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Sep. 10, 2016 6:12 PM ET

Michael Clark

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Long/short equity, special situations, currencies

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Michael J. Clark

WHAT THE HELL WAS THAT? Or who the hell was manipulating investment markets this time?

I generally don't like to quote full articles from other investment sites, especially CNBC. But here it is, in a nutshell.

Those figuring that the Fed still might hike rates in September are getting one more bite at the apple.

As the week drew to a close and the Fed's "quiet period" before meetings was about to settle in, investors recoiled over news that the central bank's most dovish official, Governor Lael Brainard, will be delivering a previously unannounced speech Monday at The Chicago Council on Global Affairs.

The news sent a chill through markets Friday, with major stock market averages taking a beating and short-term government bond yields and the U.S. dollar moving higher, and it set off yet another round of speculation over whether the Fed is ready to come off its historically loose monetary policy. The S&P 500 was down more than 1 percent Friday afternoon, on track to close with its biggest percentage move since July 8.

"When a market is quiet, it's susceptible to rumors, whether we're talking about a path to freeze oil production or whether the Fed is going to raise rates in September," said Quincy Krosby, market strategist at Prudential Financial. "This may be a market that has too much time on its hands right now."

Indeed, the guessing game over whether the Fed might enact its first rate rise since December and only its second tightening in more than a decade has set off a fever pitch of horse trading.

At one point Friday morning, markets put the chance of a hike later this month as high as 30 percent before backing off. The probability had been reduced amid a week's worth of poor economic data, including the worst services reading in six years, a contraction in manufacturing and a weaker-than-expected nonfarm payrolls report.

Why Brainard matters

Lael Brainard, Federal Reserve Governor

Andrew Harrer | Bloomberg | Getty Images

Lael Brainard, Federal Reserve Governor

The speculation has been driven by divergent Fed speak over recent days despite the disappointing economic reports. Most recently, Boston Fed President Eric Rosengren, another usually reliable dove, said the the central bank risks financial instability if it keeps rates anchored so low. San Francisco Fed President John Williams, a policy kindred spirit for Yellen, called for hiking "sooner rater than later."

With news that the Fed had teed up Brainard, who has been even more in favor of keeping rates where they are than Fed Chair Janet Yellen this year, market participants wondered whether the central bank was going to set up an unexpected rate hike at the Sept. 20-21 meeting.

"It certainly would be a clincher if she sounded any more hawkish," said Peter Boockvar, chief market analyst at The Lindsey Group. "I find it unusual that she would put together a speech just days before they go into a quiet period before the meeting."

Boockvar thinks September is a live meeting for the Fed and that a rate hike will reverberate.

"For a stock market that is wholly unprepared for that, not only could it get messy, it will get messy," he said. "The only reason why we're at these (stock market) levels is because of low interest rates and central bank policy. ... When the Fed removes accommodation, things are seen for what they really are, not for what people want them to be."

Art Cashin

Cashin: Fed guys 'baffle me' Friday, 9 Sep 2016 | 10:32 AM ET | 03:36

Wells Fargo economists said Friday that they believe the Fed will wait until December, but if it does go in September, then two hikes this year are likely.

The fed funds futures market is a finicky one, and attitudes were evolving through Friday trading, particularly after Fed Governor Daniel Tarullo made comments in a CNBC interview that were less than convincing that he favors a September move.

Consequently, the market-implied chance of a hike slipped back from 30 percent to 24 percent, or close to where it was before the Brainard news broke. Chances of a December move increased from about 52 percent Thursday to 57.4 percent Friday. Futures contracts indicate the funds rate will be at 0.41 percent by the end of this month, just 1 basis point higher than its current level, and 0.51 percent by the end of the year.

Prudential's Krosby believes Fed hawks are motivated less by economic data and inflation expectations than they "in fact are worried about financial stability, but for whatever reason they don't want to come out and scare the market."

"Most of the market believes the Fed lost their natural chance to raise rates," she said. "Market participants believe the Fed lost that chance and perhaps is now trying to make up for lost opportunity."

