This article goes into detail regarding some diagnostics of the market that are not easily or often seen and most importantly are most often inaccurate as publicly they are presented. We go into some considerable detail to see what is happening under the hood of the market. The surprising discovery is that most investors are most likely not doing very well.
MCM DAY INDEX & MCM CLOSE INDEX
For the day trader - the day session performance has been under-performing for a very long time over all. However, if one were trading the opening and/or the close session - for the last 6 months performance has been especially challenging. Despite all the headlines regarding new highs in the markets every other day:
The most surprising discovery is that most investors are most likely not doing very well. For the day trader, market day session performance has been under-performing market direction substantially for a very long time. However, if one were trading the opening and/or the close session, for the last 6 months performance has been especially challenging.
To summarize, despite all the headlines regarding new highs in the markets every other day:
- For the closing session long traders, the market is an absolute disaster and likely would lead to egregious losses taking account balances back very near 2009 levels.
- For opening session long traders, the market is not quite a horrible with account balances presently approaching Oct 2008 levels.
MCM GAP INDEX
There is one area of performance that has been remarkably good.
Much better than at any point in history that we have examined.
From what it seems - quite probably "too good".
Evidence of central bank cooperation and intervention abound. We have discovered quite a few Central Bank driven "market structures" that have been very strong. Interestingly, it appears that central bank money printing and money amplification efforts via asset interventions and appreciation have been in place for a very, very long time. These market structures go back in history to the 70's and 80's. What seems clear, market crashes notwithstanding, is that central banks are operating and have been operating to increase and amplify the quantity of money via asset markets for a significant duration. Regardless, however, the levels central bank participation of the last years have been unprecedented. , there we have it, the best performance in the markets has been in the areas where the central banks get the most "bang for the buck". The thinly traded and easily influenced overnight session.
Result: The best and pretty much only performance in the markets since 2009 has been in the areas where the central banks get the most "bang for the buck". The thinly traded and easily influenced overnight session.
Currently, from a cursory appearance, there seems to be somewhat of a panic going on. hThe GAP INDEX is now dramatically outperforming prices...while at the same time market are dramatically underperforming during the high liquidity sessions. The question that comes to mind is:
"What happens if the overnight session levitation and performance starts to fail?"
This question can be answered in context: If it were not for the overnight session performance over the last nine months, the markets would be in an all out bear market and most probably crash.
SMART MONEY INDEX
The SMART MONEY INDEX is often touted and bandied about on the internet and TV. However, rarely can a more unviable and distorted index - being highly aberrantly calculated and on its face flawed - be so mispresented.
For this reason, we calculate a reasonable, viable and thorough version of the concept that uses sophisticated synthetics for the dramatic consequences of the ultra slow open of the S&P500 and highly distorted opening prices. As with our GAP index, we use a combination of futures and other ETF 's to synthesize the cash opening prices. This leads to a very high accuracy using our methods of calculation as opposed to the what we normally see published. For the record, it is our opinion that is usually best to ignore any general reference to the SMART MONEY INDEX. Though the SMART MONEY INDEX concept sounds nice - sexy even, as it is calculated it is statistically distorted to the point of being useless.
Using a reliable methodology, however, valuable data can be gleaned from the SMART MONEY INDEX concept. We call our version that the MCM SMART MONEY INDEX. What this tool shows in the included chart in the article via the green line - is a collapse in the "SMART MONEY" investor commitment.
Keep in mind that with overnight Central Bank activity at record highs, the impact of a dramatic fall off in institutional participation may have different impacts than expected. However, it seems that the case for a sudden collapse in the markets due to the absence of professional money may be increasing.