Financial Nirvana

As soon as you saw the bonds get weaker yesterday, the ES uptrend stopped on its tracks and started to weaken.  The stock market needs low interest rates and a strong bond market to sustain its uptrend.  You will not see the ES going up to new all time highs while the bond market is selling off.  That is not how this risk parity world works.  When funds are long both bonds and stocks, if bonds go down, then they have to sell stocks to adjust the risk parity.  If 2015 didn't prove it, we have transitioned from a stocks or bonds world to a stocks and bonds world.  It is not one or the other.  The stock market is dependent on a strong bond market to fund low borrowing costs which fuel stock buybacks and lower interest expenses.

We are seeing stock market weakness with bond market weakness.  This is more of what you will see going forward.  The strong economy benefits the stock market theme is over.  The stock market needs a mediocre economy.  It needs the perpetual morphine drip rather than a strong economy.  It is addicted to ZIRP, NIRP, QE.  It could care less about job growth.  It wants more money.  Mo money, mo money, mo money.

At the same time, the stock market doesn't want a recession, because then stocks have lower earnings and can't do stock buybacks.

Right now we have a "perfect market" in modern terms.  A weak, but not recessionary economy with a Fed willing to print more money and keep rates near zero.  The modern day financial nirvana.

Market looks like it will flatline around 2100.  Very little upside and risk down to 1950.  But we probably will not selloff until the Fed meeting next week.

P.S.  There is nothing like losing your ass to teach you a lesson.  The losses this month have taught me another lesson.  When your short term view (2 days to 1 week) is the opposite of your longer term view(2 weeks to 1 month), do not trade your short term view!  Do nothing!  I played my short term view and my longer term view played out faster than I expected.  Trying to pick up dimes in front of a bulldozer.  I got bulldozed.  Another lesson (or reminder) in the school of hard knocks.