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High Yield Spreads Signal S&P500 Capitulation!The ICE BofA US High Yield Options-Adjusted Spread is a measure of the risk premium demanded for high yield (junk) bonds. It is published at the end of each day by the St. Louis Fed. When it is elevated to high levels (above about 4.5%) it can act as an early warning for equity prices. See the horizontal orange line in the middle panel. Last week, on May 11, the HY OAS crossed above 4.5 for the first time since 24 Feb 2020. That was the first early warning signal. The bottom panel on the chart shows the 10-day rate of change of the HY OAS. Why? Because it's not just the level that is important. When it is ramping up quickly, that provides an more ominous signal. The indicator has crossed up above the horizontal orange line (20.66) three times since 2008. In 2008 and 2011 that coincided with general capitulation starting in the S&P500. It was arguably early in 2020, catching institutional capitulation. General capitulation followed a few days later. The ROC indicator signaled on May 12 briefly but dropped back below the signal line the next day. That was the second early warning signal. Today, the indicator has again crossed above the signal line. I interpret this as a particularly strong signal as it has now been tested. In short, I expect general capitulation in equity markets to start today. Certainly the price action so far supports that thesis! The next few trading days should have extending breadth to the downside. Don't buy the dip just yet! This is a falling knife! Please follow me for more market insights!
FRED:BAMLH0A0HYM2Short
by skitrader
7
Bull? Bear? Swan? The chart: Shows an index average for SPX, NAS and DOW using rescaled CFD and futures prices. Indicator is a momentum oscillator (midline) with an envelope much like a Bollinger band. The paradox: The consensus is the chart is a picture of 'doom' (as bearish as it gets). At the same time, every trader in the chat room was bullish on the upcoming 12 hours. Not a single bear. The assumption that recent outcomes will be repeated is also called "The Hot Hand" . Both chart and traders refer to the same asset class. The chart accurately describes what traders experienced. Same information, but divergent conclusions and sentiment. Why the gap? One contributing factor is likely the qualitative difference between looking at a chart, and trading that same market in real time. Research shows that when we "experience" outcomes ourselves we pay more attention to the most recent, frequent and impactful outcomes. This does not happen if we get the same information on a chart, from a discussion, or the news.) In his book "The Black Swan", Nassim Taleb attributes peoples 'black swan blindness' (pp.77) to never *experiencing* an event, even if the information is available in some descriptive format (like a chart). There is a similar discussion in the chapter on rare events (ch.30) in Kahneman's book "Thinking fast. and slow" . Lastly, lab studies from economics, finance and psychology provide data for both predictive and descriptive models. These models can be used to predict how personal experience with risk will result in different sentiment that a simple description of the same information. Some of this research is summarized in a Psych-Science paper at: pure.mpg.de Notes: This way they can share the same USD scale and are weighted so that a 1 point change will imply the same change in $ terms. (For weights see: www.barchart.com ). In basketball there is a belief that a player can be on a hot-streak and more likely to score. Despite the compelling belief, statistical studies show it to be false. The same can be said for consecutive sessions in the equity markets. On a whole the market is largely efficient thanks to our relentless effort to remove every last inefficiency.
FX:SPX500
by gb50k
2
Emotional Responses are Dangerous in this EnvironmentMarkets across all asset classes hate uncertainty because it causes traders, investors, and all market participants more than a bit of indigestion. Fear and greed are emotions that drive impulsive behaviors. Effective decision-making depends on a rational, logical, and reasonable approach to problem-solving. The Fed finally addresses inflation Recessionary risks are rising Stagflation creates the worst of both worlds Tools impact the demand side- The supply side is a challenge Tools and rules for keeping emotions in check during scary times Reducing impulsive, emotional responses is a lot easier said than done. While it is easy to mitigate emotion during calm periods, they take over and trigger fear or greed-based actions in the heat of the moment. In mid-May 2022, the markets face a crossroads. The current market correction is a function of rising interest rates, the potential for an economic decline, a rising dollar, the war in Europe, supply chain issues, geopolitical tensions between nuclear powers, and a host of other domestic and foreign factors. It is now the most critical period in decades to take an emotional inventory that will avoid catastrophic, impulse-based mistakes. Wide price variance in all markets could accelerate, and those with a plan are the most likely to succeed and protect their hard-earned capital. The Fed finally addresses inflation The US central bank had an epiphany after mistakenly believing that rising inflationary pressures were “transitory” in 2021. The Fed woke up smelling the blooming inflationary environment late last year when CPI and PPI data showed the economic condition rose to the highest level in over four decades. At the May 4 meeting, the central bank hiked the Fed Funds Rate by 50 basis points to 75 to 100 basis points. The central bank told markets to expect 25 or 50-basis point hikes at each meeting for the rest of 2022 and into 2023. The Fed also laid out its plans to reduce its swollen balance sheet, allowing government and debt securities to roll off at maturity. While the Fed has switched to a hawkish monetary approach, it remains behind the inflationary curve. Last week, April CPI came in at 8.3% with PPI at 11%, meaning real short-term interest rates remain negative, fueling inflation. While wages are rising, they are lagging behind inflation. Consumers may be earning more but spend even more on goods and services each month. Recessionary risks are rising The US first quarter 2022 GDP data showed a 1.4% decline or economic contraction. The war in Russia, sanctions and retaliation, supply chain bottlenecks, deteriorating