Market Tops Confirmed

With the AI mania done, which was quite obvious after it started, and really obvious after the Nvidia spike, the markets now have hit a wall. We honestly do not see any fundamental or technical reason to be an unhedged long right now. The technical side of things is very clear, both from a head and shoulders top formation, to the major failure and reversal at the 0.786 Fib and to the consecutive negative candles out of the Nikkei. As far as the fundamental side, Jerome Powell let the cat out of the bag and played damage control after his response to the question about “the soft landing” being the base case. To which he aptly replied, “I wouldn’t say that!”

I think Powell was sending a signal to the markets, that the FRB was serious in their resolve, that those so dependent upon debt as their capital structure of choice, sacrificing equity raises and profits for that matter in lieu of rolling perpetual lower and lower rates…well we will just come out and say it, THAT IS OVER!

We doubt the majority of corporate treasurers out there are even wise enough to recognize this fact but we know the next round of refinances at the corporate issuance level will see just how quickly interest costs will rise and how quickly it will hit their overall bottom line.

This is the headwind we see for all businesses globally and the FRB will not come to the rescue and lower rates as fast as many think, they will require a very steep discount to current equity levels. We are not one of those ultra permabears, but we also do not believe in buy and hold unhedged either. This strategy is built upon a 50 year decadal monetary base increase which today, can no longer be supported given the high levels of debt and uncertainty, which is being translated into a loss in confidence that the prices WON’T spiral out of control. This is why the FRB is armament and firm in their resolve and rightfully so. Even for us it took us a long time to truly believe in what they were doing, for so long they have acquiesced to the markets, yet there are times where they let things go and this is one of them. Whether by choice or by force, their hands are effectively tied to this policy and if they weren’t paying out so much in RRP and IORB, we suspect things would have turned south much quicker, but even these Band-Aids cannot support asset prices to continually rise.

So we will stick with our bear base case chart for now in regards to the equities shown here is our Nasdaq chart:

We even suspect that a 2:5 short Nasdaq/long SP confirms this top: