Category Archives: Analysis

09 Feb

9th Feb Cashins Comments

On this day in 1825, the United States selected a President. No, not in an election but in the House of Representatives. Thus, ended one of America’s closest and most inconclusive elections.

The original list of candidates was unique. The favorite in the polls was a well-known guy from Tennessee. Breathing down his neck was a guy who was the son of a former president. That brought charges of dynasty. Additionally, there were splinter party candidates who might tip the results. In the fall election no candidate had received a majority of the total of either popular or electoral votes.

Andrew Jackson got 99 electoral votes. John Quincy Adams got 84. Henry Clay got 37, while, a fourth candidate, Wm. H. Crawford got 41. Crawford had been the Secretary of Treasury for eight years and might have been the logical compromise choice. But he suffered a stroke during the campaign and fell behind the others and out of contention.

So, in the House, Clay’s people threw their support, along with as much of Crawford’s as they could muster, behind Adams. So, Jackson, who had the most popular votes and the most electoral votes, was denied the Presidency. Jackson’s people never forgave Adams. They killed nearly every proposal Adams sent to Congress – – whether it was good for the country or not.

Thus, the plan for a national bank died. So did the plan for a national university. And the two opposing sides added so many “spite” riders to the tariff bill that it became a contributing factor to the Civil War.

To celebrate stop by the Constitution Inn. Sip an old fashioned, and nod knowingly as political pundits tell you today’s politicians are far too partisan and have lost touch with how the government used to operate.

Political partisanship played a small part in Thursday’s market smash-down but you almost needed a microscope to find that influence.

Bottoming Process Returns To Ugly – The highly volatile bottom forming process returned to its ugly phase and did so with a vengeance. Violent swings in a bottom forming effort aren’t always triggered by news or events. They can swing sharply on simple shifts in momentum.

I think Thursday’s sharp selloff may have been the result of a stew of influences.

Early on, Mark Carney, of the BOE suggested the Bank may have to step up the tightening process. His comments reinforced the recent worries about central bank tightening.

Then there were comments from bond guru, Jeff Gundlach. He suggested that the 2.84 level on the ten year tended to “kneecap” the stock market. He also said that the new equity turbulence would not be over in just a few days.

My friend, Doug Kass of Seabreeze Partners maintains we are still feeling the fallout from the earlier collapse of the inverse volatility instruments earlier in the week.

The bond action at 1:00 was absolutely awful.

Then, Bill Dudley, President of the New York Fed was asked by Bloomberg whether the market selloff might affect Fed policy. Dudley dismissed the market selloff as “small potatoes”. That seemed to inspire a bit of selling.

Some guessed that selling after 2:00 may have been the result of afternoon margin selling but there was no way to verify that.

Then there were rumors of “on the close” sellers and the selling continued into the closing bell.
A pretty ugly session overall.

Another Pair Of Eyes – We thought we’d quote our good friend and fellow market veteran, Jim Brown, the guru of Option Investor.

Here’s how he opened:

After a year of extremely low volatility, the new normal is extremely high volatility.
Unfortunately, this is normal and we have warned about this multiple times over the last several months. Long periods of very low volatility normally end with periods of extremely high volatility and it is not over in just a week or two.

Typically, after a volatility spike it takes weeks for the volatility to return to its normal range of 14-18 on the VIX. The following example shows the VIX spike to more than 50 in August 2015 when the S&P fell more than 235 points in five days. It took nearly two months for the VIX levels to return to normal. It took seven weeks before the S&P finally consolidated enough to begin a lasting rebound.

The economic fundamentals are much stronger in 2018 than 2015 and earnings are rapidly rising. It should not take seven weeks for the market to find a bottom but it may take several weeks before an actual rebound begins.

Due to format restrictions, we can’t reproduce Jim’s chart – but you get the idea. Jim closed his note with a strong caution on volatile Fridays. Never buy on Friday. You never know what is going to happen over the weekend and market declines on Friday tend to continue at the open on Monday. Experienced traders never buy on Fridays in a volatile market.

Friday’s can turn into flush days. Investors who have been trying to hold out all week could see the margin selling at Friday’s open and decide the market is going lower and the give up on hope as a strategy. They hit the sell button and kick themselves for not getting out earlier.
This is called a capitulation event. If it occurs on Friday, that is an even better sign for dip buyers on Monday. Remember, margin selling usually occurs before 10AM and again at 2PM.

The futures have been all over the place tonight. They were positive for a while, dropped to -10,
rebounded to +10 and are now negative again. This is investor indecision and traders trying to game the overseas markets.

Look for signs of capitulation on Friday as a buy signal for Monday.

Another good friend, the legendary Jeff Saut over at Raymond James often notes that selloffs rarely bottom on a Friday, if ever. I’m not prepared to say never but I will endorse the very, very rarely.

Overnight And Overseas – In Asia, markets were hit hard. Shanghai fell the equivalent of 1000 Dow points and has moved into correction territory. Tokyo, Hong Kong and India sold off heavily but not quite as harshly as Shanghai.

In Europe, where markets sold off sharply yesterday, prices are lower but only modestly so.
Among other assets, Bitcoin is down a bit and is trying to hold over $8000. Gold is a shade lower and remains within its resistance band. The euro is little changed against the dollar while yields are at tick or two higher.

Consensus – In ordinary markets, Fridays have a mild upward bias as shorts tend to reduce exposure in front of two days when they can’t trade but events can happen. Those are not ordinary markets by any means.

Stock with the drill – stay wary, alert and very, very nimble. Have a wonderful weekend!

07 Feb

7 Feb 2018 – Cashin’s Comments

On this day in 1904, smoke began to pour out of a fabric warehouse in downtown Baltimore. It didn’t look like a big problem and the fire squad arrived promptly. Unfortunately, so did a 50 mph windstorm. The wind, the fire and the fire cart decided to try for the same parking space.

The wind and fire won the race. The firemen and their cart regrouped down the block….but not for long. The raging wind swept the now raging fire from the six story warehouse to every other building on the block….and the next block and the next. The fire fighters and the city fathers regrouped. The police were called in to control the crowd of 30,000 displaced or curious. The mayor ordered that buildings in the path of the fire be dynamited to set a firebreak. But the windswept fire just burned across the rubble to its next target.

Area fire squads came in to help out….but hose fittings and hydrant taps were all different and the Samaritans turned spectators….so did everyone else. The wind and the fire died out after two days. The damage was over 2,000 buildings destroyed leaving over 140 acres of downtown Baltimore as rubble. The economic cost made it the second worst urban fire in American history – behind the great Chicago fire. So why isn’t the fire more famous? The answer may be that despite the thousands displaced, the buildings destroyed, and the millions of dollars it cost – the fatality rate was rather low – only one person died.

Traders could empathize with those Baltimore authorities as markets continued to whip around, seemingly out of control.

Bottom Forming Process Incomplete Suggesting Further Volatility – Tuesday’s market had many aspects of a bottom forming session but refused to give traders an outright “all done” signal. Stocks gapped down on the opening but well short of the heavy losses that the overnight futures had indicated. Accidentally, but conveniently, the limited gap in the Dow made it open right at Monday’s intra-day lows. That inspired buyers that quickly took the averages into plus territory. Traders then sat back and awaited a classic “rollover and retest” of the
mornings lows.

They got their rollover, rather quickly but the market refused to retest the morning lows.

Frustrated that the market refused to follow the “classic” retest pattern, traders switched to Plan B. An alternate pattern in a bottoming process would be a series of higher highs and higher lows.

The market again refused to match the pattern that traders were hoping for. Instead, it oscillated between the midmorning pullback levels and the post-opening spike.

In early afternoon, I sent an email to some friends summarizing the action so far:

The zigging and zagging is typical in attempting to form a bottoming process after a high volatility selloff. Watch to see if they attempt to retest the gap opening lows.

Around 2:30, word began to spread of a possible compromise on a potential spending bill in Congress. That seemed to inspire some buying and the Dow rallied to its post-opening high.

This time it didn’t stall and when it punched through, the buying accelerated. The buying slowed a bit but prices floated higher despite indications of nearly $2 billion to sell on the closing bell.

The on close sellers did not relent but the late momentum rally continued and basically gobbled up all of those sellers with barely a twitch. The late buying was rather broad with 9 of the 11 S&P sectors closing higher. Advances beat declines by about 5 to 2. The whipsaw action helped swell the volume to 1.4 billion shares.

May you live in interesting times!

Just A Coincidence, We Hope – UBS’s inimitable economist, Paul Donovan notes that the new Fed Chair, Jay Powell is a lawyer by training and not an economist. Paul further notes that the leader of the German Reichsbank in 1923 was also a lawyer rather than an economist.

That didn’t work out well, did it?

Overnight And Overseas – In Asia, markets are mixed with basically small changes. Tokyo saw a fractional gain – with modest losses in India and Hong Kong. Shanghai fell more significantly in partial “catch-up” to the others. In Europe, markets are bouncing modestly in lighter volume.
In other assets, Bitcoin is back above $8,000. Gold is virtually unchanged and remains within its resistance band. Crude is slightly lower with WTI trying to hold the $63 level. The euro is a touch weaker against the dollar and yields are down a tick or two.

Consensus – As suggested, it looks like the bottoming process is still in motion. Lots of unacknowledged damaged caused in the last few days. Adding to vulnerability has been the fact that virtually all corporate buybacks have been put on hold for earnings season.

Stay wary, alert and very, very nimble.


06 Feb

6 Feb: Cashin’s Comments

Thank you to Art Cashin for this analysis:

On this day in 1858, that august deliberative body, the U.S. House of Representatives was calmly discussing a matter of import to the nation. Well…..maybe “calmly discussing” misses the point. The House was in middebate/mid-filibuster on the topic of admitting Kansas to statehood…..and whether such admission should be as a free state or slave state.

The debate had been going since the prior day and as it moved into the wee small hours of February 6th the tension, partisanship and weariness began to show. Since night-time in February, in Washington, in the Capitol building, in the 1850’s tended not to be too warm, several members of Congress were said to have sipped (or gulped) some alcoholic beverages…..just to stave off the chill.

Rep. Keitt of S.C. made a rather uncomplimentary remark about Rep. Galusha Grow of PA. (who had the floor at the time). Rep. Grow responded with an equally unkind assessment of Keitt. Keitt went for Grow’s neck, but was knocked to the ground. Soon most of the House was wrestling, spitting, kicking and punching their worthy and distinguished colleagues. Spittoons and inkwells flew through the air. The Speaker gaveled for order with no success. The Sergeant at Arms beat members with his staff (in a non-partisan way, of course).

Rep. Grow was being pummeled by Barksdale of Mississippi when Washburn of Wisconsin rushed to Grow’s defense. Washburn’s intention was to grab Barksdale by the hair with his left hand and knock him out with a right uppercut. But when he grabbed Barksdale’s hair, it came off in his hand. Shocked, Washburn screamed. The rioting representatives looked up and saw a suddenly bald Barksdale…..and Washburn waving his wig. “My God, he’s been scalped!” shouted someone and the riot broke up in riotous laughter.

To mark the day, suggest to Congressional leaders that as they begin to debate the debt ceiling, they should consider appointing someone from the Hair Club as Sergeant at Arms.

It was the bulls that got scalped Monday as stocks continued Friday’s unravel.

Early Testing Fails And Leads To Trapdoor Plunge In A Vacuum – Stocks opened lower, circled the wagons and floated back up to the unchanged area. They then sputtered and began to roll over I sent this email to some friends:

Market going into the normal retest. If they test and re-hold the morning lows, the bounce could gather a crowd. If they make notable lower lows, it hints the process could last days.

They held the lows for a matter of minutes and then began to slip below. I then sent this follow-up:

Apropos my prior email, the markets appear to have failed the retest of the morning lows. If they bounce, they may then roll over and test the lower lows.

Traders will also look to other mileposts like moving averages, etc. S&P 50 DMA is around 2715.
Shortly before 2:00, the S&P began to test that 50 DMA. As you can see, the S&P is now testing the 50 DMA. Cross your fingers.

The testing lasted nearly thirty minutes. When the S&P broke below the 2715 support, it was as if a gun went off. Selling began to accelerate and bids rushed to cancel, creating the same kind of market vacuum that we saw late Friday.

Around 3:00, the trapdoor opened and stocks went into freefall. Media pundits reminded folks of the flash crash in 2010 and a few even speculated that some of Monday’s selling was due to rogue machines as it had been in 2010. I could find no such outages, only strained phone lines and the like, as a nervous public flocked to call advisors and funds.

The late air-pocket selloff took the Dow briefly below 24,000 before a mild rebound. Volume was moderate, suggesting that the lower prices were more a result of a buyer’s boycott than a stampede of sellers.

Contributing Factors – We find a lot of media chatter on the market “panic” and very little on contributing factors. Among these are margin calls, redemption selling and, equally, fear of redemption selling. Also, there is the popularity of ETFs, which are easy to sell but that can result in unrestrained selling in the equity components.

Also, there are ETNs set up against volatility. The VelocityShares Daily Inverse VIX Short-Term ETN, down 14% in session and down 59% more after hours.

Overnight And Overseas – In Asia, markets are playing catch-up to the recent sharp selling in global markets, particularly in the U.S. Tokyo was down the equivalent of 1100 Dow points and Hong Kong sold off more steeply. Shanghai and India were down a bit less drastically.

In Europe, markets are lower but somewhat less severely. Losses in Europe are more on the order of 400 or 500 Dow points.

Among other assets, Bitcoin dipped below $6000 before stabilizing slightly above. Gold is higher and pushing against the upper edge of its resistance band. Crude is weak again, with WTI trading around $63.50. The euro is basically flat against the dollar, while yields are a few ticks lower on a bit of a stroll to safety.

Format Explanation – We ask you to suffer through the replication of our intra-day emails so that you can see many of the market moves can be seen as probable or even predictable. If I waited until after the fact to describe the action, I think that would have less credibility.

Consensus – We will likely need a bit more whipsaw volatility to establish a viable trading bottom here.

Stick with the drill – stay wary, alert and very, very nimble.

05 Feb

5 Feb: Cashin’s Comments

thank you Art Cashin for this comment:

On this day in 1895, America was in a funny financial spot. Well, it was a bit over a hundred and twenty-one years ago today – so – I guess you deserve an explanation. Let me see….if I remember what Sister Herman Joseph taught me – that different America of a century ago looked something like this:

The economy appeared to be struggling. There was a Democrat in the White House. Congress was divided and squabbling, hostility and uncivilly. Some thought the debates were so coarse and rude they spoke of forming a new political party. Technology was the new mantra even after a bumpy start and telecommunications were exploding (in use if not profitability). Much of the country was in the grip of unusual and extreme weather. And…oh yeah….I almost forgot….suddenly folks had begun talking about gold….can you imagine “gold!”

Anyway, despite what pundits of the day thought, gold had begun to rise. Now, in 1895, the old U.S. was on the old “gold exchange standard.” That meant, whether citizen or foreigner, if you thought public policy was not to your liking, you could hand in your green pictures of dead presidents and get gold – real, glistening, bite into it to check it, gold.

As hard as it is for us to believe today, a goodly number of those citizens distrusted what they saw in Washington. Gold rose and soon began to bubble and the dollar began to slide. The rush to exchange dollars might deplete the gold of the U.S. Treasury and cause a default. Imagine – a time when the government wrestled with the question of default.

