Index Watch

A judge saves the market for a few hours

A judge with a history as a public defender was given the Google antitrust case and, in a recurring theme the past few decades, botched the case. Anti-trust regulation and precedent is built for the industrial age, but not the information age. The most clear cut example being two grocery chains blocked from merging in response to competitive threats from Amazon and Wal-Mart, while Amazon received approval to buy Whole Foods.

The law thinks horizontally: a grocery buying another grocery reduces competition and consumer choice. A grocery chain buying an autoparts chain would not because there’s no vertical link between the two. In an information economy, the information is the vertical integration. A company like Amazon can destroy competition in any business it enters because it is more powerful than the existing dominant firms in many cases. Whether one thinks that fine or not as a matter of business evolution, monopoly law isn’t simply about allowing dominant firms, but regulating their behavior. Google has used its dominant position in search to undermine elections and strip citizens of their first amendment rights.

In any event, the judge ruled against forcing Google to divest Chrome. Apple’s deal with Google for search is also fine.

Both Google and Apple ripped higher following the news after the bell yesterday.

At this moment, these two are still up. My math says these two stocks are currently (by pre-market price) adding about 68 bps to NDX. As I’m typing this, NQ is up 72 bps about 20 minutes ahead of the opening bell.

Indexes

Bulls will never stop dip-buying except at the bottom of a major bear market. That’s when the last of them (speaking in terms of the herd) will throw in the towel and swear off stocks forever. Yesterday’s bounce came near the 6360 level on the ES and the 23,000 area on NQ because a break lower would have opened a move to next support, about 3 percent lower from here in the case of ES.

The Russell 2000 futures also bounced at a key support area. Bears have pierced the line at times, but failed to hold it.

DJIA futures remain below the December high.

The index itself did go above that high, but also traded below the December high intraday on Tuesday.

Long story short: bulls can always ramp the indexes up so long as there are YOLOs and cash flowing in, plus markets do not (s)top on a dime.

The yield curve is at that starting line for a breakout with a perfect track record of bearish implications going back several decades. Not simply the slower macro signal, but a more imminent signal such that a breakout could trigger a top within a month or two at most. Historically, the top has also already been made once this level is breached.

Layer on euphoric sentiment and technicals pointing to a market top, and it will not take much to flush this market lower.

Best case for bulls, assuming a top is coming, remains “the pause that refreshes.” Implied correlation spiked, clearing the way for the market to ramp to another plunge setup. The market isn’t at the bleeding edge of technicals screaming top, but it has kept returning there as indexes grind higher. A final top could be one final insane spike that nobody can miss, or it will be a quiet one that will only be realized in hindsight.

At the moment the NQ is moving lower such that Google + Apple are more than 100 percent of the NQ gain. Nvidia is still rolling over at the open. I do not own a crystal ball, but if Nvidia takes out its low, the measured target is $150 or a 12 percent drop from here.

There’s rumor about Friday’s job report being poor. If so, aside from direct impact via likely selling (based on the August 1 reaction to jobs revision), it would also likely steepen the yield curve, making for bearish implications all around.

If the market prices a bad jobs report in early though, then perhaps it bounces on the release. That’s why it pays to stick with the charts, as they will tell the tale. If the market doesn’t rally up in the next couple of days, it’s sitting on the precipice of a flush lower.

Gold

As for precious metals, the miners at least are starting to look exhausted. Melt-up mania moves if it keeps running, but more likely a pullback is imminent. It could be a pause that refreshes or part of a larger financial market correction should stocks tumble.