Week-In-Review(12/04/17 – 12/08/17): Viam inveniam aut faciam.


What follows are the closing market wraps from

Mr. White of the Heisenberg Report fullsizeoutput_1df5

and with it the annotated charts that I make to keep myself interested and engaged in the material, day in and day out.

Here was last week’s market recap from J.P. Morga Asset Management to set the scene from last week and into the week previous to now.

Screenshot 2017-12-09 18.38.45



12/04/17 -> Out With A Whimper.

Well, that started with a bang and ended with a whimper for the Dow and the S&P. For the Nasdaq, it was a veritable shit show from the word go.

The Dow managed to close at a record high but most of the euphoria that was evident last night when futures jumped out of the gate as investors tried to price in the progress on tax cuts faded after the cash open on Wall Street.Futs

Worst five-day underperformance for the Nasdaq 100 since the bull market began:


Just to drive the point home, have a look at your favorite high-flyers since last Wednesday’s tech bloodbath (that red line is 0):


That is some ugly shit right there and it does not bode well for the 2 and 20 crowd:


Meanwhile, the financials continued to rally. Here’s what they’ve done over the same period shown in the chart above for tech:


November was the best month of inflows into XLF since the election, underscoring the contention that at least in equities, the “Trump trade” has been given new life by the tax bill:


The dollar rose versus all of its G-10 peers as investors tried to reconcile the downside from the ongoing Russia probe with progress on taxes (and also with the possibility of a government shutdown amid more partisan gridlock):


Treasurys meandered higher throughout the day, ultimately retracing the losses from the gap lower on the Asia open when everyone was still trying to make up for the flight to safety triggered by the Friday ABC headline:


The curve continues to collapse (because why wouldn’t it):


The pound was whipsawed as Brexit cheers turned to Brexit jeers on this headline:


That came after earlier headlines that found EU chief negotiator Michel Barnier telling EU lawmakers that a breakthrough was likely today. Or at least according to comments from MEP Philippe Lamberts who spoke to reporters in Brussels.

PoundEuropean equities still closed higher across the board although they did dip a bit on Brexit deal headline:


Oil fell sharply on what everyone is calling profit taking but on what one might fairly chalk up to some combination of “sell the OPEC news”, a stronger dollar, and jitters about what the deal might mean in terms of encouraging more shale production. Notably, the U.S. Oil Fund saw some $169 million in outflows last week. There were some funny comments out of Al-Falih:


Meanwhile, less than a week until the end of the world. Stock up on ammo and canned goods…



12/05/17  #Sad.

Things started off ok on Tuesday, but by the time it was all said and done, everything was red as the Nasdaq bounce faded:


As you can see, small-caps underperformed. Notably, they’re pretty damn rich:


First three-day losing streak for the S&P since August:





And remember: significant drawdowns are becoming an endangered species…


… just like sustained vol. spikes:


The rotation trade came off a bit today with the Nasdaq falling less than the other benchmarks, but have a look at this:


Some folks believe the rotation out of tech has little to do with tax reform and more to do with a systematic factor rotation:


Screenshot 2017-12-05 19.07.08

The dollar gained and it’s useful to pan out and look at how things have shaped up since the Flynn headline threw everyone for a loop on Friday:

Screenshot 2017-12-05 16.43.21

Let’s talk about the dollar for a minute. The conundrum here is whether renewed U.S. reflation optimism centered around tax cuts and repatriation will be enough to offset the drag from improving economic data abroad, a more hawkish ECB, and the Mueller probe, among other potentially dollar-negative factors.

For his part, BofAML’s David Woo believes the greenback “will rally significantly” in Q1 2018 thanks to rising interest rates and repatriation. But the longer-term outlook is far from clear. Consider this out today from SocGen’s Kit Juckes:

Not enough rate or yield support for the dollar to rally further. The dollar is trading about 5% higher, in real terms, than its average level of the last 20 years, and some 23% above the 2011 low. With the global economy surfing the global expansion, and growth becoming more balanced and more synchronized, the dollar looks expensive. It rallied on the back of the Fed’s lead in the monetary policy cycle. Not only is the rest of the world slowly catching up, but it seems increasingly clear that the Fed will remain extraordinarily cautious in its policy moves. We expect the Fed Funds target to peak at 2.00-2.25%, which is consistent with real 10y yields peaking not far from current levels (52bp) and well below the 72bp we saw in December 2016. That’s not negative for the dollar but means that the currency is vulnerable both to its high valuation and to improving FX fundamentals of other major currencies, including but not limited to the euro.


