper warning from the European Central Bank (ECB) weighed heavily on investors. But so too did inflation, which jolted higher again last month according to the August Producer Price Index (PPI).

Revealed this morning, headline PPI rose 0.7% month-over-month (MoM), surpassing the +0.6% consensus estimate. Core PPI (which excludes food, energy, and trade services), on the other hand, increased by just 0.3% MoM, well below the estimate of +0.5%.

This discrepancy was caused by major price gains in both trade services (margins for retailers) and logistics (transportation, warehousing). Trade services jumped 1.5% MoM while logistics surged 2.8% MoM.

The net effect of the hotter-than-expected PPI print was a continued slimming of corporate margins.

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Margins for US corporations are now down by 2.4% year-over-year (YoY). This decline will either be absorbed by consumers via price increases or by corporations that decide to eat the costs instead of passing them on to consumers. The latter would ultimately trim share prices.

The former would cause CPI to spike. We’ll find out soon enough what most corporations decided to do when the August CPI is released next week. Investors have mostly been able to sidestep inflation this year. Eventually, however, persistent CPI increases should impact sentiment once the Fed attempts to limit prices through rate hikes and tapering – two things that could instantly wreck the long-term bull market.

What also could bring stocks lower is a blockbuster September jobs report, due out October 8th. Most unemployment benefits expired on Monday and as a result, some analysts expected a “hiring blitz” to take place over the next few weeks. A major jobs “beat” in September might be enough for the Fed to start tapering, especially if next week’s CPI reading overshoots the consensus estimate.

But that all changed following President Biden’s vaccine mandate from Thursday evening. Companies with more than 100 employees will be tasked with enforcing vaccine compliance. Any worker that remains unvaccinated past a certain date (yet to be determined) will cost these companies $14,000 per violation.

If the vaccine deadline lands somewhere in September, the odds of a strong jobs report will drop to near-zero. The July JOLTS report (released Thursday) showed that employees are voluntarily leaving their jobs at an unprecedented rate (3.1%). The number of quits and terminations is about to skyrocket in response to Biden’s new mandate.

This should effectively kill the post-Covid US labor recovery. What’s more, the already dire labor shortage could get a whole lot worse. The silver lining here is that small businesses that employ less than 50 workers could enjoy a hiring renaissance, as they’re not subject to the vaccine mandate.

It may only be a matter of time, though, until Biden targets these companies as well.

Overall, the new vaccine mandate could very well cause unemployment to rise. Fed Chairman Jerome Powell said that the Fed wouldn’t taper until the US got back to “full employment,” or an unemployment rate of 3.5%. The August jobs report showed that unemployment dropped to 5.2% last month.

But in September and October, the unemployment rate could potentially tick higher as America is split into two camps: those who took the Covid vaccine and those who didn’t.

That may be evidence enough for Powell & Co. to delay the taper, which should make bulls happy.

Even if it ends up wounding the US economy’s longer-term potential as surging inflation rattles consumer confidence.
 
The following is my take on the S&P500

The fundamental facts provide pressure to move the markets going forward and the charts show what the market is actually doing right now. I should say that the charts do give clues to the future movement of price.

Looking at the weekly chart of the SPY it’s still powering up from the march 2020 low and has now moved up by double the price range of the march 2020 covid crash. It needs a pullback to show investers it’s a healthy long term bull market.
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On the daily chart it can be seen that it’s coming back off a recent 2/9/21 high but still trading above the important 50day SMA, so ‘steady as she goes’.
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If it does break the 50sma this could signal a market pullback to the 200day SMA, this would be a normal pullback, if it turned higher before reaching the 200sma it would show that the market is extremely bullish. As you can see from the example of the Mar20 chart below, a crash would blow through the 200sma.
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Looking through the sectors of the S&P500 the current downturn just looks like a normal easing back in some sectors. I think that the market has no power in it because the Industrial and Financial sectors are just moving sideways;
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As far as major pullback goes I think the first level to watch is for a break of the 50 day sma, mentioned above is this post, and also watch the HYG for a break down through Zone A, this would be an alert, and finally a break through Zone B would signal a major pullback.
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NOTE: All of the above post is only my best opinion at this point in time.
 
Most of the word markets have been trading sideways or down lately, the stand-out being India which has been powering up at a good pace, see chart;
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But now there is a new kid on the block making some very cool moves and demanding everyone’s attention. Japan has been moving sideways and drifting down for almost seven months now and has recently made a good move up, breaking through resistance;
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The move up came at the convergence of the 50day and 200day SMAs and made the break through the resistance zone on high volume. This market has the technicals to move higher, it’s one to watch.
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This was a good article, thanks for sharing it. I'd like to copy a section from it into this post as I think that it summarizes the situation very well;

Beige Book Reveals The Fed’s Biggest Problem

The most significant risk for the market is a change in investor psychology. As long as nothing disrupts that bullish bias, investors will continue to aggressively “buy dips.” However, that psychology is directly linked to the Fed’s ongoing balance sheet expansion. Thus, the potential problem for investors is inflation.

