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What Happens When the Market Breaks Rule Number One?

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For one thing, Rule Number Two - The trend is your friend - might not apply. Case in point the last 5 days.  For more than a month before that, the market broke Rule Number 1 - Don't fight the Fed.  The last 5 days have been merely a gentle reminder of the Rule. There's more to come. Breaking the Rule will lead to an appropriate, and likely disproportional punishment. 

As for the trend being your friend. It's a matter of perspective.

Which trend? The major trend? The intermediate trend, or the minor trend? Of the 3-5 day cycle, etc? Here, we focus on the latter. For the bigger picture, I suggest the Technical Trader

As for the very short cycles of concern here, we've been in an up phase since Monday afternoon. As I warned it might be an up phase in name only, as the market has drifted and bumped like an old trolley car with worn out ball joints. Momentum indicators have worked their way higher, from extremely weak to very weak. But prices have not.

And time is growing short for this up phase to break through resistance. If it doesn't happen today, say, by breaking 4153 on the ES 24 hour S&P fuguetures, then the next big move is more likely to be a downside breakout. It's not a given though. The cycles may simply keep damping down until the head traders return from their summer homes in the Hamptons after Labor Day.

As for any potential downside fireworks, I think we'd need to see a print below 4105 to get that lit up. 

ythry  

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While I joked about yesterday's "itervention" in the EUR, it certainly does look suspicious on the hourly. And look how it has hewed to the centerline of this trend.  But notably stuck below it for some hours now. They need to break topside soon, or this will get really oogly.

yting

 

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You have to look at 1 min chart on such occasions. When there is NO data release and when there is NO news and despite that EUR/USD bombs 50,60,70 pips higher within a few mins then you know that a mega big whale is in the market and that is intervention. I suspect the ECB together with the SNB.

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SO NOW UNCLE WARREN WANTS 50% OF OXY

Uncle Warren I presume thinks that the printing priesthood will eventually pivot back to the big print.

The simple fact is that in order to control inflation (eventually....somewhere in the distant future ) the Eccles temple acolytes need to create more inflation in the present.

They cannot control inflation now because the cash flow needed to service the interest rate required is simply too great,

The numbers don't add up.  

It would create a hard default situation....to be avoided at all costs.

But if they create enough inflation then cash flow will increase enough so the numbers do add up.

And then they will increase the rate enough to control inflation...and there will be no hard default.

And in the meantime the common shareholders of Oxy will get $3-4 billion of inflationary wealth transfer a year.

So why not be the common shareholder.

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8 minutes ago, Jimbo said:

SO NOW UNCLE WARREN WANTS 50% OF OXY

Uncle Warren knows that the printing priesthood will eventually pivot back to the big print.

The simple fact is that in order to control inflation (eventually....somewhere in the distant future ) the Eccles temple acolytes need to create more inflation in the present.

They cannot control inflation now because the cash flow needed to service the interest rate required is simply too great,

The numbers don't add up.  

It would create a hard default situation....to be avoided at all costs.

But if they create enough inflation then cash flow will increase enough so the numbers do add up.

And then they will increase the rate enough to control inflation...and there will be no hard default.

And in the meantime the common shareholders of Oxy will get $3-4 billion of inflationary wealth transfer a year.

So why not be the common shareholder.

You mean that if they drain too much out of the system now there wouldn‘t be enough cash to serve the coupon psyments of the bondholders of newly issued bonds at say 5% coupon if they‘d go on with hiking rates?

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22 minutes ago, Jimbo said:

SO NOW UNCLE WARREN WANTS 50% OF OXY

Uncle Warren I presume thinks that the printing priesthood will eventually pivot back to the big print.

The simple fact is that in order to control inflation (eventually....somewhere in the distant future ) the Eccles temple acolytes need to create more inflation in the present.

They cannot control inflation now because the cash flow needed to service the interest rate required is simply too great,

The numbers don't add up.  

It would create a hard default situation....to be avoided at all costs.

But if they create enough inflation then cash flow will increase enough so the numbers do add up.

And then they will increase the rate enough to control inflation...and there will be no hard default.

And in the meantime the common shareholders of Oxy will get $3-4 billion of inflationary wealth transfer a year.

So why not be the common shareholder.

There's something to be said for this reasoning. But the Fed is always reactive, never proactive. It drives in the rear view mirror.  It won't see the cash crunch until after they've past that point. By then it will be total market chaos, difficult to reverse by mere printing. 

How Fed and Treasury policy, Primary Dealers, real time Federal tax collections, foreign central banks, US banking system, and other factors that affect market liquidity, interact to drive the financial markets. Focus on trend direction of US bonds and stocks. Resulting market strategy and tactical ideas. 4-5 in depth reports each month.  

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btw, OXY is right at a valid downtrendline from 2011. Loading up the truck right here like Buffet does is somewhat weird. Folks wwnt lnog OXY around 20 and added on the way up, maybe even on leverage and they reduce positions right at a place where he proclaims to eanna have 50% of OXY.

Sometimes I don't get that old fart. 34% of Berkshire's publicly traded equity positions is Apple. Speaking about concentration risk...

Can it be that pretty much of the scucess story of Berskshire is due to de-regulation under Reagan in the 80s? Back then the vast majority of the entire Berskhire Holdings were non-publicly traded firms. I think I once read that till the end of the 70s there was a different accounting standard than today regarding insurance companies so that heavily on insurance firms loaded Berkshire could use more cash from the insurance business for leveraging. Basically the insurance business purpose within Berkshire was to serve as a "leveraging machine" so to say. 

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THOUGHTS ON INFLATION....ITS A PROCESS.... NOT AN EVENT

I mean if they can reduce the debt enough in real terms.... via more inflation.....then it becomes much easier to service it out of cash flows.

Then corporate america can withstand the higher interest rate required to bring inflation under control without defaulting.

So then and only then can they increase the fed fund rate above the inflation rate ....to the rate required by the Taylor rule.....and control it. 

i.e. the Fed has to create a certain amount of inflation "The required Inflation" before it can get to the "Control Point" and control and then reduce inflation....it is a process the Fed has to undertake.

And who ever is the Fed chair when they reach the control point gets to bring the inflation down and becomes the "new Volker".

The control (less) inflation equation is:

 Default event horizon rate > inflation control rate > inflation rate.

We dont have that yet ...what we have now is the more inflation equation:

Inflation control rate > inflation rate > default event horizon rate.

 

Uncle Warren should have taken Oxy over in 2020 when it was cheap.....no longer cheap.

Most of the easy gain in Oxy is over.

 

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