03 February 2014

SP 500 and NDX Futures Daily Charts - Busting Broncos

Stocks saw a merciless beatdown today, similar to the Superbowl game last night.

The impetus for stocks was a lower than expected PMI number from China, and a weak ISM Index number from the States this morning. With two of the largest economies in the world showing seeming signs of weakness, the untamed horses of this long bull market were quite subdued.

If you look at the charts below carefully, you will see that what has happened is that the long year end bubble from 2013 has now deflated. One can make a good case that the Fed saw this as desirable, a necessary outcome if only to avert the disaster of an uncontrolled deflating of the asset bubble.

But it is also possible that the wiseguys who pumped it up handed what they could over to mom and pop and their institutional representatives, and are now taking the money and running. The proverbial wash and rinse, which I have been suggested was overdue.  The pause that refreshes in a continuing asset inflation, if you will.

So what next? This is a non-farm payrolls week if you have not noticed, and earnings will keep coming in before and after the bell. It would be good to keep an eye on the emerging markets and their currencies because that is where an ongoing trend might originate.

 The central bankers stand ready to print, but the markets might have to overextend a bit to send that signal, and relief may come in some extraordinary manner.

Have a pleasant evening.