Market fragility persists, perhaps emphasized by the rapidity of rumors and media reassurances (especially in Germany and much of Europe) of Deutsche Bank's stable liquidity and numerous 'clients' that haven't abandoned the ship. Not a word about the 'world's largest derivatives book, or other issues. Our take: we don't 'need' a crisis for Deutsche Bank; we don't want to see a bank run in Europe; we do see fragility across the board for most financials; although not to the extent of those faced by DB. 

Also; we believe that intervention (and you haven't even had that) by Berlin would be quite likely if push turns to shove; despite Merkel's contrary earlier protestations. So, by no means do we 'want' to see a crisis with DB; we just know there is one that's not dispelled, but of course temporarily (at least) alleviated by the 'circling of the wagons' as one would (and we did) expect both for that stock and for the market. 

However, the absence of a weak September (sharp shakeouts but returned about to the level the S&P began at), actually increases risks for October. Sure, 'they' (and for sure there is a 'they') try to use leverage to stabilize matters; because they seriously fear a simply correction in the S&P. The real and present danger of dilution; or heavy headwinds to advance; and a reflection of evolving monetary policies here and in the EU, tells us that the extent of which markets depend on continuous liquidity injections can be troubling; because it reflects where this can go 'when' that pattern modulates.

Tactical investment requires being nimble; more so than usual. That's because serious distortions have occurred in markets (credit and equity). The risk of financial instability isn't new; a full realization that what you saw Friday was another (month-end) reprieve, but it was not any sort of an all-clear signal. 

What happens in Europe and Japan are efforts to either ease out of the policy errors they have both made (in our view); with minimal disruptions to markets. One can't just 'get over' Deutsche Bank; 'get over' the Fed's clear desire to snug-up; get over what's a crazy election season in the U.S.; and 'get over' the continued slide of estimates for US GDP growth (note the slide in the updated Atlanta NOW forecast issued today). 

At some point part or all of this collides with sobriety and an understanding that what is called the 'monetary party' actually ended months ago; and simply has the players mulling around 'as if' they're waiting for their Ubers (not driving because they're punch drunk) as there is nothing about this pattern that suggests sobriety, aside a persistent effort on the part of institutions and hedgers to move their chips around and sustain a market move that's already way past it's prime. 

Perhaps that's the best that can be said about this market, with the S&P about where it was at the start (pre-shakeout) of September; even about mid-range of August S&P ranges. To wit: we're below the highs as they strain to build-upon the rebound; while we go into the start of Q4 with more angst and trepidation than prices might reflect. 

Bottom line  

The risks have not changed; the combination of a rumor-based rally on calming talk about Deutsche Bank was entirely a logical expectation; whether a deal is indeed a reduced DoJ fine of 5.4 Billion; or anything. Plus an understanding that in a final analysis, you'll not see Germany's largest 'semi-State' bank, allowed to go bust. At the same time the fragility and risk exposure is highlighted (to any who might care; which is generally not the average depositor; hence no bank run fears). 

What's really going on is a shepherding of anything that holds the market up. Data's not much better; they trotted-out Yellen's idea of  'buying equities'  for the Fed as some sort of idea by which the market would never decline (incredibly dangerous idiocy and they already have indirectly by facilitating the majority of the upside through removing all alternative ways to pursue yield and pressed everyone into financial assets with a disregard for valuation). 

It may be that such talk is intended to attempt to spook more than short-covering; but if one considers how Friday finished (both the quarter's-end and the final trading day before a Jewish holiday, which many traders take off regardless of religion). It's not at all assured that you'll get much immediate follow-through (more via video). 

Note that despite all the hoopla both the day, the week, the month, and the last two months are virtually at or near the same price level (or range) they've swung in for months. That implies a nervous market where you get purges followed by more short-covering romps; but insufficient 'real' investment-grade buying interest to press stocks seriously higher. Yes, many averages are within a percent or so of new highs; so of course one can't say you couldn't make a higher high; but it would be fraught for sure with risk, and by no means is that any kind of certainty. 

Octobers are often sketchy to say the least; but they are often buying opportunities 'if' you had a seriously down September. We did not have that because of the recovery; so other than a bit of an effort to extend, October can indeed be indecisive at best, or a serious mess for the Bulls at worst. We'll continue catching swings as best can for traders; and as far as investors; well, look at rates and you'll see there's more than a moribund Fed at-play; with most of the concerns still there. Follow Oil's lead from just an hourly basis; while the overall market remains particularly uncorrected (risky).
 

Over the weekend, we do have a new Dec. S&P short-sale guideline from the 2167 level, that we likely wouldn't retain part of, had S&P not faded sharply late Friday.

Daily action  

Risk/reward does not favor the upside, even if they manage to exceed the highs. If that were to happen in early October it's bearish and should be faded. If it happens later in the month it might not be so negative. However all of this is tentative as besides the banking issues (which are really not new; merely surfaced this week), you still have a declining economy (very sluggish contrary to some optimistic views), as 'Atlanta Now', which often exceeded most others in optimism, is newly lowered. 

At the same time I'm not even focusing on politics, geopolitics (other than oil's role), or for that matter the Fed. They all matter; and the poor GDP estimates are what the Fed needs to remotely have an argument to hold rates down. As far as 'hiking' after the Election; that reflects both ways on them; because if Trump wins it will be viewed as either trying to hurt his start or simply after the election; but the same will be true if they do it after a Clinton victory. 

Either way odds favor a market correction (or more), once hand-holding managers do have to grapple with reality. That's been postponed not by capital flows lately; but by the use of leverage to bring things back alive whenever it got edging toward breaking into dangerous areas. The fact that there's little follow-through is reflecting lack of real interest in buying equities; and perhaps selling into strength by other managers. 

Weekend (final) MarketCast

2 o'clock balloon (intraday) MarketCast