17 May 2017

SP 500 Futures - Gap Filled Intraday - The Gathering Storm

"Sometimes I wonder whether the world is being run by smart people who are putting us on, or by imbeciles who really mean it."

Mark Twain

The gap in the SP 500 futures continuous chart that we left behind a few weeks ago has just been filled intraday.

As a reminder this is a stock option expiration week, although as I recall May is not a particularly significant month.

I imagine a lot of enthusiastic call buyers have just been smoked out of their seats and their June positions.

The tension on the tape the last few days was palpable.  It just took some small event to trigger it giving its overlong duration and extent out of balance.

I don't think impeachment is on the table for President Trump, except in overheated Democratic rhetoric.   Although I would not rule anything out while The Donald has access to twitter.

The NDX has a quite a way to go to close its gap, but that is another matter. For my purposes the SP 500 futures are the bellwether.

I have pulled in my short positions, and just left some other risk off positions run, mostly in gold. No silver at this time for a trade.  It just doesn't work as well in a panic because of its precious/practical nature.

My cynical side says that this market pullback is just a long overdue correction in the Trump rally. But we will have to wait and see where the stock markets finds a footing, or if contagion of selling starts to trigger liquidations and some sort of selling feedback.

As I noted the other day, this is a concern for me because the nature of this rally has been narrow and price driven.  People were throwing money into passive index funds, which were rising steadily thanks to speculation in about ten stocks.

The 'big one' for the markets, as opposed to a major correction, will gain the most damaging momentum from the erosion in quality of private debt loads which are once again back to record levels, along with the extreme leverage in financial derivatives exposure held by just a few financial institutions.  That is the real nitro in this chemical mix.

If any financial breakdown spreads to the $222 trillion dollars in derivative exposure then it is time to hit the exits.   There is no way to bail out that sort of malfeasance gracefully without imploding the currency, theories about the ability to print money without limit notwithstanding.

Speaking of rotten fundamentals, the average growth in loans exceeds the average growth in hourly wages.  Thanks to Tony Sanders at Confounded Interest for that chart below.

Let's deregulate The Banks even more and hand out tax breaks to the one percent!  And spend all our time looking for Russians hiding in the shrubbery so we can blame them.

Sleep well.