"There is nothing like price to change sentiment."
- Divine Ms. M

As Jim Cramer and I both suggested this morning buyers live higher and sellers live lower.This is the twisted version of today's market dominated by many products and strategies that are agnostic to fundamentals and that worship at the altar of price momentum.
I am certain of one thing and believe in another.I am certain that this is a difficult market to navigate - it requires an unemotional and even detached approach to trading against the short term trends.And I believe that the complexion of the market is changing - consistent with a potential market topping process.
Thanks for reading my diary today and I hope it helped you in the decision making process.

I recently made $5-$6 on my QQQ short rental and I believe that there is another $5 to be made on my recently established QQQ short.
Or at least I hope so!

In a press conference, President Trump effectively confirmed that a large trade tariff will be placed on China after the market close today.

The algos responded in kind - taking the indices to the day's lows.

As expressed in this morning's opening missive, this is not our father's market.

I still have my long SPY (SPY) September monthly $275 puts and short September monthly $285 calls -- so it would be nice to have a correction this week as Friday is expiration!

More from "The Little Chief":

In possible support of a gap lower or a weakening market, The Divine Ms M observes a new low in the IWM/SPY ratio:

* Politics may now adversely influence markets
Regardless of one's political orientation, the emerging political backdrop may be growing more problematic for stocks.
The big story of the last two days has been the new Bret Kavanaugh allegation. My guess (and it is only that) is that there is at least a 50% chance that the Supreme Court nominee does not get confirmed. This would be a large blow to the Republican agenda (with potentially important ramifications for business and the markets) - as it is now occurring before the November midterm elections.
To me, the question is whether the Republican base will be fired up more than the Democrat base in the next few weeks.
My conclusion is that we may finally be approaching Peak Trump. After all, unless one thinks the economy is going to get better from here (which I don't!) or that the weight of the Manafort confessional or the Mueller probe dies down (which I also don't!) or the incessant scandals diminish (which I don't!) - it seems that headwinds are multiplying for the White House.
On the other hand, the Democrats need to come up with a pro-growth agenda in order to take advantage of what the Administration faces. However, for now, the Democrats (especially after the recent primaries) seem to be moving towards the left and away from a pro-growth economic agenda.
With the Senate likely to be controlled by the Republicans and the House likely to be regained by the Democrats - this is not an ideal environment for stocks and none of this is good for America.
The markets generally favor the sort of gridlock which may lie ahead in the face of monumental challenges. Some of those challenges include a large and growing annual deficit (sanctioned by both parties), a cumulative $22 trillion national debt load, the threat of a sharply rising debt service (which seems inevitable with interest rates rising), the widening schism between "haves and have nots" and a lack of U.S. cooperation with our world trading partners, among other issues, represent a high hurdle for stocks.

By far my two largest individual equity longs are (DWDP) and (TWTR) .

I have weighted them large-sized for different reasons but both have what I believe to be a quite attractive reward vs. risk dynamic.

For the first time in a decade, corporate share buybacks are taking up the largest portion of capital expenditures:



Memo to Self: Companies are notorious poor market timers in buying their own shares.

I give you such examples as Bausch Health Cos. (BHC)  (formerly Valeant Pharmaceuticals), Cisco (CSCO) , General Electric (GE) and many others!

Two observations:

- Breadth relentlessly narrowing.

- Financial sector acts badly.

Professor Wally Deemer would be cautious.

Last week's reestablishment of a Nasdaq short is working out well.

But my Twitter (TWTR) add on, not so much.

Away from my shorts, (DWDP) thriving on the Breen management announcement.
As mentioned, I have shorted more indices this morning on the quiet opening, raising my net short exposure to the highest level in over two years.

I have been pressing my index shorts this morning.

So far a key feature in premarket trading is the continued rise in interest rates.
The yield on the ten year US note is +3 basis points - to 3.02%.
Be forwarned.
C.I.T.A. - "cash is the alternative."

MoffettNathanson lowers Twitter's (TWTR) price target from $23 to $21 - I am adding to my large exposure in this name in premarket trading.
The brokerage cites the likely expense build which will adversely impact margins.
That, to me, is not a new concern and is reflected in the degradation in share price from the low $40s to the high $20s recently!