The Fed’s Beige Book is a summary of economic conditions in the 12 Federal Reserve Districts.

  • Boston: “Inability to get supplies and to hire workers.”
  • New York: “Businesses reporting widespread labor shortages.”
  • Philadelphia: “Labor shortages and supply chain disruptions continued apace.”
  • Cleveland: “Staff levels increased modestly amid intense labor shortages.”
  • Richmond: “Many firms faced shortages and higher costs for labor and non-labor inputs.”
  • Atlanta: “Wage pressures more widespread.”
  • Chicago: “Wages and prices increased strongly”
  • St. Louis: “Contacts continued to report labor and material shortages.”
  • Minneapolis: “Hiring demand outstriped labor response by a wide margin.”
  • Kansas City: “Wages grew at a robust pace.”
  • Dallas: “Wage and price growth remained elevated amid widespread labor and supply chain shortages.”
  • San Francisco: “Hiring activity intensified further, as did upward pressures on wages and inflation.”
Inflation is becoming problematic for the Fed mainly if these pressures are not as “transient” as hoped. Higher wages are corrosive to both earnings and margins. As shown below, strongly rising producer prices are initially good for profit margins until inflation can not get passed along to consumers. Such is the case currently, with the most significant historical spread between PPI and CPI.

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Net Corporate Profit Margins Vs PPI CPI Spread
With supply chain disruptions looking to last longer than expected, the Fed is trapped between supporting a slowing economy and fighting inflation.

It’s a battle they are likely going to lose, no matter what they choose.

As for a plan B, I know what you mean but for some of the people just getting started with the markets I want to take this opportunity to stress a point. The most import part of trading or investing is risk management, i.e. setting your level of exposure to risk. It can be done in a number of different ways, you can have exit levels in place to go in and out of the market as required or if want to hold a position it must be hedged. learning how to manage your risk is the number one key to success.

I'm still learning, trading is like walking a very long highway, but if you don't learn this well you'll get hit by a car or truck.
 
This "Big Report" Could Change Everything Tomorrow

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A Dow bounce and a tech slump. The S&P, meanwhile, traded relatively flat.

That was the story this morning as bulls attempted to stage a comeback following Friday’s drop. We observed last week that a number of different forces were warping market sentiment.

As of today, nothing’s changed.

“With supply chain disruptions, COVID-19 variant risk, stickier than expected inflation along with other uncertainties that challenge the present recovery’s path toward a sustainable economic expansion, the age old adage ‘progress not perfection’ among current developments appears best suited for investors to focus on for now,” wrote Oppenheimer’s John Stoltzfus in a note this morning.

New Covid infections in the US seem to have peaked in late August when the 7-day average for new cases cracked 157,000. On Friday, that number was down to 137,000 cases.

But that doesn’t mean the Delta variant drama is even close to being over. Reuters reported that Pfizer’s (NYSE: PFE) Covid vaccine could be approved for children aged 5-11 years old by the end of next month. President Biden just issued a vaccine mandate last week that more or less seeks to force vaccination upon the majority of US workers.

A similar mandate may be coming for school-aged children should Pfizer’s vaccine get approval from the US Food and Drug Administration (FDA) in October. The resulting meltdown in both American schools and corporations could be epic as parents (many of whom likely work at large companies) resist the new mandates.

Whether or not the vaccines are truly effective – something that’s been called into question as international hospitalization data shows far lower vaccine efficacy than the data gathered from US hospitals – natural immunity plus seasonal changes in infection rates could see Covid dwindle.

“Vaccinations plus immunity should mean cases eventually fall. Full reopening and related spending has been pushed out,” explained UBS strategist Keith Parker. Parker sees an additional 4% upside for the S&P by year’s end.

Inflation, however, may be the largest barrier to Parker’s prediction coming true. Producer prices surged 0.7% month-over-month in August according to last Friday’s Producer Price Index (PPI) release. Annually, the PPI rose 8.3%. That’s the highest jump on record.

“Supply bottlenecks, inventory shortages, higher commodity prices, and higher shipping rates have all contributed to higher input costs,” said Allianz Investment Management’s Charlie Ripley.

″[Friday’s] data on wholesale prices should be eye-opening for the Fed, as inflation pressures still don’t appear to be easing and will likely continue to be felt by the consumer in the coming months.”

The Consumer Price Index (CPI) will be released tomorrow morning. If a worse-than-expected spike in consumer prices is observed, stocks could certainly dive lower once again. It’s becoming very clear that the Fed has a fight with stagflation (high inflation, stagnant demand) on its hands.

We predicted that this would happen earlier in the year when the CPI repeatedly came in far “hotter” than predicted. Rising input costs (via the PPI) hinted at this as well while the consumer confidence index (representing demand) plunged in historic fashion. Even worse was the consumer confidence index’s forward-looking readings, which showed that confidence could reach an all-time low around the holiday season.

