Don't Count on a Market Correction in this Environment

For a change, stocks took a little dip to open the week, but it was certainly nothing by which anybody was rattled or otherwise deterred from buying ever more expensive stocks.

Since the Great Financial Crisis of 2007-2009, the favorite acronym of traders has been BTD, otherwise known as Buy The Dip, which is exactly what is to be expected when markets open on Tuesday.

Almost without fail - actually, fully without fail - US equity indices, since March of 2009, have never fallen much more than a few percentage points before ramping back to new all-time highs. While there have been occasions in which the dip in stocks has persisted over a period of weeks or months, there has been no failure to recover in recent years.

Anybody invested on more than a casual basis is aware that central bank largesse and stock buybacks have been the primary drivers of stock market prosperity, and even with the Federal Reserve beginning to engage in the process of unwinding its balance sheet - selling off much of its horde of $4.5 million in bonds and other sketchy assets - there seems to be little to scare investors away from he equity bandwagon.

It's largely a controlled environment, nothing like the heydays of the 50s and 60s, when America was a growing concern and didn't need monetary boosts to fuel investment markets. Today's markets and investors are completely synthetic, consisting mainly of larger brokerages and funds of all types, from sovereign wealth types to hedges to mutuals to pensions. The general public and governments are so heavily invested in stocks that a collapse in markets would likely trigger catastrophic consequences to all parties. Private individuals would be harmed by pension promises unable to be met, while the large funds would face liquidation, bankruptcy or dissolution. Governments, likewise would be under attack for making pledges to the populace that could not be manifested over time, such as social security and other entitlements.

It is for those reasons, and the overall interconnectedness and fragility of markets that corrections do not occur. People in power would be without and instead of order, there would be chaos, and that is something that central bankers and their cohorts in the government realm simply cannot stomach.

At the Close, Monday, October 23, 2017:
Dow: 23,273.96, -54.67 (-0.23%)
NASDAQ: 6,586.83, -42.23 (-0.64%)
S&P 500: 2,564.98, -10.23 (-0.40%)
NYSE Composite: 12,384.42, -46.10 (-0.37%)

Market is Sick, Worn-out and Overvalued

One look at the general direction of trading today gives the impression that this is a market running completely on fumes, exhausted from last week's frenzied action and unsure about the immediate future.

Despite three of the four major averages finishing in the green, today's high open and low close are classic technical signals of a market in despair. The volume has subsided, but the VIX is still very high, over 30, and the complacency of trading today was something of a surprise, considering the still-shaky economic conditions in both the US and Europe, though it does seem that outside of the usual gang of day-traders and algo followers most of the retail investors have taken a wait-and-see attitude.

To that point, it was reported today by the ICI (Investment Company Institute) that mutual fund outflows totaled $40 billion in the past week. From the report, "Investors pulled a net $40.3 billion out of those funds in the week ended Aug. 10, the largest weekly withdrawal since early October 2008, soon after the collapse of Lehman Brothers."

Equity funds were the biggest losers, as investors shed $30 billion worth of exposure to common stocks.

Adding to the negatives was the July PPI number, at a modest 0.2% increase, though core PPI, which excludes energy and food, was up 0.4%, for an annual run rate of nearly 5 percent on a wholesale level. While oil and gas prices haven't exactly come down to reasonable levels, food prices have stabilized, though the core reading shows inflation showing up in other areas.

Bonds edged higher, with the 10-year dropping six basis points to a yield of 2.16% and the 30-year shedding 9 bips, to yield 3.56%. Investors are still looking to safety over risk, and that was evident today in Treasuries and precious metals.

This little pause in the action will last until the next crisis scenario erupts - about a week or two, maybe - and then equity markets will retest the lows set in place last week. From a technical standpoint, a retest of recent lows is almost always warranted before a move higher, so, down we must go in short order.

Dow 11,410.21, +4.28 (0.04%)
NASDAQ 2,511.48, -11.97 (0.47%)
S&P 500 1,193.88, +1.12 (0.09%)
NYSE Composite 7,418.94, +24.45 (0.33%)

Advancers led decliners on the day, though the NASDAQ saw more losers than winners. Overall, the gainers were 3624, to 2909 on the downside. New highs numbered only eight (8), with 58 new lows. The NYSE was nearly evenly split, with 13 new highs and 14 new lows. The combined total of 21 new highs and 72 new lows reinforces the indication for stocks to eventually recede.

Volume was back to moribund levels, as investors have headed for the hills.

NASDAQ Volume 1,919,593,000
NYSE Volume 4,351,417,000

WTI crude oil priced 93 cents higher, at $87.58, despite a government report that showed a significant surplus of the slimy stuff in the most recent week. Gold stopped at another new record of $1,793.80 per ounce, up $8.80 on the day and silver went happily along, picking up 53 cents, to $40.35 the ounce.