Trilling Thursday – Bouncy Markets Face a Test into the Weekend


We are hitting our goals.

The Dow is over the strong bounce line at 25,500 by 160 points (at 200 points it's a 50% recovery), the S&P 500 is right at the strong bounce line of 2,830 and Futures indicated 5 points higher, the Nasdaq 100 is right at it's weak bounce line at 7,250 and the Russell is right at the strong bounce line at 1,510.  With 3 indexes over the bounce line we like to go long on the laggard so this morning's Futures Trade Idea is to go long the Nasdaq over the 7,250 line – with tight stops below OR short the Dow (as it's the over-achiever) if the others fail their lines and the Dow fails 25,600 – with tight stops above.  

That way, we can make nice money in either direction while we watch and wait to see which way our bounce lines resolve themselves (which then informs us whether to get more bullish or bearish into the weekend):

  • Dow 26,700 to 24,700 is 2,000 so huge 400-point bounces to 25,100 (weak) and 25,500 (strong)
  • S&P 2,950 to 2,750 is 200 so 40-point bounces (or what I said above) to 2,790 and 2,830
  • Nasdaq 7,850 to 7,100 is 750 so 150-point bounces to 7,250 and 7,400
  • Russell 1,600 to 1,450 is 150 so 30-point bounces to 1,480 and 1,510

Remember:  The 5% Rule™ isn't TA – it's just match.  We don't really care what the charts look like, these numbers are formula-driven and serve us very well – why else do you think 3 of the 4 indexes finished yesterday right at their bounce lines.  We made a quick $500 per contract shorting the Dow yesterday morning but today we're going to wait for a signal from the other indexes before jumping in.

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The European Central Bank decided to leave rates steady this morning but threw the bulls a bone,saying they were likely to keep rates steady through "at least" the first half of 2020.  That's a great relief to people who thought a rate of 0.5% would collapse the Global Economy so, as long as we can keep borrowing money for 0.5% – everything will be fine, right?  Right?  Sure it will.  In fact, I'm surprised no one ever thought of this before – let Governments borrow money and lend it to the banks at 0.5% and let companies run up Trillions in debt at 1.5% and all will be well forever and ever.  In fact, here's a chart of interest rates over the past 5,000 years:

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Rates now are lower than they were during the Great Depression only this is a rally with full employment.  Thankfully, the Central Banks' tell us there's no inflation though rents are rising and college costs are rising and medical bills are rising and taxes are rising and food is rising and the tides are rising (meaning insurance payouts are rising so the cost of insurance is rising too) and even home prices are rising – but at least there's no inflation, right?  

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Will people ever get tired of being lied to?  Probably not when the lie is that everything is great – that's not the kind of lie you want to uncover the truth of, is it?  People like it when things are fine and they don't like it when other people try to rock the boat and point out what's not fine so it's better to go on believing the lie and hoping you won't live long enough to see it all fall apart – it's amazing our species actually made it this far…

Al Gore wanted to warn us about Global Warming 13 years ago but that was so depressing we voted in a frat-boy President instead and he crashed the economy but at least we didn't have to cut back on our carbon emissions, right?  For a few years we wised up and elected an actual leader but he wasn't much fun and wanted us to eat our vegetables and be nice to our neighbors and chip in on fixing the environment and we weren't having any of that so here we are, once again living the "reassuring lie" and once again hoping the whold thing doesn't fall apart – like it did just 9 years ago.

The Central Banks saved us then and they are saving us now – even though now the economy is at full employment and the markets are at record highs.  That's because it's cheaper to save us from ever having any proper price discovery in the markets than to let the market correct and then try to pump it back up.  That appears to be the strategy of the majority of Central Banks and whether or not they can really keep rates this low into the next decade remains to be seen.

But God help us all if they can't…