Add into that an impending wave of layoffs thanks to Biden’s new vaccine mandate and you’ve got a very complex problem for which the Fed has no easy solution.

Much has been said about Fed Chairman Jerome Powell’s upcoming decision to taper the Fed’s bond-buying programs. A month ago, nearly everyone expected a taper warning following the September FOMC meeting, which ends on the 22nd. Some analysts predicted that Powell would skip the warning and announce a full-fledged taper instead.

Now, nobody’s really sure about what’s going to happen. A terrible August jobs report caused Wall Street banks to revise their taper timelines. Maybe Powell’s plans changed, too.

Until that becomes clearer, however, the next major market hazard is coming tomorrow morning upon the release of the August CPI, which should only further complicate the Fed’s decision to taper.

Regardless of whether consumer prices have risen faster or slower than anticipated.
 
Should Traders "Buy the Dip?"

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After opening for a moderate gain in response to better-than-expected inflation data, stocks fell shortly before noon. The Dow, S&P, and Nasdaq Composite all gave up their morning returns as bulls once again ran out of steam.

Dow stocks led the way lower due to concerns over an economic slowdown in the US. Financials and industrials had a particularly rough morning while Big Tech managed to tread water.

But the biggest revelation today had to do with the August Consumer Price Index (CPI), released this morning. Inflation jumped 0.3% month-over-month (vs. 0.4% expected), “missing” analyst estimates for the first time since October 2020. Year-over-year, headline CPI rose 5.3% (vs. 5.4% expected). Core inflation, which excludes food and energy, climbed just 0.1% month-over-month (vs. 0.3% expected).

The data was initially received as positive, and it’s not surprising to see why. This was the first time in almost a year that analysts overestimated how “hot” inflation was running.

It won’t be enough to get investors buying again, however, if future reports and corporate earnings fall short of expectations.

“What we need to see to be fundamentally markets supportive is a continued easing in the inflation piece without deterioration in the economic outlook,” explained Charles Schwab’s chief investment strategist Liz Ann Sonders.

“The next couple of weeks, economic data points become even more important to see whether it confirms the weakness that we saw on the August jobs report or starts to suggest that maybe we’re seeing an improvement.”

Rick Rieder, chief investment officer of global fixed income at BlackRock, also didn’t view the August CPI print as worthy of celebration.

"The modest slowing in the rate of growth for inflation should temper market and policymaker concerns somewhat, despite the fact that inflation is likely to remain on the higher side for a while and risks of sticky inflation remain," Rieder wrote in a Tuesday morning e-mail.

"That said, core CPI has already overshot its pre-Covid trend and still many economists are forecasting the highest levels of inflation in a decade, after having seen disinflation for years. The Federal Reserve may be declaring victory on its inflation mandate as a result of these recent price gains, but the U.S. consumer would appear to be less than thrilled about such 'success.'"

The August Producer Price Index (PPI), released yesterday, showed a worse-than-expected rise in producer costs. Producers can either “eat” those costs, slimming margins and potentially reducing share prices, or simply pass them on to consumers. Which, in turn, may also drive share valuations lower.

Despite the “gloom and doom” today, it still probably makes sense to be a bull in the short term. Every dip this year has been bought, resulting in new market highs often within a matter of days. And nearly every month thus far has given traders fantastic dip-buying opportunities.

Is the recent plunge yet another one? It certainly appears to be. With the Fed backstopping equities, there’s no reason to abandon the strategy just yet. It’s a proven winner that delivers market-beating profits with regular consistency.

That being said, buying the dip will eventually fail. A “black swan” will at some point occur, jolting the market out of its persistent uptrend. Dip-buyers will get burned in the process.

But those who do get caught in a downturn will have made larger gains than the folks that refused to buy each temporary setback. Yes, the losses will be significant should a major meltdown occur.

After more than a year of incredible post-pandemic gains, though, it will be much easier to stomach. Dip-buyers will also potentially get in at the bottom of the next significant selloff prior to its subsequent explosive rally.

Which, these days, can happen even faster than when the market initially fell.

Michael James

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My personal opinion on the $SPX is that there looks to be a lot of downdraft in the market at the moment.
 
Is a Mid-Cycle Selloff Coming?

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Stocks traded slightly higher this morning as bulls finally halted the market’s week-long selloff. Thus far this year, dips have regularly occurred leading up to the monthly options expiration (OpEx) date, which arrives the third Friday of each month. US economic slowdown concerns caused stocks to drop last week, providing yet another mid-month dip in September.

Will a rally follow like in the months prior? It certainly seems that way. Wall Street had plenty of concerns about a short-term plunge (upwards of 10%) this month – something analysts noted en masse last week.

Now, though, strategists are jumping back on the bullish bandwagon following the S&P’s recent (and much smaller than anticipated) 2.4% peak-to-trough correction.

