I follow four areas of the market very closely; volatility, miners, gold, and the SPY index, and everything smells of deflation. I trade on the 2 and 4 hour, but I took a step back and looked at the monthly, weekly, and daily charts and everywhere I look it smells of lack of oxygen.
The broad market has a decreasing positive slope (8% y-t-d), and why not, you cannot continue to have 10-14% (from 2014) annualized growth rates with no GDP, Income, or fixed income rates. The charade started with a relative yield trade, then a squeeze volatility trade, and now we are wrapping up the leverage the balance sheet trade. The Central Banks and politicians have done everything except the right thing, and maybe because the right thing is the hard thing.
As far as I can tell deflation is taking root everywhere in the world, and that makes raising prices very hard, and realistically, I believe in the short term, employers cannot really chop until and unless revenues start to fall in earnest. They are losing all of their variable expenses to exploit, and are sitting on increasing amounts of debt. If Yellen increases rates (which I have serious doubts she will), the carrying costs of that debt becomes increasingly material.
Bull markets are not made of these.
The charts are bearing me out, SPY is stuck in a range, where the algos are torturing the short sellers, but there are no marginal new buyers. Margin debt is maxed, retail traders are all in, and the Central Banks has stopped giving the banks new casino money. Using wedge break mathematics, 900 on SPY over the next 18 months is a distinct possibility.
Biotech cannot get out of its way, and I believe that bubble has burst, and will retrace all gains. 80% of all firms in the index have negligible revenue, and are simply burning investor cash. Good night. Social Media is showing that expectations far exceed growth, and the punishments are beginning. Gold has never bought the inflation story, and my expectations are a hard move down, same for the miners.
Enjoy the charts.
