THIS IS MEGA CRASH

So far, this week is identical to last week, except at a much lower level. I have frequently warned that a break of this last support level by Tech stocks will catalyze an unprecedented volume of selling. More than this past week which was an NDX record.

Last week, the market rallied early in the week into the Wednesday BOJ/Fed rate decisions. This week, the market rallied from the Monday morning low into mid-day Wednesday (today) on the basis that the BOJ is now turning dovish again. Just as I said that last week's crash was caused by bad positioning, this next leg of the crash will be caused by WORSE positioning.

This sequence of events has meant that positioning is MORE bullish this week than last week. Why? First off, when the VIX hit 65 on Monday every hedge fund monetized their hedges. That is one of the key factors that fueled this massive snap back rally. At that level of implied volatility, hedging using options is no longer affordable. Following epic short covering, we can assume that hedge funds are no longer hedged and therefore they will be forced sellers into a steep market decline.

"The cash allocation remains extremely low by historical standards posing vulnerability to both equities and bonds going forward," the analysts said.

The second reason positioning is more bullish than last week is because carry traders now believe they have the greenlight to put risk back on again:

"Traders rekindled their bullish bets on the yen-dollar carry trade Wednesday after dovish signals from the Bank of Japan prompted a rethink of recent market movements."

Here we see the dollar Yen carry trade currency pair. Going back to 2020, what we notice is that leverage has increased dramatically since the pandemic as indicated by the colossal rally in the $USDJPY which was interrupted briefly by the 2022 bear market. Secondly, we notice that this pause has in no way repaired the damage from last week's rate hike, despite being a three day rally - of the same duration as the decline. In the lower pane, we also note that the severity of each decline is becoming greater.

Here's another important point I want to discuss from the carry trade article:

"The yen-dollar carry trade abruptly imploded last week after the Bank of Japan raised rates while the Federal Reserve pledged to start cutting interest rates, triggering a sharp reversal in short-term yield differentials between the two regions"

So the BOJ is now neutral at this rate level, but interest rate differentials are driven also by the Fed and every other global central bank that is now cutting interest rates. Think China with yields collapsing to all time lows as the PBOC panics.

Now recall this article from my last blog post "Eye of the Storm". What it says is that the stock market rally is now totally dependent upon imminent large scale rate cuts. And yet we also know that the carry trade is dependent upon NO rate cuts.

Here we see below, what I think happens next.

First off, we notice that this entire crash began four weeks ago when the AI trade imploded. Which means that the BOJ crash is only one week of the total decline. Secondly, based upon the even worse positioning, I predict that this renewed selloff will be far worse than the one last week ending Monday. Bad enough to bring the Fed to an emergency rate cut as soon as next week. However, that action is going to make the selloff worse AGAIN.

And then I show that as markets approach the pandemic lows I predict a very meager bailout compared to 2020. Imagine Biden trying to organize a bailout at the end of his term while Trump and Harris are competing to get elected. Congress desperately trying to not appear pro Wall Street.

It will be a total clusterfuck.

In summary, it was a huge mistake today for pundits to come out and say that the BOJ caused this crash and now they are back to being market positive. All they did was stoke more complacency and risk taking. Now bulls are trapped in this counter-trend rally.

The belief that a .25% rate hike catalyzed a global meltdown is total idiocy.

This was ALWAYS about decades worth of printed money and the foolish traders, pundits and central banksters who NEVER learn their lesson.

I have a feeling this time around will get their full attention.