May 6, 2022

2:41 pm

What’s amazing is how badly the NYSE is being “hollowed out”  and still seems relatively orderly.  That is because a lot of passive investors do not yet realize how exposed to risk they really are.  When that happens, the bottom falls out of the market.

RealInvestmentAdvice counsels, “Buy and hold” investing. Is it truly a “one size fits all solution” to the investing conundrum? Or are there other considerations that would make such a solution less optimal?

I ask the question due to an email I received recently from one of the large Wall Street firms.

“Despite the tumble to begin this year, investors should not panic. Over the long-term course of the markets, investors who have remained patient have been rewarded. Since 1900, the average return to investors has been almost 10% annually…our advice is to remain invested, avoid making drastic movements in your portfolio, and ignore the volatility.”

As shown in the chart below, the advice given is not entirely wrong. Since 1900, the markets have averaged roughly 10% annually (including dividends). However, that figure falls to 8.08% when adjusting for inflation.

By looking at the chart above, it’s pretty evident that you should invest heavily in the market and “fughetta’ bout’ it.”

If it was only that simple.”

 

2:31 pm

SPX made a lower “irregular” correction barely eking out a  38.2% retracement of the decline from 4307.66.  The correction is over.  Be short or be out.

ZeroHedge informs, “Nomura’s Charlie McElligott was spot on in his explanation for why the market broke yesterday, yet even he is concerned about what is going on today, and writes that in addition to the potential shock of the aforementioned six Fed speakers today (“culminating in tonight’s Hawk-led Bullard / Waller double-banger, where there’s some Delta they could again try to talk-up 75bps hikes”), the week’s crash – which sees the S&P on track for the longest weekly losing streak since 2011 – is also “an Earnings and Valuation story, which is bearing-out again in more “rich” names and (former) favorites of the Growth crowd, and culminating in “absolute scenes” in Growth portfolios, as “obvious liquidations ripple-through the market, with outrageous -2.5- to -3.5-sigma 1-day selloffs yday in bunches of these names, full capitulation.

 

7:15 am

Good Morning!

I finally planted my early garden…a month later than usual, due to the cold, wet weather we have been having.  Thank God we have a wood stove that we are still using to take away the chill and damp in our house.  This is not a good start for our local farmers, who still cannot get into their fields, due to the soggy weather.  Corn should be up to 4 inches by now.  Instead, the fields are all brown mud.

NDX futures made a low of 12742.60 this morning, within yesterday’s wide trading range.  We may see a bounce to test the Cycle Bottom resistance at 13183.86 before a resumption of the decline.  Yesterday was just an appetizer.  The main entrée will be much more substantial.

In today’s expiring options, Max Pain is at 13075.00.  Long gamma may begin at 13100.00, while short gamma starts at 12800.00.

ZeroHedge remarks, “What a crazy 24 hours!

I do want to buy risk into the close, but am still a bit cautious because

  • 1) my childish charts point to more downside on nasdaq
  • 2) so many people expected the FOMC meeting to mark a turning point that money got put to work yesterday and shorts came off, exposing the market
  • 3) and yes, I understand, TQQQ is not “the” driver, I think it is symbolic of risk and buy the dip… it started seeing heavy inflows April 26th. It is lower than at any point since then (down 17% today as I type). On rebalancing alone, it will sell into close, but if we see capitulation from recent dip buyers, we have more downside.

I am the least bearish I’ve been in some time, but too scared to get bullish”

 

SPX  futures are back down to the Lip of the Cup with Handle, but it may be poised for a brief bounce as high as the Cycle Bottom resistance at 4190.44.  The whole market awaits the BLS monthly jobs report.  A weak report suggests that the Fed may go easier on future rate hikes…or not.

In today’s options expiration, SPX is deep in the short gamma zone beneath 4200.00.  This has the potential of a bloodbath.  As bad as yesterday’s decline was, the NYSE Hi-Lo “only” declined to -326.00.  It has a long way to go to meet its target.

ZeroHedge reports, “The market crash will continue until Biden’s approval rating improves.

US futures extended their slide on Friday, signaling continuation of a drop in tech stocks following the Nasdaq 100’s biggest selloff since September 2020, ahead of today’s jobs report (which bulls pray comes in at around minus 1 million to put a premature end to Powell’s market-crashing tightening) and ahead of no less than six Fed speakers, as investors grappled with fears of a stagflationary recession against tightening monetary policy. Nasdaq 100 futures were 0.9% lower and S&P 500 futures traded at session lows, down 0.7% as of 7:30 a.m. EDT as panicked traders sell first and don’t even bother to ask questions. Ten-year U.S. Treasury yield continued to climb, trading at 3.1%, near the highest since November 2018. The dollar continued its relentless ascent, while cryptos continued to tumble. Perhaps even more concerning to traders than the jobs report is that six Fed speakers are lined up including Williams, Kashkari, Bostic, Bullard, Waller and Daly.”

 

VIX futures rose to a new high of 33.39 this morning.  It may be poised to break through the neckline near 40.00 today.  The Cycles Model suggests a VIX high in early June, while it implies the SPX may see a Master Cycle low in late May.  It normally should match the VIX high with the SPX low, so it poses a conundrum.  Which will it be?

 

TNX retreated from yesterday’s extended Master Cycle high (day 274) after making the Cup with Handle target.  What follows is a 4-week decline to the 50-day Moving Average at 24.36.

ZeroHedge observes, “We argued yesterday that the sharp decline in front-end yields was exaggerated by the unwind of speculative short positions, but we did not expect for that move to nearly fully reverse today as Treasury yields rose 11-16bp.  Given this reversal, it’s tempting to say the market is coalescing on our view; however, we do not think this represents a more hawkish reassessment of yesterday’s FOMC meeting, as the long-end led the way to higher yields.

Notably, there have only been 6 instances over the last decade in which 30-year bond yields rose more than today: the top 3 were all amid the worst of market dysfunction in March 2020 which forced the Fed to intervene in unprecedented fashion, the fourth was the day after the presidential election in 2016, the fifth was a stronger-than-expected payroll release on a low-liquidity Friday around the July 4th holiday in 2013, and the sixth was in December 2015 when the ECB disappointed market’s expectations for additional stimulus.”

 

USD futures reversed this morning after marginally beating the March 2020 high both intra-day and closing.  It took 279 days to complete this Master Cycle.  The new Master Cycle may take the USD lower until mid-June.

 

 

 

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