And then this from DB’s George Saravelos:

(1) There are $3.5trillion of US company earnings re-invested offshore according to BEA data. We estimate that an upper bound of $1.5 trillion of these profits sits in cash or equivalents. This liquidity is held “offshore” for the purposes of tax optimization and has the potential to be “brought back” to the US if the tax treatment becomes more favorable. (2) Of this $1.5 trillion we estimate that only around 10% or $150bn sits in non-dollar holdings. This estimate is based on a bottom-up analysis of company disclosures accounting for around half of S&P 500 cash. (3) In contrast to the 2015 “Homeland Investment Act,” the current tax proposals call for “deemed” repatriation which is equivalent to a mandatory payment on foreign earnings without an obligation to repatriate those earnings back in the US. Companies will only bring the cash back when they need it, there is no incentive to bring cash back immediately. (4) Even if a company decided to bring cash “back” to the US, our recent conversations with a number of large firms lead us to the conclusion that the dollar liquidity mostly already sits in US banks. Bringing the money back will merely involve an “accounting” shift rather than a withdrawal of offshore dollar liquidity. Conclusion: in contrast to 2015, the impact of US foreign company repatriation on the dollar and cross-currency basis should be small, if at all.

And how about this, from TD:

As long as global growth maintains a steady pace, reflationary tailwinds persist, and U.S. inflation does not unexpectedly — and uniquely — surge, the global macro landscape should favor a steady depreciation of the dollar.

In short, curb your enthusiasm about the greenback. Again: #Sad.

European shares were mostly mixed on Tuesday. Oil moved higher on geopolitical jitters tied to Trump’s comments on moving the U.S. embassy in Israel to Jerusalem from Tel Aviv. Also, this from Goldman is notable:

Saudi Arabia and Russia displayed a stronger commitment to extending the cuts last week than we had expected. While the deal leaves room for an earlier exit than currently scheduled, we now reflect this resolve in our supply forecast, with full compliance for longer and a more modest exit rate.

This leads us to forecast lower inventories in 2018 and, as a result, we are raising our 2018 Brent and WTI spot forecasts to $62 and $57.5/bbl. These forecasts also reflect higher US pipeline tariffs and a wider WTI-Brent differential of $4.5/bbl in 2018. Importantly, our conviction in the New Oil Order remains intact with our 2-year forward WTI price forecast – the marginal cost anchor – remaining $50/bbl.

As noted earlier today, things are looking dicey in Hong Kong which is something you should keep an eye on. The tech rout in the U.S. is manifesting itself in a 14% drop from recent euphoria-levels in Tencent:


And that’s causing problems for the high-flying Hang Seng, which has lost two round numbers since crossing 30,000 for the first time in a decade last month:


Screenshot 2017-12-05 19.41.53


12/06/17–> Overnight session–> Oh, The Humanity! Asian Shares Dive As Tech Wreck Wreaks Havoc On Hong Kong

Keep an eye on this – in an increasingly interconnected and interdependent global market, these tech selloffs are demonstrating a propensity to spread quickly. And there’s some poetic justice in that, right? After all, tech is all about connecting the world.

That’s what we said on Tuesday morning when documenting the ongoing slide in Hong Kong shares and the rather precipitous drop in Tencent which, before the recent tech rout, was on a fantastic run that last month pushed its market value to some $523 billion.

Well on Wednesday, things got worse – and materially so.

Specifically, this was the worst day for the Hang Seng in 13 months. The benchmark has now fallen in seven of the last eight sessions:


Make no mistake, this is a rather disconcerting decline for one of the world’s top-performing markets. The Hang Seng is now down more than 5% after hitting 30,000 for the first time in a decade last month. It’s now moved below its 50-DMA:


For its part, Tencent is now down some 17% from its highs, wiping out nearly $80 billion in value:


And just to drive the point home, look at a YTD chart of some of the best performers over there and note how steep the recent declines are:


That is some ugliness right there.

And Wednesday’s malaise was hardly confined to Hong Kong. Mainland shares were ultimately saved by the national team (probably) but they were sharply lower early on:


This was the worst day for the Nikkei since March:


And South Korean shares were similarly slammed. You get the idea.

All eyes will be on the Nasdaq today. Let’s see if the factor rotation continues and whether the momentum massacre gathers even more steam.

Oh, and don’t worry about the Hang Seng because according to CMB International Securities Ltd. strategist Daniel So, it’s probably going to 35,000 “around” mid-2018.


12/06/17–> U.S. Close–> Trouble In Paradise.

There’s trouble in market paradise. By all accounts, progress on the tax cuts should be propelling equities higher. After all, the tax deal was supposed to be a “free call option” on further gains.

