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Markets a la Donald

Pre-lection wetrumps-hammerek

The first 2 days

The years ahead

 

Trump’s election was certainly a surprise.

And market (stock futures and stocks) reactions to it were also a surprise.

Let us ponder:

  1. In the days leading up to the election, the market crashed on news of the FBI reinvestigating Hillary. (Trump’s chances are improving…market say bad.)
    hillary-probe-restart

When Comey announced the FBI would re-open it’s Hillary investigation, the market went in to a historical tail spin of consecutive down days.

  1. Then, shortly before the election, FBI drops the investigation. Market gaps up.  (Hillary’s chances are improving…market say good.)
    probe-re-closes

Market gaps up on news that the FBI is once again closing the Hillary probe.  And leading up to the election, retraces the whole down move, back to the SOC (scene of the crime), where the market found fair value, going in to the election, with Hillary heavily favored to win.

  1. Then, on voting day, with odds 5 to 1 (was that an omen, referencing the Doors song? Play to set mood.  The trick to get it to play as background music is, you have to re-open it in Youbube, sit through the ad, etc.)

5 to 1, that Hillary will win, markets ramp up bullishly towards all-time highs.  (Markets…oh how we love Hillary.)

  1. Then as the tide starts to turn, so do the markets. As it becomes clearer and clear that Trump may win, nay, will win, markets commence an epic slide.
    trump-crash

SP500 futures slide 127 pts, and the only thing that stops them there is the exchange rules, that freezes further selling, but oddly allows buying (in afterhours.)

Then, what?

  1. Before the market opens, futures rally back through 50% of the down move (the down momentum is broken. Markets…what was that?  Trump did you say?  Eh, tomato tomawto, out with the old, in with the new…that Hillary, she was an old shrew, anyway.)
    trump-rally-pre-market

Then, by open, just 10 points below the bottom of election-day range.  Similar to Brexit, only a speeded up Fractal of it.  Oh no, Brexit!  Oh cool, Brexit!

  1. Then post-election day, market’s open, ominously, just below the previous day’s low. Everyone expects them to tank.  Technically, they are perfectly set up to fall.  No gap down, so an orderly descent from here could be sustainable.  At least to half of Trump’s hammer’s tail.

What happens?

  1. Frenzied buying, on record volume. Hillary, yeah, we liked her.  But Trump?  We LOVE him!  Makes you wonder how serious the market ever was about crashing on politics news in the first place.  Oh market, you tease you.
    trump-rally

Here is the epic action replay…2 days compressed in to 15 minutes.

Sure, the move was partly attributable to a giant short squeeze….100 pts of wrong shorts buying to cover.  But mid-day, when the market tried to get corrective down, a new wave of buyers appeared, and took stock futures on a mtrumps-hammer-w-pricesad bull run, to take out the high of the voting day, when we thought Hillary was a shoe in.

Really, market?  You really, actually, like Trump?  Yes, oh yes, we really really do!  We think we do….we like how he puckers his lips!

Why?

Why does the market behave this way?  Those are actual people, real money, giant funds…not some goofball slapstick writers trying to flummox the audience.

Trump has promised a massive demo and reconstruction project on the economic status quo.

Yes, but…

  1. This won’t get started right away…for months at least (an eternity to markets)…the status quo will chug along
  2. We don’t ACTUALLY have the specs on what he intends to construct. And over the years he’s suggested all kinds of fanciful structures, which are probably, or decidedly, impossible.  Such as: “Paying off” the national debt, and financing it by a one-time giant tax of the wealthy (no longer possible, now that Obama has more than doubled the #, since Trump made the statement, not to mention that, since our money is made of debt, if you pay it all off, you get a huge implosion, massive deflation, everyone who owns anything with debt is ruined…the whole edifice crumbles.)
  3. We don’t really know what he’ll really be able to demo, for all his bluster. Them there is historical structures, ya see?  You can’t remove those without an act of congress, the will of God, and a Bilderburg nod.

So the market is trying to digest all this, while high on giddy euphoria, and whacked on apocalyptic despair….what a cocktail!

The market is trying to digest the fundamental reality of how this will play out, and also market sentiment….how people will THINK this will play out…and how long it will take them to realize they are wrong, or get confirmed right…all while hopping like Charlie Brown characters in a rave on drugs they never tried before.

Isn’t it weird, that whatever crosses your mind, if you Google it…

Get it together market, make a bet!  Eww Kay, I bet it all on long!  Yeah, long!

So, the net result of this is, for now, Trump’s hammer.  A dramatically bullish posture.

Look at the size of that thing!  Look at it in context of previous action.

trumps-hammer-in-context

By the end of the election day, all sellers of the Trump news were SHUT OFF.  The Dow hit all time highs.  SP500 and Nasdaq were sniffing them.  The small caps were on fire.

Look at the Russel reaction to election night….falling on Hillary losing, rising on Trump winning.

russel-reaction-to-trump

Hm.  Uh, you did know those were the two, right? If the one is losing, the other is winning?  It’s not like, oh no, Hillary is losing, maybe it’s Planet of the Apes!  Anyway…

What will actually happen?
And what does this tell us, near term, people are THINKING (feeling) will happen?

