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"Investors Have Become Completely Inured That All Cans Can Be Kicked Down The Road..."

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Yesterday's exuberance in stocks is continuing today (despite some early noise), but bond yields are tumbling, having erased yesterday's spike higher (and the dollar is rolling back lower). All of this has former fund manager Richard Breslow wondering once again at the reignited ignorance of the stock market to every possible non-positive action... making it clear that investors should "resist any temptation to believe you know what the Chinese are thinking."


Via Bloomberg,

It certainly isn’t a crime to not have a solid grasp on what is going on with the price action. It doesn’t even make you a bad person. Being out of sync with the market is an important state to identify and should be respected -- not ignored nor fought. Opportunities, and good ones, come to all who wait. But I have to admit, it is of some comfort to realize that it is something going around and not just me.

If the equity rally yesterday and so far today can be laid off on having been sparked by a couple of tweets and throw-away lines, then I am going back to the charts until some of the muck has been cleared. As shares went soaring, it was pointed out that fears had been allayed because Treasury Secretary Mnuchin is optimistic about trade tensions. This morning I learned that the global rally continued thanks to the President tweeting that trade talks are going on and “all will be happy.” Man, if that’s all it takes, this should be easier than it looks.

From an analysis point of view, it is, however, safe to assume that the “noise” we’ve been experiencing is largely based on some extraordinarily short-term and superficial analysis. In truth, the market’s ability, and culpability, in ignoring big geopolitical threats is wholly intact. Investors have become completely inured to the belief that all cans can be kicked down the road.

That’s not what is meant by playing long-ball.

And to be fair, this week is month-, quarter-, for some year-end, all ahead of a long weekend. A certain amount of hinky trading is to be expected. But shouldn’t be given more than its fair due. Window-dressing can only mask so much.

So what to do for the next couple of days aside from making up a shopping list for the holiday meals?


Respect that oh-so-impressive 200-day moving average holding up the S&P 500 future. Use 2,700 as a major pivot point and assume if we ever take out 2,800, everything you’ve read for the last two weeks can be shredded. A simple game plan for a market that will rapidly thin out as Friday approaches.

The dollar is in the mood to torture traders. It’s tradable but has a lot going on well beyond the debate of who will impress us with new forward guidance. It’s very tempting to look for places to buy it, but it’s worth asking why it insists on continuing to come back offered. Just remember, if you are selling the currency here, you are making a call that it will be able to power through some formidable support. You wouldn’t be alone.

I’m taking the rest of the week off from Treasuries. They have hurt my feelings by being so insufferable with their unwillingness to move. But I have to confess, it is almost impossible for me to ignore the yield curve down here and consider just how flat 5s/30s will have looked if 40 basis point support holds. I may be crazy, but the yield curve could be a decent proxy way of playing the dollar. The Treasury auctions, all auctions going forward, will matter.

Whether it has any bearing on your trading strategy or not, resist any temptation to believe you know what the Chinese are thinking.


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