Now What? This is What

Post-taper, here's how January 2014 could play out for stock markets...

 

SO the FED finally came with the 'taper' so we no longer have that hype hanging over our heads, writes Gary Tanashian in his Notes from the Rabbit Hole.

 

The stock market took the expected 'buy the news' rally after having had a nice little clearing of over bullish sentiment into the Fed decision; though the mini correction did not quite have the anticipated intensity.

 

Through the looking glass, the precious metals initially rallied on the news (which we had not anticipated), then dutifully rolled over. The upshot is that stock markets and precious metals remain on their respective plans that call for macro changes to come.

 

The plan called for a Santa rally in the stock market that potentially puts an (!) on the bull case and pulls the remaining retail holdouts back into the market. Bull wise guys continue to talk about this being the most hated bull market ever, with little public participation.

 

Well, if that is the case then who on earth has put on record margin debt levels? Who on earth feeds funds to the professional money managers that are nearly all-in? Who is behind the all-in Rydex fund data?

 

From Sentimentrader.com:

There is no wall of worry in the stock market. That is a financial media promotion. And after the expected mini-correction, the 30-year average seasonal 'Santa rally' held well in the last full week trading.

 

If the pattern is to repeat (always a valid question when using analogs) then the entirety of January could be strong as well. For our usual conservative purposes however, NFTRH will take it a week at a time, with an eye for caution around mid-month.

 

When will the time be right for a macro pivot? In big picture terms the time is right now, as signals coming in daily show trend followers in the media touting the stock market as they promote a perception that they have been bullish all along. One year ago, I felt like one of 2 or 3 people on the planet with a projected bullish resolution to the 'Fiscal Cliff' drama; though in full disclosure I did not think the stock market would get anywhere near current levels back then. Nor did I necessarily think the bull would last this long, although the outside projection is and has been to mid-2014.

 

As for the barbarous relic, signals are coming in daily from various mainstream media sources talking about how incredibly bearish gold is. No, really Captain Obvious? The technicals on gold have been brutal for many months now and questionable to bad for over 2 years. You've got to love trend followers because they always appear to be right while promoting their view.

 

Personal favorites over the last 2 days were the SocGen analysis trumpeting that gold has lost its safe haven value (gold is squarely a 'risk off' asset now in an atmosphere that has been instigated to 'risk on' by intense policy making) and an email report I received (from a source that will remain unnamed) going on and on about how bearish a coming supply glut of crude oil will be for gold, since gold is all about inflation and lower oil prices will drive down inflation. Another reformed inflationist heard from?

 

They always obsess on prices. Silly me, looking for oil to drop (nominally and in relation to gold) as a prerequisite to a positive fundamental view on the gold mining sector. Get this, high oil prices are bearish for gold mining. The inflationists got themselves into trouble with incorrect analysis and now they are rationalizing a bear case with the same flawed viewpoint. Gold is counter cyclical and oil is...cyclical.

 

Gold may well have its Waterloo, where the most notable of the Gold Generals make their stand and meet their end. The charts indicate it could be coming. That does not change the fact that the dumbest money is being herded into the stock market (risk on) and gold is now 'risk off'. Do the math. And enjoy the punch holiday revelers, but make sure you have a good hangover cure ready. You'll need to be clear headed in the New Year.