WHY is the FED manipulating markets at this point? Is it warning investors that the party is over, they better get out? Is it an attempt to shake investors out of the precious metals market. If so, for what end? To punish those investors who are looking for a currency alternative the FED can't abuse in a stealthy manner. Is the FED buying gold; and does it want to pick up shares from sellers?

The FED excels in the 'gold buyers are enemies of civilization' viewpoint. Punishing us is a form of poetic justice, from their perspective. They are punishing the 'bad guys'. In truth, the FED wants it both ways: they want to be able to destroy their own paper currency to inflate their way to wealth; AND they don't want their citizenry to know they have an alternative to this; they want to take this alternative away. I guess they could pressure Obama to make it illegal for Americans to own gold. Didn't that happen before in American history?

So, how much damage was there on Friday? Not that much, if it is a one-day affair. I ran my weekly STRENGTH record. I think looking at weekly gainers in strength makes much less sense than monthly gainers. Weekly gainers showed several inverse issues at the top of the list. The VIX was at the very top of the list -- it went crazy on Friday. VIX is back in the BUYING ZONE in terms of our PROP1 System. We wanted to look at a less volatile, more conservative version of the same, the first PROP, which we gave up fearing it was not sensitive enough. This PROP FC (Full Circle) is NOT giving a BUY ZONE reading.

Some other inverse issues showed largely one-day monthly-gain strength -- but are not showing long-term strength.

The one inverse issue that really troubled us, however, was the picture of the Treasury Bonds. The SBND ETF, Short Long Bonds ETF, is looking rather bullish -- both PROPS are giving BUY READINGS -- and the SBND trend is up and banging up against resistance.

This is somewhat troubling. IF bonds are falling, ending a huge bull move, triggered by FED purchasing of every bond in sight -- does this not means that interest rates are going higher? (We remember Janet Yellen talking in Jackson Hole about the FED's plan to institute more QE during the next recession. To buy more bonds?)

We looked at the TBond chart, with all three generations of PROP imbedded (T2 is the shortest duration, which we use in currency trading). This chart is not convincingly bearish, in fact.

We are adding a new indicator in the top pane of this chart. This shows basing points based on our Intermediate Term Trend indicator. A stop-loss is drawn 6% below the close when red spike indicator transitions from Selling to Buying, which is marked by a green spike in the top pane. We look 6% below the close before the green spike and we get a stop at 58.28. LBND is currently at 68.8.

If bond are bearish, and rates are rising, the Dollar should be getting very excited. UUP did jump a bit on Friday -- but not much, considering. Putting in our basis points lines it is very clear that UUP has balked at overhead resistance. T5 (second pane down) shows that UUP is in a downtrend -- and is ready to break 24.51 support on the downside. This makes me think the FED may be bluffing. One would expect to see some real market correction IF there was real convinction in the markets. So far, I don't see it.

On top of this, our daily reports showed a SHORTSELL SIGNAL (EMV Spear System) for TTT, Short 20-year TBonds 3x ETF. Not how this signal is given with the stop-loss very near the purchase price. What it is saying is that bond will rally hard on Monday, driving TTT down again. Will this happen? Time will tell.

I'm short TBT, Ultrashort 20 year TBonds ETF -- that is, I'm long these bonds -- and Friday's rally did push us up near our stop-loss at 33.3158. We are holding. We're not sure the TBond bull is dead.

If rates are going higher, if bonds are dead, and if the Dollar is going to get goosed, what is gold doing? It should be in a deadfall, right?

So, is the FED bluffing? Or is the market just slow on the uptake?

With typical orchestrated poetic rancor, ZERO HEDGE deduces "THE FED DOES NOT KNOW WHETHER TO SHIT OR GO BLIND"

Then they draw chart after chart showing what they mean. The FED is raising rates as we do into a recession?

I wanted to show our list of top Monthly strength gainers. Beware the 3x or 2x issues, which are 1/3 or 1/2 as strong as they appear in the rear-view mirror.


