Thursday, December 14, 2017

Waiting for the new tax year

Once the new capital gains rate is in for 2018, no one has any incentive to hold stocks at these elevated bubble levels.


The top of the terminal wedge is at 2715 on December 27th.  I want to propose now that the Fed will pull their strategy to shrink the balance sheet at the July-Aug meeting.  This will stabilize the situation until the end of the year.

SPX May 2018 crash

Sunday, December 10, 2017

Let's say it all works out through EOY

Let's suppose that President Trump gets his tax cuts, whether he has to cuck on DACA or not doesn't matter at this point, but let's say he at least gets it through Congress by the end of the year.  Once we're on the new, lower, rate on capital gains, for nervous sellers, what reason is there to hold stocks a day longer?


December 28 is the first day when stocks sold will settle under the new rules and rates taking effect in 2018.  The upper bound of the E-D on the S&P 500 is about at 2720 on a log-scale chart.

SPX E-D into EOY

The Fed is expected to hike this week, and the 13-week Treasury bill bears this out, and the Fed should reaffirm its policy plans for 2018.  Once the selling starts, however, and does not abate, we will look for the Fed to retreat at FOMC meetings and try to save the situation.  But the dominoes will be falling and they will play out the last, most severe leg of McHugh's Jaws of Death mega-pattern.

SPX Jaws of Death finale

Tuesday, December 5, 2017

How soon can we re-test 1810 on the S&P 500?

I found a real gem in Value Village this week, a signed 1st edition of a classic critique:

James Burnham, Suicide of the West, John Day, 1964
thank you for donating to your local charities

If Congress shanks President Trump (damn, that still feels so good to type) this week, we get a brief market crash comparable to the impulses that took us down to the 1810 lows in mid-2015 and early 2016, a decline of about 12%, to support around 2336.

Congress adjourns for Christmas break next Friday, 12/15, so it's likely they patch things up by then, hopefully without Trump cucking on DACA, but with the result being a fierce rally into EOY.

With the ^IRX at 128 bps, we may also witness the incredible event of the Fed hiking next week during the government shutdown.  The policy wheels are already in motion, so why should they change course due to some infighting over fiscal policy?  What a sight this will be!

But the damage will have been done, and we can start finding our way back to the 1810 level by mid-February, with a bounce into March FOMC.   When the Fed maintains their course, it will set into motion the hellishly-bearish market events for the rest of 2018.


SPX steep decline to 1810 support

Sunday, November 19, 2017

The elusive, mythical leading-diagonal

Off the 2597 SPX high, we actually have a five-wave decline that could possibly be an elusive "leading diagonal", which is similar to a terminal ending-diagonal, but whose triplets and overlapping waves signifies the uncertainty at the beginning of a directional change instead of its end.  Daneric has suggested these numerous times over the years, each time proving to be a bust, so it's achieved something of a mythical status, a chimera, a unicorn, possibly apocryphal Elliott nonsense.  But we'll give it a shot.

the lion in winter

The market lost steam on Friday precisely at the .618 retrace level of the drop from 2597 to 2557, so we have the remote possibility of both a leading-diagonal and an initial channel south, which will reach its low in the week of the next fiscal cliff deadline, 12/8.  Congress will keep the wheels greased at the 11th hour and rally us through Christmas.

Red /ES tonight would mean we are starting a larger 3rd wave down, which will intensify as the Press fans the flames of a fiscal wreck into December.


SPX leading-diagonal and possible new channel