The “New Normal” is Utter Nonsense
The “New Normal” is Utter Nonsense by Dennis Slothower – Outsider Club
Huge Nasdaq Sell-Off Warns of Top
The morning started out fine on Friday, as all indexes were in the black… for a couple hours. Then the Nasdaq indexes started selling off like crazy. By the day’s end, the Nasdaq stocks had gone from extremely overbought to strongly oversold, reversing nearly a month of gains in one day.
Notice the upward trend channel for the Nasdaq 100. A week ago prices hit the upper trend line and then traded sideways all week long. But on mid-morning Friday, profit takers lined up to cash in on their luck in gaining all their losses back from the mid-May sell-off and then some. The selling started strongly and did not let up.
By the end of the day, the Nasdaq Composite was down 114 points at -1.80%, with the Nasdaq 100 down 143 points at -2.44%.
The Nasdaq 100 was the biggest loser of the indexes, falling below its middle Bollinger Band line and almost challenging the 50-day moving average.
It is worth paying attention to what was reported in a Zero Hedge article following Friday’s Nasdaq drubbing. The article featured an interview with one of the biggest volatility traders around, referred to as “Roadrunner.”
“Volatility didn’t really move,” said Roadrunner, following the Nasdaq’s Friday afternoon air-pocket decline. “There were no real flows, no one was buying options… I’d expect this to continue for a bit at least.” These kinds of things don’t usually end in a single day.
“$100bln of tech stocks got sold and drove the Nasdaq 100 down 4% with the S&P 500 and Russell 2000 unchanged. Not sure how that happens… But summer is here, people leave at noon, and liquidity is thinning out.”
“The idea of a ‘new normal’ in volatility markets is utter nonsense,” continued Roadrunner. “There is never anything new when it comes to markets.”
We are just at that point in the cycle where volatility collapses — at the end, it always does. As Roadrunner put it, “We’re late in a bull market, and like every bull the scariest moves are to the downside.”
And in a cryptic warning, Roadrunner also said, “And in bear markets, the most frightening moves are to the upside.”
We saw both extremes this week with Nvidia ($89 billion market cap), which fell 15% on Friday from intraday high to low but remains up 46% for the year.
Put this on your computer:
“We’re late in a bull market, and like every bull the scariest moves are to the downside. And in bear markets, the most frightening moves are to the upside.”
Such large outsized moves from the broader market, like the DOW and S&P on Friday, usually signal that insiders know something that the common investor is completely unaware of. What might these insiders know about what’s coming?
Fed Rate Hike Imminent
Stocks continued to sell off on Monday, as investors square ahead of the FOMC meeting on Tuesday and Wednesday. The technology sector as measured by the Nasdaq Composite essentially corrected today to its 50-day moving average and then began to firm at this key support level.
Naturally, you are going to see financial institutions turn cautious ahead of what is widely expected to be another interest rate hike. This will be the third rate hike since December. It is causing investors to get jittery, not only in what the Fed does but also in what the Fed may say regarding further rate hikes to come.
Usually, the Fed tends to support the stock market on FOMC days until the news is out of the way, but that won’t happen until Wednesday. Until then we’ll get the PPI report due out today, which will give us an idea of how fast inflation may be decelerating given lower oil prices recently.
Oil prices were up $0.26 yesterday to close at $46.09 a barrel, while gold was down $3.67 an ounce at $1,267. The U.S. dollar fell.
In truth, the central banks have infused $1.5 trillion in intervention in just the last five months, more than at any time in history in such a short period, which has helped the stock market, particularly in Europe and Japan.
A great deal of money has gone into the big tech stocks as institutions have spiked this sector.
In spite of the low inflation readings and soft growth, the Federal Reserve will raise rates another 25 basis points and likely signal another rate hike later in the year to come.
Meanwhile, as the Fed tightens monetary policy, investors need to be keenly aware that banks are tightening credit not only domestically but globally.
Commercial Bank Loan Creation on a year-over-year basis continues to plunge.
We’ve been tracking this chart all year, and it continues to get worse — another rate hike on Wednesday will only tighten loan creation.
It won’t be long before we see negative loan growth, and when that happens, the economy begins to contract. Real estate and auto loans are also witnessing a sharp slowdown in loan growth.
It is not just in the United States, either. The whole world is witnessing a contraction of credit to combat inflationary pressures, especially in China and other parts of the globe where real estate values have been skyrocketing.
Look for economic growth to slow sharply in the second half of 2017. We are at the top of the economic cycle, and that is going to become more and more obvious in the months to come.
To your wealth,