So – to avoid chaos – the President sought the help of the one man who could control the banks, who could calm Wall Street, who – in short – could find a way to halt the run on the dollar and government reserves. (No Virginia, it was not Jerome Powell – there was no Federal Reserve.)

Thus, on this day in 1895, the President of the U.S. sat down with a certain J.P. Morgan seeking the latter’s help in saving the country. Morgan allowed as how he might just happen to know one fellow who could put the government into default that very afternoon. (The President never
asked if it was Morgan, himself.) Morgan conveniently recalled some obscure Civil War legislation that allowed the President to issue bonds to buy gold. The same law said the bonds could be sold secretly (without bidding). But who would buy them. Well, Morgan allowed as how it was probably his civic duty (along with that of his syndicate) to not only buy the new secret bonds but to buy up some gold and recycle it to the Treasury for the dollars he paid for the bonds. And all this for just a small commission.

To mark this anniversary recall the words of Warren Buffett – There’s always a silver lining – or was that Jimmy Buffett.

The bulls certainly could have used the help of J.P. Morgan, and maybe a dozen or more associates, as the great bull market of 2018 looked on the verge of becoming undone on Friday.

Buyers Boycott, Rate Fears And Other Stumbles Produce a Trapdoor Selloff – After a volatile and shaky week, U.S. stocks were under a bit of a cloud Friday morning. Less than hoped for results from Apple and Alphabet put some of the FANG all-stars into the doubt column. That led to selling in the tech sector.

Falling oil prices put downward pressure on energy stocks and that sector also weighed on the indices. The healthcare sector also continued under pressure that had begun with the Amazon joint venture proposal and the President’s State of the Union proposals.

Then, with the release of the payroll data, another shoe fell. There was clearly upward pressure on payrolls and that raised questions about whether tax cuts and other forms of stimuli might kick inflation into higher gear and force the Fed to act more quickly than expected. That fear spooked both bonds and stocks.

All these pressures came on global markets already concerned about the slipping effectiveness of some key central banks, in particular the Bank of Japan.

Then came the icing on the cake. In mid-morning, the so-called Republican memo was released. That prompted an instant buyers boycott since no one wanted buy into a potentially wild Washington weekend with possible resignations and even a possible Constitutional crisis. The attitude was – I might as well wait until Monday and a possible all clear. With the buyers boycott as the key factor, the stock market went through several stages of near free-fall in the afternoon on only marginally higher volume. Nonetheless, the sharp selloff caused some to reassess the status of the Big Bull.

Overnight And Overseas – In Asia, most markets got banged around in apparent reaction to Friday’s U.S. plunge. Tokyo was down about the equivalent of 656 Dow points. Hong Kong and India had more moderate selloffs. Shanghai actually rallied but cynics claims a heavy government influence. Europe saw 1% selloff. Gold is up a bit but still stuck in the resistance band. WTI is struggling to hold above $65. The euro is virtually unchanged against the dollar and yields are down a tick or two on a mild safety play.

Consensus – The Washington picture remains less than clear and could inhibit some potential buyers. Traders look for the S&P to drop to and possibly through its 50 day moving average (circa 2715). Other cocktail napkins look to 2650. Draghi may speak at 11:00 (EST). Stick with the drill – stay wary, alert and very, very nimble

02 Feb

2 feb 2018: “Cashin’s Comments

thank you for permission to post these… all rights to UBS and Art Cashin…

On this day in the mid 1600’s, some of the early German settlers in Pennsylvania would gather among those sects that observed the Christian “Feast of the Presentation.” As at any gathering of farmers, there was talk of family and when the weather might be good for spring planting.

In the old country, for many centuries, their forebears, lacking weather satellites and almanacs, had relied on the conduct of animals. In particular they watched the badger. If he emerged from his burrow and remained active, spring would be early and planting could start early. But in this new land of Pennsylvania there were no badgers….so some unnamed early farmer
talked about the closest looking local creature – the groundhog (nee woodchuck).

