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Eclipse Eclipses Expectations

08-21-2017

The early going saw the indices slightly red, for no particular reason, which I always find more interesting than when the market moves on news. But over the course of the day the market just drifted sideways over a modest range in dull trading, as though even the computers were watching the eclipse. By day's end the indices had basically gone nowhere.

Away from stocks, green paper was weaker, oil lost 2%, and fixed income was slightly higher, as was silver, while gold gained 0.5%.

Tired and True? I realized over the weekend that I have changed my tone in discussing the market, but I perhaps haven't made it clear that I think it has finally achieved exhaustion. As I have said, I think the process started on the ninth of June when we had the big reversal in the FAANGs, but since then the evidence has continued to mount.

The week of August 4 saw the S&P produce a remarkably small trading range, almost as if trading had stopped. Then two weeks ago we saw downside action, as we did last week. When folks look back on this period they may point to that as a textbook case of what markets often do when they are finished.

For Central Bankers, the Time Is Now What? Of course, I feel stronger about my prediction that the upside is over thanks to the input from Mr. Skin, who has been so accurate in avoiding any premature top-calling and now feels that the game has changed. However, even if we are correct in our view, it is still very early in that process. Thus, being short or owning puts will be tricky and require risk management, but a declining stock market will impact all other markets, as the former has been the engine by which central bankers have tried to drive their economies higher, and as it goes into reverse, they will have to rethink their game plans.