“Despite concerns about the recent downshift in economic and business cycle momentum, we remain confident that strong growth lies ahead and activity is bound to re-accelerate,” explained JPMorgan’s Dubravko Lakos-Bujas in a morning note.

“We remain positive on the equity outlook, and expect S&P 500 to reach 4,700 by end of this year and surpass 5,000 next year on better than expected earnings.”

Lakos-Bujas made no mention of inflation following yesterday’s better-than-expected August Consumer Price Index (CPI) print. Wells Fargo Investment Institute strategist Sameer Samana believes it may have been “cold” enough to even delay a taper warning from the Fed.

“We probably won't get the answer to whether [inflation is] transitory or not probably until 2022 – that's when the base effects will start to wash out and all the distortions start to kind of resolve themselves," Samana said.

"What the [August CPI] tells us is that the Fed probably has a little more wiggle room. If they don't want to do something at the meeting next week, given the weaker-than-expected [August] payrolls number, the inflation number […] also takes the pressure off of them to do something next week.”

If the Fed goes the “no taper” route, stocks could easily rally through the end of September. The S&P hasn’t closed below the 50-day moving average – a longer-term trend identifying indicator – since late June of this year. At present, the index remains above it despite last week’s selling.

But Morgan Stanley chief investment officer Mike Wilson broke rank with the rest of Wall Street when he predicted that not only will stocks stay subdued in September, but that the S&P could breach the 50-day moving average as well.

“The midcycle transition always ends with a correction in the [S&P],” Wilson remarked.

“Maybe it’ll be this week, maybe a month from now. I don’t think we’ll get done with this year, however, with that 50-day moving average holding up throughout the year because that’s the pattern we typically see in this part of the recovery phase.”

What investors also don’t usually see is massive OpEx rallies (preceded by sharp selloffs) nearly every month. Wilson’s right in that the midcycle transitions of the past have typically followed a specific pattern.

But these days, all the conventional rules have gone out the window. Extreme bullish exuberance has pushed the market to dizzying heights. Derivates (options, futures) are driving equities (the underlying) more than ever before.

So, could stocks climb higher from here? Absolutely. And until a true bearish collapse occurs, buying the dip likely remains the best move.

No matter how many times cycle-driven analysts insist that’s no longer the case.
 
Will the “September Slump” Get Worse?

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Stocks dropped significantly this morning despite better-than-expected retail sales data. The Dow, S&P, and Nasdaq Composite all retraced most of their gains from Wednesday.

The Census Bureau reported today that August retail sales rose 0.7% month-over-month, beating the consensus estimate (a 0.8% monthly decline) with ease. In the past, a “beat” of this nature typically sent the market higher.

But in addition to releasing the August numbers, the Census Bureau also revised July’s retail sales stats from a 0.5% month-over-month gain to a sharp decline of 1.8%.

Relatively speaking, that made August’s 0.7% jump far less impressive. Disappointed traders took out their frustration on equities by selling shortly after trading opened. First-time weekly jobless claims only added to the bearishness, as 332,000 fillings were made last week vs. 320,000 initial claims expected.

“People are starting to see that some of the economic data that we’ve received lately has been affected by Delta and are probably waiting for some of the effects of that to roll off,” explained Crossmark Global Investments strategist Victoria Fernandez.

“I think we’re going to see a little bit of ‘two steps forward, one step back’ in the markets over the next few weeks.”

Akshata Bailkeri, equity analyst at Bruderman Asset Management, also noted that bullish exuberance may be starting to fade in the face of rough economic reports.

"Equity markets have been positive for seven consecutive months, which is quite rare [...] So yes, investors are rightly concerned," Bailkeri said.

"But the reason why we're seeing this is because these earnings behind a lot of these companies are continuing to grow, and that's really what's driving these index values higher."

Meanwhile, rising inflation and producer costs threaten to squash Q3 earnings. The Producer Price Index (PPI), which measures producer inflation, climbed higher again in August in response to rising transportation and input costs.

Those increased costs will either be passed on to the consumer (which would then be reflected in the September Consumer Price Index reading) or absorbed by producers, slimming margins. Either way, share valuations would likely fall as a result.

This disturbing trend was first observed with Clorox (NYSE: CLX) when it reported earnings back in early August. The company unveiled a massive earnings per share (EPS) miss of 95 cents (vs. $1.36 expected) and a sales miss of $1.8 billion (vs. $1.92 billion expected). Worse yet, Clorox leadership said that they only expect the company to earn between $5.4 billion - $5.7 billion in fiscal 2022. Analysts originally projected $7.67 billion in earnings for fiscal 2022 by comparison.

If other American manufacturers issue similar reports come earnings season, the market could easily plunge thereafter. The tech sector wouldn't get hit as hard, but overall, it may turn out to be a very grim affair for bulls.

The majority of S&P companies won’t report until October. Analysts predict earnings growth of almost 28% year-over-year for Q3. Should the S&P “miss” Q3 earnings due to inflation, serious pain could follow.