relations with China, political divisiveness in the US, and many other issues weigh on the US economy. Meanwhile, rising US interest rates have put upward pressure on the US dollar, pushing the dollar index to a multi-year high. As the chart shows, the dollar index rose to 105.065 last week, a two-decade high. A rising dollar is a function of increasing US rates, but it makes US multinational companies less competitive in foreign markets. The falling GDP in Q1 2022 increases the threat of a recession, defined as a GDP decline in two successive quarters, putting pressure on the Q2 data this summer. Stagflation creates the worst of both worlds Recession and inflation create stagflation, the worst of all worlds for central bankers seeking stable markets and full employment. The most recent economic data has put the US economy on the road towards stagflation as rising prices and a sluggish economy require competing monetary policy tools. The Fed is addressing inflation with higher interest rates and quantitative tightening, but recession requires stimulus, the opposite of the current hawkish monetary policy path. The central bank must decide on which economic condition threatens the economy more. The Fed seems to have chosen inflation, but it is more than a reluctant choice. Tightening credit treats the inflationary symptoms, but it can exacerbate recessionary pressures as higher rates choke economic growth. Stagflation is an ugly economic beast. Tools impact the demand side- The supply side is a challenge Meanwhile, the US and other central banks have deep toolboxes that address demand-side economic issues. While inflation and recession require different tools, the Fed faces other compelling factors from the global economy’s demand side. The war in Ukraine is distorting prices as sanctions on Russia and Russian retaliation distort commodity prices. Moreover, the “no-limits” alliance between China and Russia creates a geopolitical bifurcation with the US and Europe. With nuclear powers on each side of the ideological divide, economic ramifications impact the economy’s supply side. China is the world’s leading commodity consumer, and Russia is an influential and dominant raw materials producer. Energy and food prices are the battlegrounds. Central banks have few tools to deal with supply-side shocks and changes, which can create extreme volatility in the prices of goods and services. The Chinese-Russian alliance transforms globalism with a deep divide. Global dependence on Chinese demand and Russian supplies distorts raw material’s supply and demand fundamentals. While the US Fed faces a challenge balancing inflation and the potential for a recession, the supply side issues only complicate the economic landscape, increasing market volatility across all asset classes. Tools and rules for keeping emotions in check during scary times The best advice for dealing with anxiety came from US President Franklin Delano Roosevelt, who said, “the only thing to fear is fear itself.” Conquering fear requires a plan that mitigates emotions no matter the market conditions. The Fed’s toolbox is bare in the current environment, creating a volatile landscape. Chasing inflation and dealing with a recession in the face of supply-side shocks is a potent cocktail for price variance. Investors and traders need to change their orientation to markets to adapt to the current conditions. The following tools and rules can assist in mitigating the human impulses that lead market participants to make significant financial mistakes: Hedge portfolios using market tools to protect the downside and allow for upside participation. Hedging reduces the impulse to liquidate portfolios because of fear. Since volatility creates opportunities, approach markets with a clear plan for risk versus reward. Remember that the market price is always the correct price. A risk-reward plan only works when risk levels are respected. Markets are never wrong, while traders and investors are often wrong. A long or short position should constantly be monitored at the current price, not the original execution price. Positions are long or short at the last tick. Adjust risk and reward levels based on current market prices. Follow trends, not news, “experts,” or pundits. Trends reflect the crowd’s wisdom, and collective wisdom reflects the sentiment that drives prices higher or lower. Never attempt to pick the top or the bottom in a market, let the price trends do that for you. The rules are simple, but emotions are tricky. The emotions that trigger impulsive behavior cause market participants to ignore the rules. The critical factor for success in markets is discipline, defined as “the practice of training people to obey rules or a code of behavior, using punishment to correct disobedience.” When it comes to our hard-earned savings and portfolios, the punishment is losses. Tuck those emotions away and face the volatile market landscape with a plan. Hedge your nest egg, and you will sleep better each night. Remind yourself that fear is the only factor you should fear. -- Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility , inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
ICEUS:DX1!Education
by Andy_Hecht
1
NASDAQ reaching end of Capitulation? Or only half way there?Every investor should ask themselves, are we in store for the usually 20-30% correction? Or are we in store for a market meltdown, similar to the Mortgage Backed Security collapse of 2007-2009? Or the Dot Com bubble during in 2001-2002? I have the most recent corrections in history highlighted, their reasons listed. > It is clear that the current situation and correction is more serious, than those in recent history. It has more drivers to the downside than the last 3 corrections. > It is also clear that the global economy isn't collapsing with like in 2008. In that recession, $10.2 Trillion alone was wiped from the American economy alone. That's not including the hit to Global Wealth, resulting in the elimination of many more Trillions. > It is further clear, current tech equities are not as overvalued as in the Dot Com bubble. I cannot deny that there has been an increasing number of Unicorns and IPOs entering the market. The majority of which have already had their values demolished. One only has to look at the recent SPACs, to see the smack these "Vision over Reality" companies have received from the market. >>> I believe we are more likely in a 20-30% correction, rather than a meltdown of 50-70%. Long term stocks go up.
