Bear Capitulation

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by northmantrader

Relentless squeeze in $SPX and $NDX to ever higher highs and bears are capitulating left, right and center. Short interest at 15 year lows, asset manager index parked north of 100, the complete elimination of down days in August, in short: The perfect bear set up.

Imbalances keep building and money relentlessly pushes into high cap tech in anticipation of Jay Powell delivering more dovish goodies tomorrow with expectation he will make an announcement suggesting the Fed won’t raise rates for another 5 years and the Fed would be willing to let inflation run hot. In other words: The Fed is implicitly endorsing an asset bubble.

I had an opportunity today to speak with a German audience via Markus Koch a well known German financial journalist based in New York and we discussed a wide variety of issues including bear capitulation and a general sense of resignation that central banks are in complete control and will never allow corrections again.

The interview here with some initial German comments and then into the full English version:

I will note that the internal picture in the market on new highs is very negative andpronounced, be it in the overall market versus the S&P 500:

Or in the Nasdaq itself:

with the result that equal weight actually is remaining below the June highs:

So it remains a rally in key indices driven by a few stocks, not a rally in the overall market, an, in my view, important distinction that is perhaps broadly ignored.

But so far nothing matters and hence one needs to be aware of continued upside risk in indices that show zero 2 way price discovery and just keep drifting in one direction:

The latter chart being discussed in the interview above.

No, investors keep getting sucked into the most highly valued market in history by far, and central banks appear keen to entice investors to take on ever more risk. There is, so far, no central banker that is willing to admit to an asset bubble, or caution investors about risk. If Jay Powell had any sense of responsibility he’d try to caution investors tomorrow, but that seems unlikely.

So we’ll see how far they push this. The chart above suggests technical risk into 3525 or so on $ES, yet the imbalances keep getting ever more extreme with each passing day suggesting risk off could occur at any time. Jay Powell better not disappoint investors that are chasing his every move and words. As for any remaining bears: Sometimes the best selling opportunities present themselves when nobody still believes in any downside risk in markets. It appears we may be rapidly approaching this point.





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