"I don't think statistics or just how long it's been is a good reason [for a correction]. Generally, you need some sort of a negative catalyst,” said Charles Schwab's managing director of trading derivatives, Randy Frederick.

"What we have right now is not negative catalysts so much as a lack of positive catalysts."

A group of inflation-driven earnings “misses” would certainly do the trick. But, unless it actually happens, staying long remains the most sensible move.

Especially at what looks like the bottom of a mid-month dip.
 
The New Trend That Could "Blindside" Bulls

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The September options expiration (OpEx) date is here and, like always, it’s been an eventful affair. Stocks tumbled this morning in response to a massive unwinding of options positions. Over the last year, OpEx has provided major buying opportunities for traders. The market would typically start to dip on the Monday prior to OpEx.

This month, however, equities peaked almost two weeks ahead of schedule. That may have contributed to the worse-than-usual correction that has yet to level off. It seemed the bottom was in yesterday as the major indexes rallied through the close.

But today, stocks opened for significant losses that only intensified as the trading session progressed.

The market’s biggest names – Facebook (NASDAQ: FB), Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), and Google-parent Alphabet (NASDAQ: GOOG) – all fell significantly. Reopening-sensitive stocks, like airlines and cruise lines, were among the lucky few that managed to post major morning gains.

What also jumped higher was volatility as Delta variant worries, economic concerns, and a lack of stimulus weighed heavily on bulls.

“We expect volatility to increase over the next month driven by a seasonal pickup in investor uncertainty, continued virus uncertainty, and significant monetary and fiscal policy catalysts,” wrote Goldman Sachs derivatives research head John Marshall.

And the most recent consumer sentiment reading (released by the University of Michigan this morning) is unlikely to help matters in that regard.

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Sentiment on current economic conditions (green) plunged again, drawing closer to its post-Covid low. Sentiment ticked higher overall (blue), helped by a rising consumer expectations index (red), but it still failed to meet analyst estimates.

The most troubling survey data concerned buying conditions related to houses, vehicles, and large household durables (products with lifetimes of three years or more).

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“Although declining living standards were still more frequently cited by older, poorer, and less educated households, over the past few months, complaints about rising prices have increased among younger, richer, and more educated households,” said Richard Curtin, director of the survey, as he explained why buying condition sentiment sunk to new all-time lows.

"Some observers anticipated that the early August plunge in confidence would quickly disappear since it was driven by emotions,” Curtin added.

“[But] a more accurate reading is that consumers correctly assessed the economic impact of the resurgent Delta variant."

Relatively speaking, the Delta variant has not locked down local economies like the first wave of Covid did. Instead, a lack of government stimulus could be having a more profound effect on the US.

Don’t forget that President Biden wanted another cash injection of $3.5 trillion. Congress, however, can’t reach an agreement on Biden’s stimulus bill. Negotiations haven’t gone well, either, suggesting that additional stimulus won’t arrive for several months.

The FOMC is set to meet next week as well, and some analysts expect Fed Chairman Jerome Powell to announce a taper warning on September 22nd (next Friday) after the meeting concludes. Doing so might just make the US’s economic problems worse, however. For that reason, much of Wall Street believes the Fed’s taper timeline has been delayed. A taper announcement next Friday is now considered by analysts as an improbable outcome.

But even if the Fed doesn’t taper, quantitative tightening (QT) could arrive nonetheless. Legislators are expected to raise the debt ceiling (which hit its limit back on July 31st) in October. After that happens, the US Treasury is likely to issue hundreds of billions of dollars in new debt, sucking liquidity out of the economy in the process. Usually, this isn’t a problem as the Treasury issues the same amount of debt (which removes liquidity) as the cash it spends (which adds liquidity). More recently, however, the Treasury has been spending at unprecedented levels while scaling back its debt issuances as the debt ceiling grew nearer. This, in effect, acted as quantitative easing (QE).

When the debt ceiling is eventually lifted, a massive wave of debt issuances will be “uncorked” to cover for the Treasury’s low cash balance, scaling back the liquidity added and thus resulting in QT. Worst of all, the Fed has no say in whether this happens. Only Congress does.

And not raising the debt ceiling is basically out of the question.

So, no matter what the Fed decides next week, the US economy is headed for a date with QT. The market will eventually realize this, which should only make the recent volatility worse.

Does that mean stocks are going to crash any time soon? Probably not. Rather, a rally to new highs would match the market’s prevailing trend this year, which seems ready to continue.

Even with a debt ceiling vote threatening to reduce liquidity, and by proxy, share values sometime in the next few months.
 
Is Market Volatility Back For Good?

Mike Rykse


The first 9 months of this year have provided one of the most forgiving markets that traders have ever seen. Every dip has been bought up almost immediately and as a result stocks have spent most of the year grinding towards all-time highs.

However, over the last 2 weeks we have started to see a shift in trading conditions. We are starting to see rallies sold, along with a pickup in volume. While it hasn’t led to any extreme selloffs just yet, the warning signals are all over the place.

