Market Middle Fingers the Fed

Crazy as it is, markets don’t care very much for the Fed rate hike. Bull market continues as the risk free rate is coming to an end.

Yellen and the Fed has lost all credibility, and received the middle finger from the market bulls because no one believes the rate hike is happening.

China Dropped 5%

China’s investigation into short sellers and derivative products spooked the China markets with an aim to end speculation.

If no one is allowed to speculate in China, does that mean its markets will contract 50% before reflecting real value?

What if the same thing happens in the US? Is AMZN’s 900 P/E ratio sustainable? It could probably destroy the US markets if the US took similar measures.

DX Levels

DX at 98 may be the spot where the indexes pause and realize how the strong dollar continues to be bad for businesses with international revenue. Looking for a market reversal or sideways action as DX continues to remain at the high range.

Rally is the Market Sentiment

VIX at all time lows 14.15 with no worries of market volatility.

Indexes rallied 10%+ in the month of October.

ZBs maintaining a high range where the risk free rate is going to be the norm.

Crude oil holding steady.

Euro, Yen off its highs.

Gold, silver trading lower in anticipation of rate increase.

Copper trading near lows. Global demand is weak, but that does not change the trading sentiment which is rally mode until the market reverses.

Two Sides of the Coin

Why Bearish?

  • China trade figures are abysmal (import fell, exports fell). World’s 2nd largest economy slowing.
  • PC weakness as indicated by INTC earnings
  • Aussie dollar weakness
  • Biotechs¬† leading the decline in NQs, TFs
  • Caterpillar warned on slowdown of global sales
  • Indexes hitting resistance levels from the 08/24 correction
  • Euro, Yen continues to gain due to flight to safety
  • Banks facing low profits due to low interest rates
  • Strong US dollar
  • Singapore growth sputtering, near recession
  • SKEW index at record highs as in 1999 dot com crash, 2014 Ebola scare
  • Weak US retail sales data (10/14/2015)
  • NFLX US subscriptions lower than expected, due to new credit cards (10/15/2015)
  • GE, Honeywell revenue miss (10/16/2015)
  • IBM revenue miss (10/20/2015)
  • eBay revenue miss (10/21/2015)

Why Bullish?

  • FXI, ASHR ETFs stabilized, and not free falling
  • Copper bottomed
  • Individual underlyings, AMZN, FB, GOOGL, NFLX showing relative strength
  • Bonds remain high for risk free rates. Fed not raising rates
  • Cheaper crude oil, over supply surplus from OPEC + shale producers

Yellen, Asia, Europe

Mkts reacted positively after Yellen’s speech of raising rates in 2015. This is a reversal of spooking the mkts after last Thursday’s directionless FMOC show.

Nikkei +1.7%, Shanghai -1.6% (divergent), Hang Seng +0.4%

FTSE +2.5%, DAX +3.0% VW drag on German mkts are over.

ZBs deflated from 157’16 to¬† 155’16. Flight to safety is over.

VX deflated from 23.35 to 20.75, risk on.

NKE crushed earnings. AAPL launching 6S sales.

VLKAY cheated on their diesel emissions. There should be a government mandate to help Volkswagen avoid jail time plus heavy punishments and push electric vehicles forward by converting all sold and unsold diesel VW cars to full electric. A win/win for clear air and the image of VW as they would be forced to put in resources to unseat TSLA as the current king of electric cars.