Market Loses its Hopium-Induced High, Falls Four Weeks Straight

Stocks posted their fourth straight weekly loss across all three headline indices this week, but more important than that they proved convincingly on Friday that the market is as fully intoxicated as I claimed in my recent article, “Hopium Floats.”

The path of indices through the day looked like a side-on view of the flight of my lunatic crow (sole heckler) just before he hits a wall at the end of his day and slides down it to the ground:

The head-spinning delirium exhibited by stocks on Friday opened with stocks down because of overnight harsh rhetoric from China. Chinese officials uncharitably accused Trump of “playing little games” and stated, “If the U.S. doesn’t make concessions in key issues, there is little point for China to resume talks…. China’s stance has become more hard-line and it’s in no rush for a deal because the U.S. approach is extremely repellent and China has no illusions about U.S. sincerity.”

The Communist People’s Party Daily ran an editorial overnight, titled “No Power Can Stop The Chinese People From Achieving Their Dream,” which stated, “the trade war will not cripple China, it will only strengthen us as we endure it,” and “if anyone thinks the Chinese side is just bluffing, that will be the most significant misjudgment since the Korean War.” Some of this anger was churned up by the US Commerce Department’s move to blacklist Huawei from being able to buy any parts from the US. This, the Chinese said, was an act that does not show good faith in the negotiations. So, why bother?

(See Bloomberg’s article “China Downplays Chances for Trade Talks While U.S. Plays ‘Little Tricks.'”)

Sure, that sounds like the kind of saber rattling the US routinely experiences from lesser countries than China, However, among the numerous expressions among Chinese articles, not one hint of desire to get back to talks could be found. The US Secretary of the Treasury said Thursday talks would be rescheduled soon. China said Friday, “Nope.”

Naturally, then, the Friday morning news started off with the US stock market lower than its previous close, and the US market had good company. Chinese stocks had fallen 2.5% overnight. Europe also completed a nice tumble just before the US market open. And, so, the US market opened in the red.

Somewhat less naturally perhaps, the market instantly rocketed upward at the starting bell because the consumer sentiment report prior to the market’s open came in like a snort of hopium straight up the nose. Fair enough … maybe. It was the hottest print in fifteen years, but the sudden morning high above the previous day’s close after so much bad news about the only news that had mattered all week made it seem as though the market was desperate for any high it could get … like it was now smoking rope.

Other good news providing lift during the early afternoon: Trump smartly announced he was ending tariffs on Canadian and Mexican steel and aluminum and settling old WTO trade squabbles to clear the way for ratification of his trade deal with Canada and Mexico.

On the other hand, Bank of America released its own report on Friday that stated consumer sentiment had begun to turn down because of trade-war news. That must have taken off some of the buzz from the earlier report because the market settled to a more neutral position and remained there through most of the rest of the day as if absorbing the flood of bad news about China souring on the prospects for continuing trade negotiations while still generally positive because the superficial fluff of consumer sentiment mattered more, even with contradictory reports. Even when there was talk by a Huawei exec in the middle of the day about Trump as the “barbarian” at China’s wall or something like that (a wall I am sure Trump envies as bigger than his own), the market just floated sideways for awhile.

The end of the day is when things got bizarrely interesting. Apparently the nano-second microchips in which the trading algorithms live out their lives are not memory chips because the market instantly forgot everything it had learned overnight. CNBC came out with all the same news the market herd in the predawn from the overnight Bloomberg article referenced above — the same news that caused other markets around the world to fall overnight and that had caused to the US market’s own rude, red-eyed awakening — and the market suddenly plummeted as if it had never heard any of this. Suddenly the Canada and Mexico trade news meant nothing, and consumer sentiment floated away like the scent of a poppy on the wind. You’d think the amnesiac market was hearing all of this for the first time.

CNBC noted that “negotiations between the US and China appear to have stalled as both sides dig in after disagreement earlier this month,” and the market was dumbstruck. China said that the talks were now “in flux” because they didn’t seem to think there was much to talk about anymore, and the market was stunned. CNBC also noted that “China has not signaled it is willing to revisit past promises on which it reneged earlier this month, despite showing up for talks in Washington last week,” and the market was horrified; and, so, it fell headlong into the close of the day.

Just that morning the market had shrugged all of this off in the first blink of its red eyes to leap out of bed and run straight up a flight a stairs merely because of the sunny countenance of a consumer report shining through an upper window. Later, in the dusky atmosphere of an opium den, the consumer report was nothing but dust to this market, and the market plunged back into the abyss upon rehearing the morning news. I suppose this is how the opiated brain works — waking up blurry-eyed from yesterday’s high, taking a hit of some kind and getting a new high to start the day, floating along on that through the day, and then becoming deeply depressed when the high fades away. I have no experience by which to know.

Then one wonders if this was human highs and lows and inconsistency at all. Was it a technical aberration? Perhaps algorithms sometimes fly the market something like Boeing software sometimes flies a 737 Max, sometimes pitching the nose down when a human pilot knows it should go up; but the software has been given the power to override the human pilots!

The week that came in with an collapsing bang went out with a whimper, leaving the market slightly below where it began in what has become the longest stint of weekly downs since May, 2016.

*********