* Crude Oil Bullish ETF 3x (NO)
DSLV * Silver Stocks Bearish ETF 3x (NO)
CYTX Cytori Therapeutics
DAKP Dakota Plains Holdings
THLD Threshold Pharma
^VIX CRB Volatility Index Daily
DUST * Gold Miners Bearish ETF 3x (NYSE:O)
OCN Ocwen Financial
GUSH * Oil and Gas Bullish ETF 3x
GNW Genworth Financial
CWEI Clayton Williams Energy
MTL Mechel Open Joint Stock Company
SDOCQ Sandridge Energy
GASL * Natural Gas Stocks Bullish ETF 3x
CPHD Cepheid
DGAZ * Natural Gas Bearish ETF 3x (NO)
KTOS Kratos Defense & Security
CF CF Industries
AXAS Abraxis Petro
CHK Chesapeake Energy
DRV * Real Estate Bearish Stocks ETF 3x
HAKK * Cybersecurity Bullish ETF 2x (NO)

Of this group, we really like a few of these:

Here are the losers from this list -- again, a grain of salt with the 3x ETF issues:

THC Tenet Healthcare
EYES Second Sight
NOG Northern Oil and Gas
VNR Vanguard Natural Resources
ERY * Energy Stocks Bearish ETF 3x
TNK Teekay Tankers Ltd.
NDLS Noodles
EXK Endeavor Silver
X US Steel Corp
AXU Alexco Resource Co
SDRL SeaDrill Ltd.
HAIN The Hain Celestial Group
WLL Whiting Petroleum
YANG * China Stock Bearish ETF 3x
DWTI * Crude Oil Bearish ETF 3x (NO)
KERX Keryx Biopharm
GASX * Natural Gas Stocks Bearish ETF 3x
SCTY Solar City
USLV * Silver Stocks Bullish ETF 3x (NO)
WDRW * Regions Banks Bearish ETF 3x (NO)
DRIP * Oil and Gas Bearish ETF 3x
HDP Hortonworks
BRIZF Brazilian Resources
SPWR Sunpower
DRYS Dry Ships Daily
ESI Intl Educational Svc

BRIZF should not be on this list. SCTY should be.

We never invest on the basis of these lists (which can become quirkly, with volatile issues) -- the list shows us charts to look at.

This note is getting long. Friday did not do much to our own market BAROMETER readings -- despite being quite painful. The BAROMETER dipped down again -- but it is still oversold.

We lost some ST-TREND momentum. But the flow is still BULLISH.

Here's our report. Have a good weekend. Next week promises to be interesting.