And as far as “Mueller risk” goes, that was always lurking in the background and while we think it should have been cause for some kind of correction by now, that hasn’t materialized just like none of the other myriad political risks have managed to knock this market’s hustle so why should it start now? Perhaps – just perhaps – some folks are starting to come to terms with the idea that “Mueller risk” has morphed into “impeachment risk.”


Meanwhile, the tech jitters are palpable even if the rout took a break in the U.S. on Wednesday. One issue with this idea that tech (and growth in general) is going to be able to pass the baton to the sectors that would benefit the most from tax cuts is that the market leadership shoes are big ones to fill. So the question becomes whether the “rotation” everyone’s talking about can possibly be a net positive. What seems more likely is that while some sectors will get a lift and while portfolios positioned to benefit disproportionately from the passage of the GOP tax bill will indeed outperform, the broad market isn’t going to be able to stomach any kind of a drawdown in the big-cap tech names that have acted like Atlas when it comes to holding up the entire world.

The hope is that if, as Bloomberg’s Dani Burger (now the “Best Burger in London”) contends, this is a factor freakout, then the weakness in tech will be short-lived once whoever (or whatever algo) is behind the systematic flows gets done doing whatever the hell it’s doing.


Whatever the case, none of this is great for active managers who have been relying on a handful of high-flying names to best benchmarks (benchmarks that themselves rely on the same stocks – there’s Howard Marks’ perpetual motion machine again):


Stocks were basically a wash stateside today, although as noted above, tech did manage to meander slightly higher which is better than nothing in light of recent events. Once again, small-caps underperformed.

The dollar (which we discussed at length in Tuesday’s wrap) was up again, and is now sitting near two-week highs, reflecting what may be misplaced optimism for all of the reasons cited in the linked post above:


2s10s just barely hanging on above 50bps (Cue Walter – not White, but Sobchak):

Screenshot 2017-12-06 16.19.51

Europe has hardly been immune from the ongoing tech rout. The SX8P has fallen some 5% since the November 29 bloodbath on Wall Street that started the ball rolling in earnest on the global tech tumble.


And speaking of global tech, Tencent looks like it’s in trouble. It’s come off 17% since triumphantly joining the half-trillion club last month:


Don’t look now, but EM equities more broadly are looking vulnerable, having abruptly slumped to two-month lows where they’re now testing the 100-DMA:


It’s worth noting that the CBOE’s volatility gauges for the EM ETF and for the China ETF are trending markedly higher:


The BoC came out cautious on Wednesday, triggering a steep decline for the loonie:

Screenshot 2017-12-06 16.44.06

Bitcoin hit $12,000 on Wednesday, which would have big news were it not for the fact that it subsequently hit $13,000 in the same goddamn day:

Screenshot 2017-12-06 16.24.48

Screenshot 2017-12-06 15.33.44

And Bitcoin isn’t the only thing retail investors are all-in on. According to TD Ameritrade’s proprietary idiot-tracker (they don’t call it that), mom and pop pushed their chips in November like never before:

Screenshot 2017-12-06 15.47.52

12/07/17 –>  A Brief Reprieve (God Blesh Ush, Everyone)

Thursday felt like a bit of a reprieve from the past couple of days as the tech selloff abated and outside of Bitcoin, nothing too outlandish happened.

The S&P snapped a four-day losing streak and the Nasdaq outperformed again, perhaps easing concerns about the tech rout (note: small-caps outperformed as well):

Screenshot 2017-12-07 17.17.53

If you’re keeping track of how things have unfolded since the tech selloff last week this is amusing:


The curve reversed early flattening thanks in part to reports that Trump is set to put out something on infrastructure in January.


That should be funny. Remember, his last press conference on infrastructure devolved into a shouting match with reporters about Thomas Jefferson’s slaves. That headline hit at 2:00-ish and you can see Treasurys move lower and the dollar climb:


Fourth day in a row of gains for the greenback:


Despite this afternoon’s steepening, there’s no escaping the inevitable:


Folks are bearish on gold ahead of the Fed and amid dollar strength tied to the tax plan. The most recent Bloomberg survey shows investors are the most bearish since at least April 2015.

  • Bullish: 2 Bearish: 8 Neutral: 3

Gold is sitting at a four-month low and is on pace for its largest weekly decline since July:


The pound got a (much needed) reprieve on Thursday afternoon, spiking on a report that the U.K. and Ireland are close to striking a border deal:


Not a good day for Brazil as stocks and the real were hit hard on pension overhaul jitters:

Screenshot 2017-12-07 17.37.20

Haven’t mentioned the Aussie in a while, but it’s at a six-month low:

Screenshot 2017-12-07 17.29.54

Oh, and this is hilarious. According to Cowen, Amazon is set to save $723 million in 2018 and $1.3 billion in 2019 under Trump’s tax bill. All told, the company could end up getting a 24% boost to earnings in each of those years. Meanwhile, Facebook and Alphabet could see an 8% EPS upside. This assumes the U.S. corporate rate goes to 22% on January 1. As usual, “there’s a tweet for that”:


Obviously, Bitcoin was the story (again). One day after blowing through three round numbers ($12,000, $13,000, and $14,000), it crossed $15,000 and $16,000 and $17,000 and $18,000 and then $19,000 (depending on where you’re tracking this thing) only to careen lower by a truly absurd $4,000 amid a series of outages and performance issues across platforms:


Keep in mind: that is a goddamn two-day chart.