As an instant gratification world, accelerating in frequency towards the end of the Kali Yuga, we must tackle first things first.  Sentiment (what people THINK will happen), which drives what actually does happen, for NOW…hey, be here now, right?

No, here, now.  No, now.  Wait.  I got an idea.  I’m gonna sneak ahead, and ambush one.  Dang, a plan.

Market thinks: Trump’s trade policies will adversely affect multi-nationals, and benefit smaller companies.  So big names, like Amazon and Google, that prosper with current trade agreements, fall.  Smaller companies, like mattress companies and Whirlpool, get a boost.

Gun companies fall.  With Obama gone, no need to stock up on guns now.

Since small caps “should” lead an uptrend (smaller companies, faster growth, buy in risk-on environment), the action confirms the bias….that is, markets think people will think Trump is good for business, locally.  Globally…eh?

The DOW is only composed of 30 stocks, it is not as weighted down by multi-national tech stocks.

Financials get a boost.  The immediate thought is, Trump will be good for business.  (Probably in this area…banking…his demeanor of standing up to the elites is just posturing.)

So, it’s this kind of thinking, in the reevVALUEation melee of the post Trump election market days.

There will be winners and losers vis-à-vis Trump.

Whatever the thoughts, there is one incontrovertible, technical truth.  The reaction to a Trump election was wildly bullish for stocks…business.   (bearish for bonds….but we’ll get to that.)

And that this was a surprise, to most.  Both the election, and the market reaction to it.

But What will, actually happen, really truly?
Can we just sober up for a minute?  Is it even possible?

The truest thing we can say is, we don’t know.  No one, or almost no one, maybe actually no one, knows.  And we don’t know in a similar way to how we didn’t know before Trump.

Here’s what we know and don’t know.

We know all the major central banks have shot their wad.  We know world markets and economic growth since 2008 ish, and arguably since 2000, and arguably since the 1970’s, had been driven by central bank policies (lower rates, print money.)

We don’t know, now that they have all shot their wads, what will happen if, and almost for sure, when, an exogenous event (like the derivatives implosion of 2008) hits this dissipated system.

But hey, Jim Morrison seems to be the theme singer for this one.

Central bank driven economies are a big game of musical chairs.  When the music’s over, will you have a seat?  Watch your butt!  (If you’re properly hedged, you can probably pull a folding chair out of it.)

What’s up with bonds?

Bonds collapsing on Trump’s election indicates the market believes, or believes people will believe, that Trump’s business friendly policies will lead to a growing economy, which will lead to the Fed raising rates (therefore adding value to newly issued bonds, devaluing older issues.)

And the dollar confirms this.  It followed stocks, crashed as Trump gained ground, then fiercely rebounded for a bullish lead when he was actually elected.
dollar-action-on-trump

Silly market.  People simplistically think, Trump bad, bad for America, dollar fall.  Regardless whether this has anything to do with the strength of the currency.

Then more sober minds mop the floor with their shorts.  Trump’s in, rate raise still on the table, and may be more to come….which means?  Bad loans go bad, money supply contracts, dollar deflates, buys more.

Anyway, at least until it reaches the next technical resistance, and reality has to come up with a new story to support what the chart suggests.  (Look how beautifully the Trump flash crash retested the breakout)
dollar-on-trump-zoom-out

Day 2 post Trump markets

As the reevaluation continues, the Nasdeq sells off hard.  Into the Hillary gap…no pun intended, really.

It is quite a large move.  Sets up a bear flag in the gap zone.  But the caveat is that the flag pole sticks out of the bottom of the gap.  And since a gap must be “tested from both sides,” this flagging action finishes off that old gap.
hillary-gap-nq

The bear flag fails, and the market rallies, yet again.  With each rally, confirming that more sober minds, after shaking off the hangover, still want some more cool-aide.

The Nasdeq has considerably led the SP500 in the “correction.”  The SP500 is still nowhere near the Hillary gap.

The really big picture

Beyond what Trump means, beyond whatever happens with central banks and “money,” the really big elephant in the socio-economic room is automation.

The elephant lumbered in to the room long ago, and we’ve busied ourselves for decades with considering it’s shades of grey, and scrying it’s wrinkles.  But when we step back, that is a HUGE fucking animal.  And it’s part of a herd!

Historically, the “economy” has been based on work in exchange for money.  When we no longer need “people” to do that work, how does the economy “work”?

Will Trump be helpful in working this out?  The real straight talker in politics will be the first person who tackles this issue explicitly.  Maybe that will be a robot.

Big Waves

Since Trump’s cannon ball, the waves have really been sloshing around the markets.
cover-story-blitt-bellyflop-872-1200-29105408
Kind of refreshing, after the summer volatility drought, when we had the smallest range in 40 years.

Now all of a sudden, we’ve got BIG waves!

big-waves

The big fish are back.  They swim through micro technical levels, and create macro fractals.

Ok, one more.

doneld

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