While we like to focus on the technical on the charts, which are flashing warning signals, we are also seeing several potential headline risks that have not been priced into the market. All of the following will be hot topics in the months to come:

Potential for the Fed to begin pulling back on stimulus. The next big Fed meeting is next week where many are expecting them to announce a tapering of their bond purchases.

Raising the Debt Ceiling will be a big issue in the weeks and months to come. While most would expect them to kick the can further down the road, in today’s climate anything can happen. Bottom line is the level of spending that we have seen from the government is not sustainable. Will this finally start getting priced in?

The pandemic will also remain a wild card for the economy. As the weather changes and everyone heads back inside, will we see the numbers spike again leading to further restrictions?


Running for the exit is not the strategy just yet, but as traders we can’t ignore the warning signals either. We have been talking to our customers about getting more conservative for the last number of weeks. One of the benefits of trading options is we can control risk easier than any other financial instrument.

Before we talk about the ways we can get more conservative with our options trades, let’s review the technical levels that are giving us the caution signals.



SPY Support Levels

We love to use the S&P 500 ETF (Symbol: SPY) to gauge overall market sentiment. After making yet another all-time high at 454.05 back on 9/1, we have started to see some profit taking kick in. We have seen the last 10 trading days drift to the downside.

Price is now approaching the all-important 50 SMA and EMA levels on the daily chart. These support levels are at 442.51 and 441.94. These moving averages have held as support each time they have been tested so far this year.

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We have seen the 50 EMA and SMA levels on the daily chart tested 10 times this year and each time those tests have led to springboard moves back to new all-time highs. Here we are approaching these support levels yet again and if they finally break to the downside, we will be looking for a much deeper pullback to kick in.

Should these levels break on a closing basis, the next support levels below are at 433.55 and 431.12.



Volume

We were expecting volume to pick up after the Labor Day holiday, and that is exactly what we are seeing. For most of the summer months it was a struggle for SPY to trade 50 million shares on a daily basis. Over the last week, we have seen this number jump up to between 75-80 million shares.

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While we would still like to see this number closer to 100 million shares, the jump that we have seen so far have made it much easier to get fills on trades.

The pickup in volume is also another sign that traders are starting to get more active. With stocks so overbought at current levels, we are seeing traders start to get more cautious on the upside and there is more talk of traders starting to take profit.


Average True Range (ATR)

Going back to August, we were seeing the Daily ATR on SPY struggle to get above 3.00. For those of you trading during the summer months, you experienced this slow trading environment. There were many sessions that were like watching paint dry. There just wasn’t much to work with.

As we get into the second half of September, we are seeing the ATR start to expand. It has gone from below 3.00 up to 3.62. The ideal scenario would be to see this number get up above 4.00. Should this happen, we will see much better two-way price action.

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While we aren’t looking for the market to crash, this expansion in range is also another sign that traders are more open to the idea of actually selling stocks instead of buying every dip that we see.



VIX

Finally, we are seeing the VIX come to life a bit over the last week. With markets grinding higher for most of the year, the volatility was sucked out of the market. As a result, the VIX contracted down to the low to mid-teens.

For option traders, we want the volatility to stay active. If volatility stays active, our playbook becomes bigger. We are able to use a wider range of option strategies along with a better mix of both weekly and monthly options.

The VIX is currently printing at 19.10. The ideal range would be for this number to be in the mid 20’s. It won’t take much selling in equities to get the VIX in that range. Just another sign that fear is starting to wake back up.



How Do We Handle the Volatility?

Most financial media sources thrive in bull markets and as a result will push that narrative as often as possible. In reality, as active traders we would much prefer to see big moves back and forth. Should we get these warning signals to lead to bigger moves lower, there are some things that we will do to react.

Credit Spreads – When volatility expands, we prefer to sell more credit spreads. Doing so when options are more expensive will produce better results over time. It allows us to collect more premium up front and push our breakeven points further away from the current stock price.

Larger Number of Trades – We prefer to take a larger number of small positions when trading options. This allows us to get more diversification by spreading the capital into a larger number of areas. Instead of taking 3-5 bigger positions, we prefer to take 10-15 small positions. This will allow us to use a better mix of strategies on a wider range of markets.

Risk Management – When markets get active, it’s easy to get caught up in the hype and lose track of risk management. It’s crucial to keep the risk at 2-5% of your account per trade. Any higher than this, and you run the risk of a large drawdown due to a few losing trades.

Instead, we like to use smaller positions on a larger number of markets to produce the results we are looking for. We can then let the power of compounding take over.



Conclusion

The warning signals are there all over the place. We expect the 4th quarter to produce a much different market environment than what we have seen for most of the year so far. Don’t let the volatility expansion intimidate you. If you properly manage your risk with a wide range of options strategies, there are great returns to be made.
 
Is This the Start of the Next “Big Crash?”

