Stock Market Rally Runs Out of Steam

By: Anthony_Cherniawski

If you look closely at the low, you will see a double bottom. The first is at 1991.72 and the second is at 1991.68. I have concluded that the second low is a Wave [v]. It is unusual to have that small a new low to make a wave, but no rules are broken and the pattern fits. That suggests Wave 2 may be complete or nearly so.

The 61.8% Fib calculation is 2066.85, so that retracement is accomplished. In addition, Short-term resistance at 2068.05 has also been reached.

ZeroHedge reports, “Most Shorted" stocks are up a stunning 4.3% today. This is the biggest single-day squeeze since 2011 with an almost 8% spike off Monday's lows...

Yuuge squeeze since Monday's lows...”

Barclays believes that massive redemptions are coming, “

"By our measures, aggregate equity positioning by active managers is again near post-crisis highs as the market braces itself for a potential acceleration in redemptions after the equity collapse. With cash levels at equity MFs fairly low and net cyclical sector positioning near the highs, we believe managers are unprepared for outflows and lengthy risk aversion. Although there is cash on the sidelines, the current environment of heightened uncertainty gives rise to a “buyer’s strike” as investors wait for a sufficient value cushion to open up before deploying precious dry powder. Finally, short interest has considerable room to rise across cash equities, ETFs and futures."

Bloomberg’s Mark Cudmore agrees.

VIX is pulling back as investors de-hedge. However, they may be missing the bigger picture. Brexit still hasn’t been properly priced in, default rates are rising (see here and here) and earnings reports are due next week, among a slew of other items that could jolt the market.

ZeroHedge reports, “A funny thing has happened below the surface of the markets since late last year. As first The Fed, then The BoJ, and The ECB respectively saw their credibility crushed into a mumbling excuse pool of elite utterances as global bond yields crashed along with global growth and inflation expectations, professional investors have been busily buying crash protection (carefully masking their buying by managing 'normal' risk measure like VIX through endless nefarious cash, ETF, and Futures manipulation). But now, a week after 'Black Swan' bets soared ahead of the central-plan-destroying Brexit vote, the real 'fear' index has spiked to unprecedentedly high levels.

With VIX flip-flopping to and fro at the whim of every fast money trader...”

Finally, treasuries aren’t buying the rally.

ZeroHedge comments, “ow futures are now 500 points off the post-Brexit lows, having retraced half the losses...despite the worst home sales in 6 years. Just one small problem, Treasury yields are plumbing new post-Brexit lows...”

Regards,

Tony

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