Welcome To The Danger Zone
The next two weeks will be the most event-packed two weeks of the past decade. This coming week Big Tech earnings from Msft/Apple/Google/Amazon, PCE inflation report (10/31), BOJ (10/31) jobs report (11/1). The following week, existential election (Nov. 5th), FOMC meeting (Nov. 6th/7th).
Granted, many of these same risks abided in 2016 and 2020 albeit on a smaller scale, but what differed was positioning and technicals going into the election, which is what I will focus on below.
"Investors were disappointed by a mixed week for the stock market. They could look back longingly on it if everything goes wrong over the next couple of weeks."
“You don’t need much of an excuse to move the market down”
The article goes on to say that Fed rate cuts have been getting priced out of the market due to the prospect of massive deficits as far as the eye can see, regardless of who gets elected. As we see in this first chart below, breadth has been collapsing (bottom pane), but the market has been holding on near all time highs. In the past two weeks bulls have gained additional FOMO first from Nvidia CEO Jensen Huang and this past week from Elon Musk. Both of these CEO cult leaders promised multi-trillion dollar benefits from Artificial Intelligence into the indefinite future.
Bulls lapped it up while breadth imploded to six month lows:
The last time NYSE daily Advances-Declines imploded, Nvidia was at multi-month lows, this time Nvidia was at multi-month highs.
Just as all of these events swirl in the U.S., Asian markets are imploding at the same time, ahead of the election. Indian stocks are having their worst month pre-Diwali in over a decade:
Chinese stocks are already in 2015 global collapse mode and if Trump gets elected, then they will be bidless.
Last but not least there is this recent U.S. yield backup which has put the fatally doomed Yen carry trade back in play at the WORST possible time for bulls.
"Dhaval Joshi at BCA Research thinks that the yen carry trade is an important — indeed, the important — factor in the US tech stock rally, and that the biggest risk to the rally is therefore a strengthening yen"
Recall that the August crash attended a hawkish BOJ and a dovish Fed.
Therefore, I predict that the worst thing that can happen to bulls in these next two weeks is a panic Fed rate cut.
Which is exactly what every bull will EXPECT them to do.