Since the groundhog tended to become active about this time (give or take a few weeks), more farmers talked about whether the groundhog stayed out, or went back to his burrow. And, thus, the old gathering day, of Presentation Day, became a kind of “talk about the Groundhog Day.”

But there is even more tradition to this story. Most of these sects honored and venerated their elders, for their wisdom and judgment. (This was not uncommon in the colonies…it is said that the word “Parson” comes from the habit in New England villages of going for advice to “the person”…the one in the village who could read.) Anyway, this amended version of the groundhog story says certain congregations would wait for the gathering day. Then the men would walk with the elders to a burrow to see if the groundhog was active. (We assume the pre-colonial Chamber of Commerce and the precolonial TV crew walked discreetly behind.)

Then there’s the myth about the shadow and why the groundhog stirs…the real reason is…but we’ll need some data for another day. Traders were not as decisive as the ground hog yesterday as they changed their minds several times over the course of the session.

Multi-Whipsaw Session On Several Conflicting Signals – Stocks opened smartly lower for Thursday’s session. Some media pundits blamed the weakness in the economic data, primarily lower than expected productivity numbers and higher than expected unit labor costs. Most traders, however, saw the selling as spillover from the end of month rebalancing that was prominent earlier in the week.

Another factor that seemed to argue against the selling being prompted by weak U.S. data was selling in the European markets especially the German DAX.

The new money for the new month began to take effect and stocks pared their losses with the Dow reaching neutral about thirty minutes into the game. Stocks churned tightly around the neutral line until late morning. Then, at 11:30, a large electronic buy program swept onto the floor, pushing the Dow smartly higher.

About fifteen minutes later, I sent this note to some friends:

Today’s session has been a tug of war between rebalancing influences (sellers) and new money for the new month (buyers). It looks like the new money is winning out and may continue into tomorrow.

A little later, some traders would contend that the spike up was driven by a sharp upward revision in the Atlanta Fed’s GDP estimate.

Some of us had difficulty aligning the time of the data release with the time of the buy program and the rally. Nevertheless, I acknowledged the Atlanta thesis in a follow-up note to friends:

Another mid-afternoon rollover as some traders attribute late morning spike to Atlanta Fed upping its GDP estimate from 4.2% to a whopping 5.4%.

The mid-afternoon rollover seemed to be the result of politics. Not politics itself but political speculation. Several media types began to speculate on possible consequences of the potential release of the “Republican” memo from the Senate Intelligence Committee. A couple of the pundits claimed that if the memo was released by the President, the head of the FBI might resign as might the Assistant Attorney General.

While these resignations would be voluntary, traders feared the kind of multi-month mess that followed Nixon’s Saturday night massacre. Bids disappeared and stock prices headed south. The bulls managed to avoid an all-out rout and managed a mixed close.

It was one heck of a ride.

An Update On Yields – My good friend, Barry Habib, the mortgage and bond maven, opined on the trend in the yield on the ten year Treasury. Here’s the email he sent:

I am pretty sure we will see 3.04% on the 10-year…sooner than later. Some zigs and zags along the way, with 2.81% and 2.91% being some mild resistance points.

But the real concern is if there is a break above 3.04% in a convincing manner. That would be a break out of the 30 year downward trading range in the 10-year Note. This could be very significant, as you would now take away the very reliable guide for technical traders.

It will be very interesting.

Overnight And Overseas – In Asia, equity markets were fairly mixed. Tokyo saw a moderate selloff with Hong Kong down fractionally. Shanghai was up modestly but India got absolutely clobbered. In Europe, London is seeing a modest selloff, while markets on the continent have a more pronounced weakness.

Among other assets, gold is essentially unchanged and crude is very slightly weaker. The euro is a touch softer against the dollar and yields are a tick or two lower.

Consensus – European markets and U.S. futures are under pressure. Politics, data and rates are being blamed but don’t rule out feeling that the great rally of 2018 may have bumped into an inflexion point.

Stick with the drill – stay wary, alert and very, very nimble.

Have a wonderful weekend!