This is a great read from Bloomberg over the weekend (on the debt burden): "$250 Trillion in Debt: the World's Post-Lehman Legacy". 

Peter Boockvar on trade:

Asian markets continue to bear the brunt of the tariff battle (Shanghai comp closed at the lowest level since November 2014) with smaller collateral damage in Europe and whistling in the US. Keep in mind that if US businesses and/or consumers cannot source product from an alternative supplier to China for these goods, it is US businesses and consumers that end up paying this tariff via higher prices. Also, most US businesses (as seen by all the lobbying) that these tariffs are supposed to be fighting for in terms of protecting IP and opening up Chinese markets, don't want more tariffs, especially US technology companies that hold most of the IP that is being stolen. We await the Chinese response to the new news. Copper by the way is lower by almost 2% as it is the industrial metal proxy for all the trade news.

Meanwhile, most bond yields continue higher. the German 10 yr yield is up for the 9th day in the past 11 and the US 10 yr opens the week at exactly 3%. The US 2 yr yield hasn't fallen on the day on a closing basis since September 6th and is pushing 2.79% this morning, a fresh 10 yr high. Italian bonds however are getting a lift with yields dropping sharply to a 6 week low as the new Italian budget is supposedly targeting a deficit of less than 2% of GDP.

Another trade figure overseas was weaker than expected. Indonesia said exports rose 4.2% y/o/y in August, well less than the estimate of up 10% notwithstanding the plunge in the rupiah. Imports were strong, up 25% but some of that was front loading ahead of import tariffs implemented in order to lower their trade deficit to stem the decline in their currency. The Jakarta stock market fell 1.8%. Also in August, key exporters such as South Korea, Taiwan and Germany also reported less than expected export figures.

Two weeks ahead of another cut in the size of QE to a modest 15b euros per month, the eurozone final August CPI print was unchanged with the preliminary one. Headline CPI rose 2% and the core was higher by 1%. Of particular note was last weeks wage data increase that is giving Draghi comfort that he will get higher core inflation in coming months/quarters. The euro is higher vs the US dollar as are most currencies this morning.

"It's an insanely non-rigorous virtuous circle. You want to boil down the current investment thesis? It goes like this: I buy them because they go higher and they go higher because I buy them.

Could there be a more stupid or a more profitable investment strategy at this moment -- and perhaps until the end of the year? I don't know. I can't think of one."

- Jim "El Capitan" Cramer, Valuations Now Have No Relation to Common Sense
In his opening missive, Jim touches on a long held theme of mine - that "buyers live higher and sellers live lower."
To me the key explanation is the loss of market share of active investors to passive investors as well as quant products and strategies (that are agnostic to company fundamentals and devoid of balance sheet and income statement analysis).
The dominance today of passive ETFs and these quant strategies help to explain the phenomenon that Jim identifies as instrumental in temporarily distorting price discovery. This "behavior" (and absence of price discovery) also, in my judgment, negates some of the value of stock price charts, rendering technical analysis less valuable (as it is based on an interpretation of those funky charts).
It (and the "dirty water" and inundation of liquidity from the largess of accommodative central bankers) also help to explain why many large value and fundamentally based hedge funds have moved closer towards a quant strategy or have abandoned the game altogether.Bottom Line
A preoccupation and abundance of today's dominant investors who worship at the altar of price momentum not only exaggerates short term market action but also distorts prices over the short and intermediate term.
There are simply not enough value and Graham Dodd investors left (e.g. Seth Klarman's Baupost, Warren Buffett's Berkshire Hathaway (BRK.A) (BRK.B) , etc.) to offset the dominance of today's most powerful and popular investors.
The investment pendulum no doubt will move in the opposite direction (and back to active investors) - but probably not any time soon.

"Just when i thought I was out they bring me back in "
- Michael Corleone, The Godfather
The futures are down modestly based on the Administration's considering the imposition of additional Chinese trade tariffs.
Gold and oil are slightly higher and bonds are unchanged.
I continue to view the market as in a topping process - and the late January 2018 levels effectively produced the year's highs.
Our office has some desktop computer problems (virus) this morning so I will do my best on the posts off of a laptop.

Over the last week I have highlighted the divergence in the U.S. and non-U.S. indices: