Bad Earnings Don't Matter

You got earnings misses from NFLX and IBM on Monday and you had a 10 point gap up.  Now you have bad INTC earnings and you have a small gap down.  The earnings have been bad, like everyone expects, and the stocks have sold off on many of them, but the overall market doesn't care.  It only cares about the dollar, the Fed, and what oil is doing.  It is a macro market.  Micro doesn't matter when the driver of prices is monetary conditions, not company fundamentals.

I have noticed that the contango in the VIX futures is obscene.  You have a 2 point spread between Spot month and May.  You have a lot of people who are betting on a higher VIX in May.  And unlike equity indices, the VIX futures and options trades are usually not contrary indicators.  They are right more often than wrong.

I am seeing more signs that a pullback is imminent.  The fund manager positioning is more towards neutral, the bears are still staying bearish but more in doubt lately.  I haven't heard much from Brian Kelly recently.  He has been a bear for the last 250 points.  Wrong and refuses to admit it. You will not see enthusiasm in this market, just resignation and giving up on the short plays as the days go by. Eventually, the market will be fully saturated with worn out bears and fully bought in bulls, then you can see some downside fireworks.  It will take time.  But a prelude to the downside should happen within a month.  But given the large number of skeptics of the rally, it will be tricky to play the short side along with many others who feel the same way.  I would much rather be in the minority with my views.

This market continues to confound the fundamental analysts who focus on growth and earnings, both of which are weak.  Bigger picture, you have the same macro fundamentals as before, except an easier Fed, which doesn't really help unless they decide to embark on another QE.  Just not raising rates is not going to be enough to sustain higher prices from here.  The bulls who are looking for 2200 or higher are in effect betting on either 1.  QE4 or 2.  OPEC production cut.  I actually think QE4 is much more likely, but in order to get that, you will need to see some China panic and lower stocks to have that happen.  Perhaps if S&P went and stayed below 1900 for a couple of months, you would see that happen.  Doubt it happens with S&P anywhere near these levels.

Anyway, not much to do, but try to plan for the next big move, which I expect to be lower, not higher.