Oh Dear

Oh dear.   It isn't terribly easy at the moment, is it, no matter which side of the bull/bear divide you happen to inhabit.  Indeed, a quick glance at a 30 day chart of the SPX reveals a lot of slop with relatively little impulse and a lot of overlap.



That having been said, price action  over the last week or so does seem to be a little more serially correlated and purposeful.  Yesterday's Fed rally retraced nearly 61.8% of the decline from the ding-dong highs, then promptly gave it all up and more yesterday.  So is that an A/B/C , or a 1/2/getting started on 3?  Enquiring minds want to know.

(As an aside, it is surely a coincidence, as one of Macro Man's mates pointed out, that this more directional price action started right after Flash Boys was published....innit?)

Meanwhile, the proprietors of Trendlines 'R' Us are doing a roaring trade, given the demand for their products to contain weakness in the NDX...



...and the Russell 2000.


Unfortunately, at the time of writing, some of the merchandise appears to be of dubious quality and easily broken:


(Sod's law suggests that the Nikkei will stage a furious rally before this post is published, thus rendering it obsolete before the pixels hit your screen.)

Quite frankly, Macro Man isn't quite sure what to make of this whole setup.   The first chart above suggests that chasing extremes is a lousy idea, and while the SPX and Nikkei charts have broken, the NDX and RTY are holding on...barely.  Some confirmation from those would be a nice way to increase confidence.  Then again, USD/CAD broke the key support level highlighted here the other day....and then decided to rip back up above it.

All in all, it's a pretty low quality trading environment, given the erratic price action, mixed signals, and general unwillingness of punters to warehouse any more pain.   The Eurostoxx puts highlighted a few days ago would appear a sensible way of playing a bear trade without loading up too much risk at bad levels, thus allowing the picture to clarify a bit.

Overall, though, Macro Man is keeping it pretty tight, because [INSERT TIRESOME CARD PLAYING ANALOGY OF YOUR CHOICE SUGGESTING IT'S A BAD IDEA TO BET A LOT RIGHT NOW.]
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Anonymous
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April 11, 2014 at 8:35 AM ×

C says
If we are talking card games then this is a game of patience. One simply has to allow the mom players time to bash their heads against the wall until hey get the idea that they are facing in the wrong direction. When JBTD has been encompassing half a sessions weakness for so long then psychologically it takes time for the message to sink home.

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Anonymous
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April 11, 2014 at 8:37 AM ×

I should say it always reminds me of that experiment with squirrels and nuts. They keep trying to do the wrong thing ,but eventually they do find the right way to get the nut.

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Anonymous
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April 11, 2014 at 2:00 PM ×

As the Bishop said to the Actress: Macro Man is keeping it pretty tight, because [INSERT YOUR FAVORITE DOUBLE ENTENDRE HERE]

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Macro Man
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April 11, 2014 at 2:11 PM ×

Are you suggesting that[REDACTED]???

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Leftback
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April 11, 2014 at 2:30 PM ×

As the Actress said to the Bishop: "Oh Dear. Well, your Excellency, Macro Man suggests that I just keep an eye on it and see whether it goes up or down, before we decide what to do".

Question for you, MM: With last year's supersize gains in equities, are we maybe watching a bit of forced pre-tax deadline liquidation? Just wondering.

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Polemic
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April 11, 2014 at 2:37 PM ×

I can remember the days when you bought supports rather than selling them because you thought that if they broke then it would melt. Double bluff seems to have clouded their usefulness

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Leftback
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April 11, 2014 at 2:44 PM ×

Chart Watchers anonymous will be pointing to SPX 1815 today (late November high, early January dip) as possible support. If that level fails, the day will definitely be going pear-shaped. Listening to the "analysis" of Treasury prices by the massive minds on TeeVee has been more than a little amusing. The China data and global disinflation does have something to do with it, but it's simpler than that.

