Thread on markets update- I've shared various "setups" for potential exhaustion and reversals for what I believe is a bear market rally. I am hearing/reading from all sorts of people I know and follow about a "crazy" paradox. Most are asking what the hell is going on?

How can the stock market go up like this given the economic carnage? Cycle peaks are often messy even when a global pandemic isn't involved, and as my comments the past 2 months have clearly shown, the path is often confusing and difficult to navigate. Some examples from history:

Sequencing of market behavior relative to the economy is often very confusing. Markets often respond to expectations of the 2nd derivative- i.e. the change in the rate of change. 2000-2003 was a good example, a relatively shallow recession from early 2001to November 2001 occured.

Yet markets didn't get broadly bearish until after the recession was over. The recovery was very weak and jobs growth terrible- it was deemed the "jobless recovery" at the time. Many argued we hadn't even emerged from recession or that a "double dip" was unfolding.

Neither was true- the recession ended but markets had been pricing in a vigorous rebound that didn't emerge- the expectation of the 2nd derivative proved wrong. Credit market carnage excluding the telecom/tech bubble popping 2000-2001 didn't really unfold until 2002.

Fast forward to 2007-2008. The recession began in December 2007 and ended in summer 2009. After Bear Stearns was sold in a government led shotgun wedding in March 2008, the market rallied to within 5% of it's all time high in mid-May 2008.

Emerging markets like Brazil went to a new all time high into June 2008 and crude oil went parabolic to its all time high over $147 a barrel. "Decoupling" was all the rage as to how this was unfolding and that the problem in US housing wouldn't cause a broader global issue.

As late as August 2008 there was still widespread denial- 2nd Quarter US GDP was initially reported as positive, and many believed a recession had been avoided. Fannie Mae and Freddie Mac had failed and had to be bailed out.

The reality was that the recession was already 8 months old, a cascade of banking system failures was already unfolding, yet the many of the least liquid and most economically leveraged market segments like emerging markets and US small caps were barely down.

I remember this vividly because I had transitioned hedging exposure from financials and REITS in early 2008 to emerging markets and small caps, and was miserable for months into August as I lamented how "stupid" markets were being! The primary market peak in July 2007 had been...

eclipsed by large cap indexes in October 2007, but financials had peaked in February 2007 and started to fall significantly and REIT'S soon followed. The rebound to new highs in October made no sense but it happened. The decoupling theory made no sense but was widespread.

Crude oil was at $147 on the precipice of an economic collapse, made no sense, but it happened. This article from June 2008 is a good snapshot. https://www.nytimes.com/2008/06/21/business/21oil.html?searchResultPosition=4 Crazy shit happens around cycle peaks, and this one is crazier than most.

People are seeing the carnage yet retail investors and traders are positioned very aggressively bullish. Volume has exploded as people are locked at home and seemingly gambling in markets with their spare time. Call options purchased by retail/small traders has exploded. BTFD!

This is the biggest bubble in history and a global pandemic has popped it- stick that in your crazy pipe and smoke it! Crazy is partly why I said near the lows in March that I believed the "easy" position was owning precious metals and related mining stocks.

Trading and timing "crazy" is hard and amplifies all the normal psychological pitfalls most people experience. This is "crazy" on peyote, ayahuasca, acid, meth and crack....all at the same time. Trying to "understand" that is a waste of time, IMO, other than shit be crazy.

With that all out of the way, market prices have AGAIN come to yet another potential confluence for an exhaustion of this bear market rally. Here is the proxy for the global stock market that I commonly reference- symbol VT. It has retraced to test the initial daily level.

The DJIA, proxy of DIA shown here, has similarly retraced. The big 5 bubble stocks that dominate the Nasdaq have also grown to dominate the S&P 500.

US small cap stocks peaked in 2018 and have now retraced 50% of the range of that peak to the March low.

VXX and June VIX futures have also retraced to power law/iteration levels- shared the VXX in real time off its March peak.

German DAX has retraced 50% of its range from peak to March low.

Some self similar reversal iterations have emerged and begun to scale some, but they have not been particularly impulsive so far. Here is the DJIA continuous futures contract hourly chart showing recent price around that big daily level shown in the DIA chart earlier.

But the initial rejection of this daily area was quite impulsive as shown here on a 4 hour chart of the same futures. Note the low in the May 3rd Sunday Globex session was right near the 23,245 level- a setup for further fractal scaling.

So I won't rule out crazy getting crazier but this is the most powerful reversal confluence/setup so far, IMO. End