The S&P futures were down 35 points from the NY close yesterday at 11 PM ET last night. They rallied back to even at 3 AM. They are again down 22 as we near 5 AM in NY.
Good morning, and welcome to a newly drawn crash channel on the hourly chart.
The ES needs to be above 3800 by the time New York opens to break this trend.
When we left the ballpark last night, the 5 day cycle projection was 3795. They broke that before recovering from “sport” lines around 3780. There’s no such thing as “support” in a bear market.
Is this a bear market? Well, technically not on the daily chart yet, of course. But look at this hourly chart. A string of lower highs and lower lows. Is it a fractal of what lies ahead?
Chartists are fond of analogs. Of course, they almost never play out the same way, ultimately, but this hourly chart looks exactly like the daily chart of the Dow 1973-74.
Ah yes. Those were the days my friend. I thought they’d never end. What came next? The Crash of Summer 74.
Yes. I was trading in that market. It was before I became a big shot stockbroker on Wall Street. I was a kid a year out of college with a street vending business in Philly, selling fresh brewed coffee, donuts, and bagels on the corner of 15th and Market Street, and inside Two Penn Center. Yep, ahead of my time. I’d work in the morning and then spend the whole day sitting in the customers’ gallery at Walston and Co. Everybody in that crowd was 50-60 years older than me. Crusty, cynical old curmudgeons.
Like me, today.
They’d say things like:
The trend is your friend.
Don’t fight the Fed.
He who sells what isn’t his’n must buy it back or go to prison.
If the market broke or popped, they’d all murmur, What! Was there some news? By then there was a news ticker scrolling board to watch. We’d all wait intently to see what crossed.
The big day every week was Thursday. That’s when the money supply data was reported. We’d all wait intently after the close for the M1 numbers. Then we’d wait a little longer to see what Henry Kaufman – Dr. Doom, and Al Wojnilower- Dr. Death, would say about it.
They were the Fed watchers of the day. Unlike today, with the Fed publishing reams and reams of daily and weekly data, back then, the Fed didn’t publish any data beyond the money supply, and announcements on setting the Prime Rate. Beyond that, interpreting monetary policy was like going to a card reader.
One thing was sure. Bond prices kept falling, and brokers kept failing. They were dropping like flies. They all owned bonds, and were all leveraged to the hilt.
Walston failed in 73, and merged with DuPont Glore Forgan to become DuPont Walston. It too failed not too long after. Dean Witter took it over. Then some years later, Morgan Stanley took over Dean Witter. Virtually every big brokerage firm failed or was forced to merge over those years. Check out this list.
Remember John Houseman?
Yeah, well. They lost money the old fashioned way too. They leveraged it.
Stocks began to recover in 75, but bonds were in a relentless bear market until 1982 of course, when Fed lawman Paul Volcker took out his handcuffs and arrested the bastard. But thanks to that relentless bond bear market over a hundred Wall Street firms failed in the 1960s and 70s.
That led to concentration into ever bigger broker dealers, with ever bigger trading operations, ultimately becoming too big too fail. And that of course finally brought forth the Fed put under Greenspan, and the expanded Fed put with QE, under the Evil Bernanke. His reign of terror caused a financial holocaust for millions of risk averse elderly American savers, who ultimately were forced to eat the principal of their life savings because of ZIRP-Bernankecide.
So, sure the similarity between this hourly chart and the that old Dow chart is probably meaningless. But there are a lot of massively leveraged Primary Dealers out there who own gargantuan bond portfolios. I’m willing to bet that they are dead again, just like last March. The Fed had to stage an instant $2 trillion intervention then to get them out of their graves walking again.
But it took 3 weeks. Zombies don’t like to walk around. Now the US Treasury is pumping $50-100 billion a week into both dealers and other major investment firms while the Fed sits with its thumb up its butt. But Lael Brainerd noticed, and went public about it yesterday. They know this is more than just a little problem. It is the biggest financial crisis in the history of the world. They have no choice. Yield control is coming, and that means unlimited QE.
What will the short term effect be, to say nothing of the long term. I certainly don’t know. I do TA to try and confirm the current trend, and to see when things are changing. Right now, I have no doubt that they’re changing. I will keep you updated every week at Technical Trader.
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Meanwhile, here’s some free stuff I’ve written about this unfolding catastrophe.
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