[As discussed often in this space, it works like this: after the usual front-runnning, Fed enters Tsy market with onset of QE, and marginal buyers leave to seek risky assets. As Fed begins to exit QE, liquidity decreases and marginal buyers exit risky assets and re-enter Tsys].

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Macro Man
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April 11, 2014 at 2:45 PM ×

Er....LB...dumb question perhaps, but isn't the tax year the same as the calendar year? Or are you suggesting that people might be selling stocks to pay their tax bills? I find that dubious given the traditional seasonality of equities in April.

Given the melt-up in Treasuries/Bunds, I wonder if there isn't some more asset allocation type flow going through.....

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Leftback
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April 11, 2014 at 3:07 PM ×

Yes, precisely. Not sure of the size of this effect, but was suggesting that last year's larger than usual gains might just be feeding through into some lucky punters (and corporate insiders) having to sell in order to write those larger than usual checks to Uncle Sam. A marginal effect, perhaps, but might be enough to set the ball rolling in unusual years.

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Mike
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April 11, 2014 at 3:53 PM × This comment has been removed by the author.
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Mike
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April 11, 2014 at 3:55 PM ×

The theory of tax selling was espoused by Mr. TrimTrabs Bidderman on CNBC the other day, 15th being the last day. As u said LB, he stated that larger than usual tax bills need to be paid for outsized gains last year. He was backing his truck on Monday... I did get my kevlar gloves out and bought some biotechs. After all, this pullback made the infinite P/E a lot easier number to wrap one's head around :)

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Leftback
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April 11, 2014 at 9:30 PM ×

Low of the day 1814, not 1815.

"Missed it by that much....."

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Anonymous
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April 12, 2014 at 12:10 AM ×

Everyone will look to sell the coming bounce which means pain trade may be higher than otherwise expected.

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Anonymous
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April 12, 2014 at 12:43 AM ×

First - welcome back // interesting that most of other markets have not responded to STOX -- currencies should probably take the hit next week -- and the greek auction may have been the bell nobody ever hears at the top

(sorry about anonymous - I don't understand URL)

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theta
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April 12, 2014 at 7:58 PM ×

Here's a typical Tech/Biotech investor right now:
http://youtu.be/l8IkbCeZ9to

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Nico G
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April 14, 2014 at 5:19 AM ×

"you paid for your Schnapps? they should have told you that Cognac, Grapa and Mastika were free tonight. Wait, Schnapps was free too, apologies"

folks who have been bidding up European equities of late remind me of those times when you are so drunk you are paying for drinks at an open bar party

banks reserves under 2007 levels, euro stubborn at 1.40 and all of Europe clients' economies getting whacked etc etc So an European recovery 'malgré tout' based on what - internal consumption? Tourism and water parks?

When will fund managers learn how to sit on their hands and do nothing. 2014 equities investing resembles a bad swingers club with only ugly options left. Leave now and lock yourself home

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theta
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April 14, 2014 at 9:29 PM ×

Nico G,
apparently there is expectation of QE in Europe. Which, given certain ECB constraints, will not be exactly QE, but credit easing, i.e. the assets purchased by Dr Aghi will be private sector loans. This should bring a lot of institutions back to solvency, and boost the asset side of many others' balance sheets, which will ultimately lift all equities. It will be a bigger and better version of what the US and the UK have been enjoying for the last 5 years or so of their "recovery". Asset reflation at its best (or worst, depending on where you sit).

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Nico G
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April 15, 2014 at 3:38 AM ×

i am fully aware of that, no matter what bluff
BazookAghi comes up with this time, we are at a peak for world recovery, there is no more relay imo

you can probably patch a few insolvencies here and there, but internal consumption is crap, Europe cannot rely on it only once its exports have peaked

also note that European banks are monster loaded with euro bonds again, with yields ridiculously compressed (cf. last Greek auction)

again, folks in the investing world just cannot be paid to sit on their cash, and the search for yield is as desperate as it was 5 years ago.

iTraxx crossover back to 2007 level, we have learned nothing which in terms of human psychology is nothing short of fascinating.

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