9/10/16 Column1 Column2 Column3 Column4 Column5 Column6
        New Pos New Pos  
Symbol Close PROP Position Today Yesterday ISSUE
AUDJPY=X 77.467 -13 Short     Australian Dollar/Japanese Yen
JPYCNY=X 0.065 -1 Long     Japanese Yen/Chinese Yuan
RUBCHF=X 0.015 1 Flat     Russian Ruble/Swiss Franc
        New Pos New Pos  
Symbol Close PROP Position Today Yesterday ISSUE
AUDJPY=X 77.467 -13 Flat     Australian Dollar/Japanese Yen
JPYCNY=X 0.065 -1 Flat     Japanese Yen/Chinese Yuan
RUBCHF=X 0.015 1 Flat     Russian Ruble/Swiss Franc
        New Pos New Pos  
Symbol Close PROP Position Today Yesterday ISSUE
DGAZ 6.569 -25 Flat   Exit Long * Natural Gas Bearish ETF 3x (NO)
        New Pos New Pos  
Symbol Close PROP Position Today Yesterday ISSUE
JDST 26.05 -13 Short     * Junior Gold Miners Bearish ETF 3x
DWTI 78.64 -7 Short     * Crude Oil Bearish ETF 3x (NO)
DUST 35.84 11 Short     * Gold Miners Bearish ETF 3x
GPL 1.32 -25 Flat     Great Panther Silver Mining
TNK 2.6 -19 Flat   Exit Short Teekay Tankers Ltd.
VNR 1.32 -19 Flat   Exit Short Vanguard Natural Resources
KERX 4.32 -17 Flat     Keryx Biopharm
ABX 17.555 -7 Flat     American Barricks Gold
AG 12.33 -7 Flat     First Majestic Silver
MUX 3.64 -7 Flat     McEwan Mining
SSRI 12.13 -7 Flat     Silver Standard Resources
XRT 43.6 -7 Flat     Retailers ETF $
GFI 5.065 -7 Flat     Gold Fields
HL 5.67 -7 Flat     Hecla Mining
JW-A 50.3 -5 Flat     John Wiley & Sons, Publisher
IAG 3.92 -1 Flat     I Am Gold
NG 5.565 -1 Flat     NovaGold
DTO 131.74 3 Flat     Short (Double Short) Oil
AXU 1.95 -7 Long     Alexco Resource Co
EXK 4.955 -7 Long     Endeavor Silver
NUGT 19.406 -7 Long     * Gold Miners Stocks Bullish ETF 3x
PAAS 17.84 -7 Long     Pan-American Silver
UWTI 22.604 -7 Long   Enter Long * Crude Oil Bullish ETF 3x (NO)
TRN 23.85 -5 Long     Trinity Industries
SAND 6.105 -3 Long     Sandstorm Gold
SGYP 4.885 -1 Long     Synergy Pharma
DSX 2.565 3 Long     Diana Shipping
XOMA 0.65 3 Long     XOMA
CPA 83.31 5 Long     Copa Holdings SA-A
        New Pos New Pos  
Symbol Close PROP Position Today Yesterday ISSUE
TTT 23.49 -17 Short Enter Short   * 20+ Year Treasury Short ETF 3x
FLR 49.4 -25 Long     Fluor Corp
FLY 11.75 -25 Long     Fly Leasing Limited
TNK 2.6 -19 Flat     Teekay Tankers Ltd.
EURCAD=X 1.463 -15 Long     Euro/Canadian Dollar
LILAK 29.37 -15 Short     Liberty Lilak Group
EURAUD=X 1.488 -13 Long     Euro/Australian Dollar
GE 30.15 -7 Long   Enter Long General Electric Daily
GIS 65.12 -7 Long     General Mills
HEI 67.64 -7 Long     Heico
JEC 50.22 -7 Long     Jacobs Engineering Group
KBH 14.875 -7 Long     KBH Home
PEIX 6.45 -7 Long   Enter Long PACIFIC ETHANOL
HON 111.983 -5 Long   Enter Long Honeywell Daily
JW-A 50.3 -5 Flat     John Wiley & Sons, Publisher
MTZ 28.265 -5 Long     Mas Tec
MWW 3.45 -5 Long     Monster Worldwide
THD 69.6 -5 Long   Enter Long Thailand ETF
VRX 28.059 -3 Long   Enter Long Valeant Pharmaceuticals
JPYRUB=X 0.626 -1 Long     Japanese Yen/Russian Ruble
XOMA 0.65 3 Long     XOMA
SGG 45.78 -5 Long Enter Long   Sugar ETF
DATA 57.63 -3 Long Enter Long   Tableau Software
DDD 15.22 -3 Long Enter Long   3D Systems
CNTF 2.721 -1 Long Enter Long   China Tech-Faith Wireless
UGAZ 35.52 5 Long Enter Long   * Natural Gas Bullish ETF 3x (NO)
        New Pos New Pos  
Symbol Close PROP Position Today Yesterday ISSUE
DWTI 78.64 -7 Short     * Crude Oil Bearish ETF 3x (NO)
TNK 2.6 -19 Flat     Teekay Tankers Ltd.
JDST 26.05 -13 Flat Exit Short   * Junior Gold Miners Bearish ETF 3x
POL 32.74 -3 Flat Exit Long   PolyOne Corp
DTO 131.74 3 Flat   Exit Long Short (Double Short) Oil
UGAZ 35.52 5 Flat     * Natural Gas Bullish ETF 3x (NO)
DUST 35.84 11 Flat Exit Short   * Gold Miners Bearish ETF 3x
PAAS 17.84 -7 Long     Pan-American Silver
MWW 3.45 -5 Long     Monster Worldwide
TRN 23.85 -5 Long Enter Long   Trinity Industries
DDD 15.22 -3 Long   Enter Long 3D Systems
XOMA 0.65 3 Long     XOMA
LNG 45 5 Long     Cheniere Energy


Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: FED manipulating continues. Is it a BIG BLUFF?

Disclosure: I am/we are long GLD, SLV, EMES.