Terminator 6: The Bull Market

Did anyone else see the last terminator film starring Daenarys Targaryen and the Governator? Terminator Genysis? No? Didn’t think so. Don’t worry, you didn’t miss much. Besides this bull market makes for a much more interesting terminator than the latest CGI incarnation I saw in Genysis.

terminator-genisys-t-3000-character-poster

The T-3000 is no match for the SPX-2150. It doesn’t matter what you throw at it. Brexit, insolvent European banks, China’s slowdown, shale oil implosion, nothing will take it down. It just keeps coming! This cybernetic creation of algorithms, central banks, and limitless stimulus seems virtually indestructible right now.

The recent Japanese elections have provided a nice spring board for the risk on environment. USDJPY rose from over 5% in less than four days on hopes of helicopter money. I remain skeptical on the long term viability of such a plan.

Meanwhile bears are on the verge of capitulation. At 2200, a key technical level, investors and traders could be induced to join the party.

The bears, trapped and surrounded like the Allies at Dunkirk, are in dire need of a miracle. Just remember, the night is always darkest just before the dawn (cut to 0:43) .

 

Fortunately for the impatient among us, now that the S&P has broken out of its 19-month trading range, the battle for the dawn will most likely be decided sooner rather than later.

I’m not going to launch into fears of a serious melt up in stocks. I don’t think we get that nail biting face ripping rally without a rise in bond yields, and for now it seems like bond yields have a ceiling that is constantly falling.

For the second day in a row, the S&P closed at all time highs. Which is a little strange considering, earnings may have fallen for the 5th consecutive quarter.

Earnings

Perhaps even more interesting, is this belief that the earnings recession has bottomed. But if you look at the Atlanta Fed’s GDP now tracker, you see the cyclicality of GDP growth.

A very keen observation from Raoul Pal. US GDP growth is cyclical and rolling over. That certainly doesn’t bode well for a magical rebound in earnings. And even with the gang busting 287k jobs report, the US job growth continues to slow.

NFP

Slowing employment growth and a weak growth GDP quarter could weigh on oil which seems to be breaking down at least from a technical aspect.

When the falling earnings story first started gaining traction everyone blamed oil. Take out the oil and gas sector and everything looks great they said. It’s ironic that this sector is now holding up US equities. A drop back into the 30’s would likely reignite the high yield bond sell off we saw back in January.

fredgraph

I’m not saying that’s going to happen, but the S&P is priced to perfection. One small step, and the fall is staggering. Just look at the recent rally from a perspective of volume.

In the end, when you pull back the artificial organic material, you’ll see the SPX-2150 is much weaker than thought. It’s had the kitchen sink thrown at it and has kept going which has fueled speculation that this market is indestructible, but in reality it’s barely limping by. Going forward, the key short term indicators to watch are USDJPY, US treasury yields and oil.

 

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