Shallow Thoughts
My good old message board, Capitalstool.com (thank you, Forbes) has arisen from the grave in recent weeks, as posters from 15-20 years ago reappear whenever the bear starts sniffing around the market. There aren’t many of us, but boy are those folks smart guys and gals. Some of their posts are so good, I want to share them with you.
Here’s one such. It was in response to a prior post by SiP who wrote:
For me, Japan is the front runner. They have like 240 % debt to gdp ratio and still manage to keep their economy afloat. So what will happen to Japan will happen to eveyone in the end. US has low debt to GDP levels when compared to Japan.
Here’s Jimi’s response.
What happened with Japan the past 20 years (i.e., running up to 240%/GDP without seemingly any crisis) was supported, arguably, only by the commercial expansion of China and the greater recourse to leverage in the U.S to buy all its crap… an exquisite dysfunctional commercial relationship. The whole world got to play the game of allowing Americans to run deficits and accumulate debt which supported China’s industrialization and all the commercial benefit that adhered to other G7 economies from that (as capex purchases). And let’s not forget that a whole lotta exuberance in the form of debt formation in mainland China the past 10 years also helped all parties to pretend their way through a vast circle-jerk of permanent prosperity delusion. Is the policy solution really going to be the Fed monetizing ever-escalating quantities of public debt, which the Treasury turns around and hands out in one way or another?
This crisis is so freaking different. In 2008/09, they had to backstop the largest Wall Street banks, insurers, and automobile companies to limit down-stream collapse… and mop up foreclosures over multiple months. It was morally repugnant (“No banker left behind”), but it was easy to administer. The overnight shattering-from-below of the national small business ecosystem is not so easily repaired. 10 million out of work in only the first two weeks draws into question in my mind whether Federal “loans-to-grants” or anything else they may dream up has any chance at “fixing” this in a short term the down only 30% seems presently to discount. There are just too many incremental customers lost. So, 90-day forbearance of commercial leases and mortgages and rent, and whatever else, only postpones the reckoning… it implicitly assumes that if we can just sort of cobble stuff for a quarter, then… what? Come July 1st, we will all come out of quarantine and fill the bars, restaurants, airports & hotels? I don’t think so.
How many freaking mortgages are headed for default & foreclosure in the next six months?
How much commercial retail is going to shutter without near-term hope for some new enterprise to move in?
We’re going to monetize debt as a solution to years of leveraged excess?
I don’t believe in miracles.
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Market Trading Setup for Monday, April 6, 2020
Hourly ES S&P 500 Futures Chart
The S&P ES fucutures are up 90 points at just after 8 AM in New York. They were up as much as ahundred a few hours ago. The Hurstian 5 day cycle projection was 2580. The trading range breakout had a measured move implication of 2590. The high was 2587. That was right at trend resistance.
Support on the pullback is possible at 2560. If not there, then the next support target would be the top of the prior range at 2525. I think getting back to that level might trigger some brown pants syndrome that would lead to more selling if the subsequent bounce had no gas.
Conversely, if the pullback holds at a higher level, they’ll likely head for 2600.
Hourly cycle oscillators have turned flat, but there are no rollovers to trigger sell signals yet. I’m betting that will happen by the time I finish writing this update.
And indeed, the oscillators have already begun to downtick to the sell side. Here we go.
Reminder- I’m only talking patterns for a day here. This is not the big picture. If you want that story, you must subscribe. Risk free trial and all.
S&P Futures Daily Chart
The daily chart gives a broader perspective. Overnight and pre market trading has been in a range of 2517 to 2587. This sets up a new uptrend channel. The bottom of the channel is conveniently at 2500 today. If that breaks, the market will be in big trouble.
The ES is also in the middle of a range channel, the top of which is either at 2625 or 2640, depending on how you draw it.
If the ES doesn’t clear that, the rally has accomplished nothing, other than generating some short covering. That could leave a vacuum if they drop through the bottom of the range. The bottom of the range channel is around 2425. All action between there and 2640 is meaningless noise from a trend perspective.
Rate of Change and MACD tuned to an 8 week cycle reamin bullish, suggesting that the bias remais to the upside.
Again, this is for the perspective of one day only. The purpose of these reports is not to divine the longer term. If you want longer horizons, join me at Liquidity Trader.
S&P Cash Index Hourly Chart
The red bar at the far right shows where the futures traded overnight. It’s between 2517 and 2587. Resistance is indicated at 2565. That’s about where the ES is trading as I write here at 8:30 AM New York time. That should be support. If not there, then 2550-60. And if that doesn’t hold, then we look for 2450-60.
The 5 day cycle projection was 2577.
The 5 day cycle oscillator had turned flat at the close yesterday. It will pop up again this morning. But if the market pulls back in the next couple of hours, it should go to the sell side. If the market holds most of the gain in the futures into the afternoon, then the upside target would be resistance at 2650. 
Join me on the Capitalstool.com message board today and I will update you there occasionally during the day. Feel free to join the “fun.”
“And that’s the way it is, Monday, April 6, 2020.”
From coronavirus locked-in Zagreb, Croatia, good morning!
Where have you gone Walter Cronkite? Our nation turns its lonely eyes to you.
Meanwhile, here are the latest reports from Liquidity Trader.
Futures in the pre-market signal an end to the crash. Here’s what’s needed to maintain that and a few trade suggestions to take advantage.
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$321 Billion
That’s how much cash the Fed will pump into Primary Dealer accounts this week. Guess how much new Treasury issuance there will be over the same period. If you guessed $321 billion, you would be all but correct. It’s $328 billion.
That’s right. The Fed is buying all of the COVID19 rescue financing. It’s inventing imaginary money to pay Primary Dealers for that new supply. The Fed is printing the money to pay for the economic bailout.
And it’s not stabilizing the financial markets. Here’s why, and what it means.
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Massive Fed intervention turned the market, although cyclicality was favorable. The 6 month cycle low was overdue. But is it something more than that?
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On March 3, the Fed converted Not QE into Panic QE. Since then it has pumped $766 billion in cash into Primary Dealer accounts. At the same time the US Treasury issued “only” $147 billion in new debt. So in essence, the Fed issued $619 billion in excess cash.
Other than the hyperinflationary implications, what good has it done? What does it mean for us looking ahead.
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Even before COVID-19 the trend was clear that the Treasury would need to keep borrowing money hand over fist. Now the deficit will explode. This is a hideous problem for financial markets in this condition.
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