NASDAQ:NDXLong
by FortunaAlgoAnalytics
4
Hope, it's what keeps us all moving forward...I can't seem to find any good news anywhere, it's all bearish, Yay. When I can't find any good news, that little contrarian voice in my head makes me wonder, just a bit ;) Now, obviously we can go lower, as indicated by almost everybody at the moment, there is not shortage of takes on that, but what about a move to the upside? what would that look like? At times like these, maybe all we need is a little inspiration? “Optimism is the faith that leads to achievement. Nothing can be done without hope and confidence.” — Helen Keller “You can cut all the flowers but you cannot keep Spring from coming.” — Pablo Neruda “I don’t think of all the misery, but of the beauty that still remains.” — Anne Frank “Hope can be a powerful force. Maybe there’s no actual magic in it, but when you know what you hope for most and hold it like a light within you, you can make things happen, almost like magic.” — Laini Taylor “They say a person needs just three things to be truly happy in this world: someone to love, something to do, and something to hope for.” — Tom Bodett “Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.” — Albert Einstein “Never lose hope. Storms make people stronger and never last forever.” — Roy T. Bennett “Hope is a waking dream.” — Aristotle “In fact, hope is best gained after defeat and failure, because then inner strength and toughness are produced.” — Fritz Knapp “I always entertain great hopes.” — Robert Frost
AMEX:SPY
by clarkehimself
7
GOLD - Time To Sell !!!The geopolitical event has helped gold to set a new all time high (what would probably happen anyways at some point). Right now people are very scared, and are fomo buying commodities like metals, oil, gas futures, and so on... right at their all time highs. Think about it... they make retail investors sell equities at their local bottoms to FOMO buy commodities at their tops. Given that everything has become more expensive, especially OIL, this could drive more inflation (money printing) in a short term, eventually resulting in equities going up and commodities going down (in this example gold). But only for a short period of time (few weeks to maybe months). Structurally Gold could be doing the same reversal pattern we saw with Bitcoin topping at 69k. I've put btc price topping next to the gold chart so you can see how simmilar they are. I am trying to be a head of the croud here. Very simmilar structure could play out like this. My call is a BIG sell for gold right now. I might be wrong but there are just to much confluences in the market right now between equities and commodities. I am not a financial advisor so non of this should be taken as a financial advise. Be well. OANDA:XAUEUR
OANDA:XAUEURShort
by CR35
5
SPX is strong. Can we see ATH before the rate hikes?Hi everyone, Weekly SPX update here. Strong grind higher continues. Today we gapped down at the open on CPI news before market open. However, the gap was filled in the first hour and a half of trading. Strong rebound after bad news tells me that investors are optimistic about the equity market future. My levels are working great. Below: 4529 4496 Above: 4613 4672 Now: 4583 Let me know what are your thoughts on the near future of the market. As always, trade wisely and good luck! ----------------------------------------------------------------------------------------------------------------- Disclaimer!!! This is not financial advise.
SP:SPXLong
by AyBe_Invest
3
Penguin: "BTFD ?!?" - % of stocks above their DMA.The daily chart is showing market sentiment from a breadth perspective: the percentage of stocks on the NYSE (2943 stocks) that are above their daily moving averages. The trend is increasingly bullish but that increase has peaked in recent days. [bDetail: MMTH - RED - Percentage of stocks above their 200 DMA MMOF - Percentage of stocks above their 150 DMA MMOH - Percentage of stocks above their 100 DMA MMFI - GREEN - Percentage of stocks above their 50 DMA Average of all 4 - WHITE line EMA10 of the white line - ORANGE line All 4 indicators and their mean are above the midline with positive momentum . That momentum has peaked in recent days and is no longer accelerating.
MLong
by gb50k
4