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Roughly two weeks after we covered it, the potential collapse of a major Chinese corporation now threatens to unravel the bull market. Evergrande, China’s second-largest real estate developer, was well on the path to insolvency earlier this year.

The company was also China’s largest issuer of commercial paper, or very short-term corporate bonds. Evergrande earned this title after the Chinese government banned it from issuing longer-term debt. So, in order to raise capital, Evergrande turned to short-term debt (commercial paper). That normally wouldn’t be an issue, but in this case, Evergrande was rotten to the core. Its revenues were tanking as billions in bonds came due.

Large creditors, aware of the deteriorating situation, pooled their resources and took Evergrande to court in an attempt to get at least some return on their investment. That was in August.

Fast forward to last week, and Chinese retail investors joined in on the fun. They camped out at Evergrande headquarters, holding executives hostage in their offices while demanding payment. Thousands of Chinese – many of whom had little bond-buying experience – put their life’s savings into Evergrande commercial paper, which promised a 10%+ return.

Now, they stand to lose everything as Evergrande (and its junk commercial paper) crumbles. The Chinese government could still step in to bail out Evergrande, of course. That has yet to happen, however, and investors have taken matters into their own hands in the meantime.

But it’s not just Evergrande bondholders that stand to get burned. To pay creditors, the company will have to liquidate its $355 billion in assets to cover roughly $305 billion in liabilities. And though assets exceed liabilities, the truth is that Evergrande won’t get anything near face value for them.

The company just sold its headquarters at a steep loss. A fire sale of Evergrande’s real estate holdings, which make up a large portion of China’s total real estate market, would devalue properties almost instantaneously. Banks would get whacked, too, as mortgages get caught in the ensuing crossfire. Bond issuers are already withholding new offerings in anticipation of more Evergrande drama.

In short, Evergrande won’t be able to pay creditors even if it liquidates, as its assets aren’t really that liquid. Several weeks ago, we said that China would either bail out Evergrande (the more likely option) or let it go belly-up. Going bankrupt would undeniably cause more damage. Eight investment-grade debt issuers just pulled their bond offerings this morning in fear of having them priced unfavorably. Evergrande’s “contagion” risk via bankruptcy is already showing.

A bailout, by comparison, only threatens to devalue the yuan and (temporarily) most other assets as China is forced to buy roughly 300 billion US dollars to pay creditors, which would cause the dollar to rally sharply.

A bailout would also make Evergrande a business partner of Beijing – something that falls right in line with the Chinese government’s long-term plans.

Today, it seemed that investors finally realized how dangerous a looming Evergrande bankruptcy truly is. US stocks opened trading this morning for major losses that only grew worse around noon.

But is this the start of another Covid-like equity crash? Probably not. China is likely to issue some sort of statement or response within the next 24 hours. Odds are, it will include bailout terminology.

Add to that a coming “no taper” decision from the Fed when the September FOMC meeting wraps up on Wednesday, and you’ve got the makings of another whipsaw market rally.

Potentially as soon as Thursday or Friday of this week, and maybe even close to the S&P's recent highs.
 
Is This China's "Lehman Moment?"

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Stocks opened higher this morning before tumbling around noon. Concerns over the global financial structure lingered after Evergrande, China’s second-largest real estate developer and top issuer of commercial paper, missed two debt payments today.

Analysts reacted to the news differently. Some said it was the early stages of China’s very own “Lehman moment,” referencing the epic Lehman Brothers collapse of 2008 that helped spark the global financial crisis. Others disagreed. Lehman filed for Chapter 11 bankruptcy after accumulating over $613 billion in debt opposite its $639 billion in assets.

Evergrande owes a much smaller $305 billion vs. $315 billion in assets. Still, many experts think an Evergrande bankruptcy could have dire consequences. And not just in the Asian markets.

“Evergrande seems like China’s Lehman moment,” tweeted Uday Kotak, CEO and founder of Indian mega-lender Kotak Mahindra Bank.

“Reminds us of IL&FS. Indian Government acted swiftly. Provided calm to financial markets. The Government appointed board estimates 61% recovery at IL&FS. Evergrande bonds in China trading ~ 25 cents to a $.”

Kotak was chosen by the Indian government to oversee the Infrastructure Leasing & Financial Services (IL&FS) restructuring three years ago after the company missed several debt payments. He was able to “defuse” the IL&FS situation with the government’s help.

Most strategists argued over the last 24 hours that China would have to do the same to limit the economic fallout.

What they don’t agree upon, however, is whether Evergrande’s impending bankruptcy is as dangerous as Lehman’s was back in 2008.

"China’s situation is very different,” wrote Barclays analysts this morning.

“Not only are the property sectors’ linkages to the financial system not on the same scale as a large investment bank, but the debt capital markets are not the only, or even the primary, means of funding.”

