Friday, January 22, 2016

Bounce Part Deux

So here we are again at bounce part two. US equities are severely oversold (duh) based on many measures including the McClellan Oscillator. So up we now go to relieve the pressure. Buy rumor, sell March news/implementation.

With EU QE drug pusher Mario "Super G" Draghi

From Jason G at 
Another concern is that stocks have now suffered two 10% corrections in a short span. This is difficult to quantify, but according to our tests, this has only happened on three other unique dates, in 1929, 2000 and 2008. All of those preceded major bear markets.
The first and third were clear credit events. The second - while having credit related issues - was a bear market correction of clear, blowoff excesses in stocks.

The current selloff is credit related - souring bets and loans in oil related companies on less light sweet and more dour and sour crude prices. Banks are upping loan loss reserves and some, like WFC, likely are playing hinky games with portfolio valuations. Extend and pretend part deux as well.

Take a look at BKX. Looks like a significant new downtrend has taken hold

Notice the surge in credit default swap prices to the resistance trend line.

Chart courtesy of Get the service. It's excellent.

The quality and sustainability of the rebound is what generates new bull markets. I'm keeping my eye on the above to canaries in a coal mine. The BKX leads as do CDS's to an important but lesser extent because CDS can get diluted with speculative excess more-so than BKX.