“People are looking at a video game as a regular market. And it’s clearly not, otherwise it wouldn’t be where it is already,” Walter Zimmerman, a technical analyst at ICAP TA told FT, adding that this is “beyond abnormal, it’s unprecedented. Every other commodity has natural sellers.”

Finally, your moment of zen: “God blesh these shhates, shank you very mush”

12/08/17 –>Overnight Session Don’t Ignore The Overnight Rally In Hong Kong

Listen, if you were worried about the recent slide in Hong Kong and mainland shares you can rest easy headed into the weekend because thanks in part to some pretty damn robust November trade data, shares rallied hard on Friday.


China November exports and imports blew away estimates rising 12.3% and 17.7% respectively, in dollar terms. “Investors were waiting for a catalyst to bottom fish some stocks that have suffered in the past few days,” First Shanghai Securities’ Linus Yip, said, adding that “the stronger-than-expected Chinese trade data just gave them the reason to buy and lifted sentiment.”

The SHCOMP closed up 0.6%, the ChiNext gained 0.9%, the Shenzhen was higher by 1.2%, and the CSI 300 tacked on 0.8%. Still, if you look at a YTD chart for these you can see the recent drift (the SHCOMP is down more than 4% in four weeks):

Hong Kong was the story though and we wanted to document this for you because, in light of recent events, it’s important to monitor what’s going on there. As you know, the tech rout that hit Wall Street on November 29 quickly went global and Tencent has suffered mightily.

Tencent was up nearly 5% on Friday, bringing the two-day rebound to 8%. Again, this is important considering how far the shares have fallen since the company pole vaulted into the half-trillion club last month:


Chinese shares traded in Hong Kong jumped the most in two weeks:


The Hang Seng itself rose the most since November 21, a welcome sign in light of the fact that it too is down over 4% from local highs.


Whether or not this bounce is sustainable and more broadly, whether Friday marks a turning point for the sentiment which was rapidly deteriorating, will help determine whether global risk assets are able to rally into year-end.

12/08/17 –>All’s Well That Ends With A Record Close.

All’s well that ends with record close for the Dow and the S&P.

It’s safe to say all the carbon-based lifeforms tuned out after payrolls (algos will take it from here) so this will be a short one.

It’s useful to pan out to what’s happened since last week’s tech wreck. Between that, the Flynn debacle last Friday, and the tax deal, there are some clear winners and losers – or at least outperformers and underperformers:

Screenshot 2017-12-08 16.57.28

Between tax optimism, the averted government shutdown, anticipation of a Fed hike, hope that Trump will move ahead with something on infrastructure in early 2018 and what traders say is a tightening of liquidity related to year-end funding pressures, this was one of the best weeks of the year for the dollar which has risen for five straight sessions, the best run since March:


Here’s where things stand on USDJPY and 10Y yields since last Friday when the Flynn headline triggered a flight to safety:


Here’s a random one is thrown into the mix here for absolutely no reason other than to remind you what benefits most from years of central bank largesse:


Oil was higher for a second day on Friday but still fell for the week. This was the second straight week of declines and the worst week in two months (coming on the heels of the OPEC extensions no less – sell the news):

Screenshot 2017-12-08 17.03.16

Tough week for gold, which is sitting at a four-month low. Specifically, this was the third straight week of losses and the worst week since May:

Screenshot 2017-12-08 17.09.14

Financials outperformed all other industry groups on the Stoxx 600, rallying after the Basel compromise leads to “no significant increase” of overall capital requirements. The SX7P moved above its 200-day, 100-day and 50-day moving averages:


Of course, Brexit deal optimism didn’t hurt in Europe either. You can see the Friday bounce in the 50-day chart:


As noted on Friday morning, Hong Kong and mainland shares closed out the week on a positive note and that’s a good sign in light of recent weakness. Notably, H-shares put up their best showing since November 24:


  Tencent – which was in the crosshairs amid the global tech wreck – has rebounded 8% over the past two sessions:

 Screenshot 2017-12-08 17.07.21

And a friendly reminder:




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