A Case Of Taper Worm?
Following up on Begin The Benign? So many wonder and ask why is the market correcting? Santa Naybob continues his Christmas bedtime story, so sit back and listen carefully to the rest of this story Baby Ducks...
When the first symptoms occurred after 4 months of exposure to the taper virus... for the ADD afflicted and hard of hearing, we shortened, highlighted and reiterated all of our warnings from June 2017, in a February 2018 rehash:
Minutia and History Repeating? - February 15, 2018
In four missives between June 10 and July 16th, 2017 we outlined the potential side effects of QT quantitative tightening and how those could lead to:
the FOMC QT (quantitative tightening) might affect $3T in notional bets or net commercial longs in 90 day Eurodollar futures
A larger float of available bonds for others to purchase and perhaps less bond purchases? might result in declining bond prices and rising yields
When bonds get bought, dollars get taken out of circulation. Less dollars, higher dollar. Now consider [bonds being sold] then reverse the last statement. Potential for less dollar volume in bond sales, more dollars floating, lower dollar.
Open market effects can include higher cost of loan funds and operating costs, further reducing profits and cash flow.
Precious balance sheet capacity gets squeezed, viz. liquidity and the ability to PPT or speculate elsewhere will suffer, and perhaps other holdings might have to be liquidated?
QE purchases ending in October 2014, were telegraphed in the July FOMC minutes release, which precipitated a 75% collapse in oil prices.
Would any of these possibilities transpire in the next seven months? With regard to reasons for a market dip or free fall? - Minutia and History Repeating?
Paying heed to the bold and underlined above... on February 2nd, 5th, 8th and March 22nd, four of the largest daily point declines in stock market history occurred.
Not enough to get one's attention? On February 12th, the dollar bottomed in the current cycle.
Four months of exposure led to the above symptoms, what would another eight months of exposure do? As our faithful readers well know, we warned about "Red October" in our October 2nd Nattering and followed up in detail with the Timing Is Everything? series.
In October 2018, exactly 12 months after the taper began, at the start of the 5th quarter of tapering, where the effect is maximized, and less than upbeat quarterly reports begin appearing, the stock market begins to correct. Coincidence? We think not.
Twin Peaks getting lopped off.... during the last 12 weeks or 90 days, all gains since October 2017 through October 2018 peak have been erased. Each week of decline has averaged 1 month of gain, and we are still descending.
NQ futures volume during the February 2018 sell off was 10M, which included four of the largest single day declines in history. Volume during OCT 16.6M, NOV 12.5, DEC TBD, which are lower volume months.
DJIA volume on the largest point sell off in history, 1175 pts or 4.6% on February 5th was 715M. On Friday December 21st, 2018 with a hi-lo span of 852 pts and a mere 426 pt decline, volume was 900M.
Wait until January when volume and volatility pick up? Bottom line, investors are witnessing the worst daily % moves since the October 1987 crash, and the worst December since the Great Depression in 1931.
Even if we get a delayed Santa rally or bounce, if the trajectory trend is to the downside, potential next stops in order?
NQ 6K, 5K, 4.7K
ES 2200, 2100, 1800
The above is speculative and TBD. "Bear" in mind, since the exposure to the tapering increase is ongoing (refer back to the charts in Begin The Benign?), the current prognosis for the patient is not a good one.
At the end of the day, it took twelve months or four quarters for the evidence of a tape-r worm, which is anything but "benign", to begin to come out in the wash.
In the meantime, remember last Sunday's shout out to the PPT with "liquidity" assurances from Treasury Secretary Mnuchin?....
Nuff Nattered? Well Baby Ducks, that's the end of Santa Naybob's Christmas story. Stay tuned, no flippin, more to come in Canary In A Coal Mine?
Happy New Year.
Recommended reading:
Timing Is Everything?
Know Your Limitations?
Parting The Red Sea?
A Little Shop Of Horrors?
Where's Your Messiah?
Rapture?
Ro-BUST?
Beware The Ides Of Winter?
