How to Escape a Market Head-Lock (AMZN)
There are folks in the investment world, many of whom get a lot of airtime, who’ve been down on the equity market for years. Their claims that stocks are over-bought and wildly expensive according to every traditional historical marker are absolutely right, and in that regard no one can gainsay their research or their understanding of how the markets have worked for the last 60 or 70 years.
But sorry for them, something changed.
In the last two decades, governments the world over have begun to involve themselves in the market’s workings to a degree that’s not only unprecedented but alarming.
The bank of Japan, for instance, now owns at least 75% of all that country’s listed ETFs, making it a top-ten shareholder in 40% of the nation’s equities!
It also holds a full 42% of the country’s bond market, a sum equivalent to Japan’s entire annual economic output.
Japan has been in an economic funk for decades, and this, apparently, was their best thinking on how to break out of it.
Plainly, it hasn’t worked.
But that didn’t stop other nations from following the same treacherous route, particularly after the breakdown in markets at the end of 2008 – in what’s come to be known as the Lehman Bros., or Sub-Prime Lending Crisis.
As of that hour, trillions of Dollars and Yuan and Euros have been printed and, concurrently, nearly all traditional means of measuring both individual stocks and indexes have become obsolete. Many will take issue with that characterization, but by ‘obsolete’ we simply mean they aren’t working. The markets have defied the calculations of the best analysts and traders and risen in almost straight line fashion since the 2009 lows, putting the lie to all the caterwauling and repeated warnings, last warnings, watch-out y’all, this is it, DEFCON 5 warnings, and whatever eventual hysteria will inevitably follow.
So when we suggest that this is, indeed, a fragile investing age, but that we’re still in the throes of a liquidity-driven, inflationary asset rise that has yet to run its course, and that investors should continue to play it with an upside bias, we regularly get steamrolled with claims of “irresponsibility”, “fiduciary fakery” and (once) “naked jalopy hawking”.
That said, ten years into this greatest of all bull markets, we’ve also been proven right. Every dip was, indeed, a buying opp, and every pile into the sexiest names of the tech-bordello also panned out well for us. Our track record continues to be the finest in the investment newsletter world, and there’s no one who even dares attempt our approach, let alone score as we have.
And so we feel compelled to ignore the criticisms and stick to our story, and with the help of jalopy lovers the world over, to continue to make money for our subscribers.
This Week: Anxiety Levels Peaking?
There’s only so much stress and negativity a market can take, however. When everyone starts singing a dirge, you know there’s a funeral somewhere – or that shortly enough there will be.
One of the signs the hearses may be collecting is the enormous turnover in stocks year-to-date, over $6 trillion worth changing hands, a quantity we haven’t seen since the run-up in equities in 2008 led to a 50% market crash.
Look here –
Much of that volume has been generated by uncertainty regarding the trade war between America, China and Europe, the efforts to defuse it and inflammatory statements that continue to stoke it.
But market players are also trying to figure out how to parse a Fed that’s more intent on raising rates vs. an ECB that wants to ease.
They’re equally unsure how to weigh an incessantly rising pack of FAANG stocks against an Emerging Markets cohort that’s losing altitude fast.
Oil, too has logged multi-year highs while the Trump administration claims they’ve got a deal to splash abundant supply into the pits, making lower prices inevitable. So what’s next there?
The current political and economic crisis in Italy, along with ongoing questions regarding immigration policy the world over have also bred uncertainty, hence the churn of buy and sell at a rate unseen in a decade.
Everyone is shuffling and rejuggling with the expectation that we may have reached a climax.
But is it so?
If the following numbers are to be trusted, it could well be we’re on the cusp of a deep retrenching.
The chart below shows an increasing volume of funds funneling into a select group of stocks that, in and of themselves, have carried the entire market to new heights. Everywhere else there’s been breakdowns, consolidations and stalls, but amongst the sexy seven (or so) tech biggies listed here, just buyers.
Goldman Sachs’ Analysts demonstrate that just four stocks, Amazon, Microsoft, Apple and Netflix have been responsible for 84% of the S&P’s gains in 2018, and more importantly, Amazon has contributed 36% of the index’s upside YTD.
Now, whether this is the work of the Bank of Japan, or any other central bank, or group of central bankers acting in concert is of less import than whether it’s sustainable.
While the worry is growing, the money is funneling into a narrower and narrower group of overpriced ‘equity call girls’ who, in our view, are themselves incapable of servicing their libidinally augmented, porn-happy clientele.
In other words, something’s gonna break.
And we’re odds-on that it’s going to be Amazon.
Have a look here –
Three signals on the daily chart have us poised to go negative:
- In just the last month, RSI has thrice got too close to the 80 overbought line for comfort (in green),
- The last time AMZN soared this high above her long term moving average, she snapped back by a solid 17% in under three weeks (blue lines). This marks the furthest divergence from that line in Amazon’s trading history, and
- Finally, two back-to-back candle formations, a shooting star and a bearish engulfing pattern showed up precisely at the stock’s all-time highs (in black). Both are negative and indicate a reversal is now underway.
Taken together, we believe the latest strength in the stock marks an excellent entry point for a trade with a downside bias.- Content protected for Normandy Executive Lounge, Option Trader Elite, Executive Lounge members only]
Many happy returns,