The note continued, explaining that Beijing is likely to leverage bank lending in Evergrande's rescue attempt:

“The country is, to a large extent, a command-and-control economy. In an extreme scenario, even if capital markets are shut to all Chinese property firms (which is not occurring and is only a tail risk at this point), regulators could direct banks to lend to such firms, keeping them afloat and providing time for an extended ‘work-out’ if needed.”

“The only way to get a widespread lenders’ strike in a strategically important part of the economy would be if there were a policy mistake, where the authorities allow the chips to fall where they may (perhaps to impose market discipline), regardless of the systemic implications. And we think that’s very unlikely; the lesson from Lehman was that moral hazard needs to take a back seat to systemic risk."

In the US, real estate made up 27.9% of household wealth according to data collected in 2014. In China, real estate accounts for 74.7% of household wealth by comparison. Evergrande owns a large chunk of China’s real estate market. As Evergrande goes, so goes China’s financial system.

That’s why a “no bailout” scenario is seemingly out of the question. And because all of China’s banks are state-owned, Beijing will be able to offset a deflationary shock – something that occurred immediately after Lehman went bust. This strategy would ultimately cost China trillions in new stimulus, but these days, who really cares?

Fed Chairman Jerome Powell is expected to announce a taper delay tomorrow after months of hinting that the Fed would indeed start tapering at long last. That, combined with a full Chinese bailout, might just be enough to kick stocks back into their long-term uptrend.

Inflation will continue to climb higher without any tapering, of course. That should flatten the market’s real gains until the Fed decides to finally reduce its monthly bond purchases.

There’s no telling when that’s actually going to happen, though, so buying the dips in the meantime is probably still the best move.

And it's all because the Fed is too scared to finally pull the plug on the biggest “everything bubble” in history.
 
Get Ready for Another Rally

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Stocks ripped higher this morning as fears over an Evergrande bankruptcy cooled. The FOMC is set to wrap up its September meeting this afternoon, too, and investors expect a dovish statement from Fed Chairman Jerome Powell to follow.

As a result, sentiment’s looking far more bullish than it has in several weeks, and for good reason.

Yes, share values certainly appear overvalued long-term and economic difficulties are coming for the US economy by year’s end. Wall Street has already reduced its 2021 GDP projections by a significant amount in response to slowed growth.

In the short term, though, things are looking up. The Evergrande crisis shocked equities into a rapid selloff last Monday. But Beijing is now expected to bail out Evergrande through China’s numerous state-owned banks, splitting up the company into smaller parts to reduce the risk of another major collapse.

Will it be painless? Absolutely not.

However, there also won’t be a “Lehman-like” catastrophe that leaks into global markets. Analysts expect a far better-than-expected outcome from the whole situation than they did on Monday morning. And if China delivers in that regard, stocks could surge.

The most positive man on Wall Street, Fundstrat Founder Tom Lee, “think we’re still in a position where, ultimately, stocks are going to rally hard off this, because unless Evergrande is going to cause a real seismic effect on the US economy, the US fundamentals are in good shape.”

Lee has called for major rallies on every recent dip. And, each time, his prediction came true.

If Lee’s proven right again, a bronze statue bearing his likeness could (or should) be built alongside Wall Street’s famous Charging Bull. The fund manager certainly deserves it after years of continued bullishness despite persistent bearish “triggers” that have threatened stocks repeatedly since the start of the Covid pandemic.

Meanwhile, Sevens Report founder Tom Essaye warned traders that volatility could remain an issue moving forward, even if the market rallies to finish out the week.

“A dovish Fed (or even a Fed that meets expectations) could provide more of a relief rally today, but we continue to think the sheer number of unknowns remain a headwind that will keep markets volatile for the next few weeks, until there’s more clarity on the Fed, taxes, government funding and earnings,” wrote Essaye in a note.

Historically, Powell hasn’t had a positive effect on stocks when he speaks. Bespoke Investment Group analysts observed this fact in a recent note that looked at the price performance of the last few Fed chairs.

“When it comes to the late-day weakness on Fed Days, much of it has come during Fed Chair Powell’s tenure,” Bespoke researchers said.

“Since Powell became chair, the S&P 500 has averaged the worst performance on Fed Days of any other chair since [Alan] Greenspan.”

So, traders hoping for an afternoon rally might not get one. That doesn’t mean, however, stocks will sink on Thursday or Friday. Bulls have a tendency to get nervous when Powell speaks.

Later on, though, sentiment usually flips positive once more.

Will that happen again? It absolutely could, especially following Monday’s big drop, which likely provided traders with yet another fantastic dip-buying opportunity in a runaway bull market.
 
I’ve stopped posting daily situation messages here, when I started this thread I wanted it to be more interactive, not just copying a daily update. The thread has had a lot of views but I’m not sure who has been viewing the thread, if they are beginners that are trying to put it all together in their head or seasoned traders who see nothing new but also see my inability to explain relevance, or both. It’s hard to know what needs to be said when you don’t know who you are talking too. I will post more to this thread but in a more sporadic manner and topic and only continue with that theme if some interaction requires it.
 
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