Meddling With Powers?
The Perfect Storm?
Begin The Benign?
When the first symptoms occurred after 4 months of exposure to the taper virus... for the ADD afflicted and hard of hearing, we shortened, highlighted and reiterated all of our warnings from June 2017, in a February 2018 rehash:
Minutia and History Repeating? - February 15, 2018
Minutia and History Repeating? Part 2 - February 20, 2018
Excerpts...
In four missives between June 10 and July 16th, 2017 we outlined the potential side effects of QT quantitative tightening and how those could lead to:
the FOMC QT (quantitative tightening) might affect $3T in notional bets or net commercial longs in 90 day Eurodollar futures
A larger float of available bonds for others to purchase and perhaps less bond purchases? might result in declining bond prices and rising yields
When bonds get bought, dollars get taken out of circulation. Less dollars, higher dollar. Now consider [bonds being sold] then reverse the last statement. Potential for less dollar volume in bond sales, more dollars floating, lower dollar.
Open market effects can include higher cost of loan funds and operating costs, further reducing profits and cash flow.
Precious balance sheet capacity gets squeezed, viz. liquidity and the ability to PPT or speculate elsewhere will suffer, and perhaps other holdings might have to be liquidated?
QE purchases ending in October 2014, were telegraphed in the July FOMC minutes release, which precipitated a 75% collapse in oil prices.
Would any of these possibilities transpire in the next seven months? With regard to reasons for a market dip or free fall? - Minutia and History Repeating?
Paying heed to the bold and underlined above... on February 2nd, 5th, 8th and March 22nd, four of the largest daily point declines in stock market history occurred.
Not enough to get one's attention? On February 12th, the dollar bottomed in the current cycle.
Four months of exposure led to the above symptoms, what would another eight months of exposure do? As our faithful readers well know, we warned about "Red October" in our October 2nd Nattering and followed up in detail with the Timing Is Everything? series.
In October 2018, exactly 12 months after the taper began, at the start of the 5th quarter of tapering, where the effect is maximized, and less than upbeat quarterly reports begin appearing, the stock market begins to correct. Coincidence? We think not.
Twin Peaks getting lopped off.... during the last 12 weeks or 90 days, all gains since October 2017 through October 2018 peak have been erased. Each week of decline has averaged 1 month of gain, and we are still descending.
NQ futures volume during the February 2018 sell off was 10M, which included four of the largest single day declines in history. Volume during OCT 16.6M, NOV 12.5, DEC TBD, which are lower volume months.
DJIA volume on the largest point sell off in history, 1175 pts or 4.6% on February 5th was 715M. On Friday December 21st, 2018 with a hi-lo span of 852 pts and a mere 426 pt decline, volume was 900M.
Wait until January when volume and volatility pick up? Bottom line, investors are witnessing the worst daily % moves since the October 1987 crash, and the worst December since the Great Depression in 1931.
Even if we get a delayed Santa rally or bounce, if the trajectory trend is to the downside, potential next stops in order?
NQ 6K, 5K, 4.7K
ES 2200, 2100, 1800
The above is speculative and TBD. "Bear" in mind, since the exposure to the tapering increase is ongoing (refer back to the charts in Begin The Benign?), the current prognosis for the patient is not a good one.
At the end of the day, it took twelve months or four quarters for the evidence of a tape-r worm, which is anything but "benign", to begin to come out in the wash.
In the meantime, remember last Sunday's shout out to the PPT with "liquidity" assurances from Treasury Secretary Mnuchin?....
Nuff Nattered? Well Baby Ducks, that's the end of Santa Naybob's Christmas story. Stay tuned, no flippin, more to come in Canary In A Coal Mine?
Happy New Year.
Recommended reading:
Timing Is Everything?
Know Your Limitations?
Parting The Red Sea?
A Little Shop Of Horrors?
Where's Your Messiah?
Rapture?
Ro-BUST?
Beware The Ides Of Winter?
Meddling With Powers?
The Perfect Storm?
Begin The Benign?
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