Circus-like antics are not over for this market. Actually, that’s a culmination of the Big Show. For now, the lions and tigers are uncontrolled by the ringmasters and that means there is still risk of rotating chaos, writes Gene Inger Thursday night.
Back in February (weeks after forecasting that huge market break), I did in fact suggest going long at what I called a constructeddouble-bottom for a trade, not investment. That was correct. Here we do not have any pattern that suggest control or construction cable of sustainable turn higher. Thus, it is ludicrous to catch falling knives even if the S&P (SPX) temporarily bounces.
In this case the wild animal performers being chased by ringmasters are not responding to his whip-snapping, blank-firing pistol or demands. That suggests the spectators (investors) should remain out of the center ring of the circus, until some semblance of control or a climactic washout occurs.
Reuters: Wall Street rebounds Friday with tech stocks back in favor. Energy, financials fall.
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That means for now, investors are still sitting under the Big Top, and that tent has not imploded altogether. When it does, by all means we’d jump in. But for now it’s more like an evacuation order to evacuate the tent. Since we have built cash all year on rallies, it’s perhaps logical to see this.
For a slew of investors (or over-burdened money managers) who are fully long, perhaps their panic isn’t here as yet. They are still shell-shocked, and pondering whether to ride it out or to save basic capital. That’s a quandary we didn’t want you to face. We certainly aren’t facing that as we believed the handwriting was on the wall for some time.
Finally, everyone sees this, and right away people fight hard to get them not only to stay in, but put more money in.
Why? If…
If China doesn’t deal. If we have not the strongest economy but actually a recession. If we can’t have buybacks because rates are too high to float a lot of that. If you have Housing, Autos, Banks and (most) Retail already in bear markets.
Why not give it time to sort out and see where this settles?
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It seems to me they are still running from the center ring where animals are roaming. While ringmasters are begging clowns to corral the patrons by smiling and pretending the show is still going on. The curtain is still coming down. All occurring under the big top.
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As the late great Paul Harvey would say on radio: now you know the rest of the story. I will add: the rest of the story so far.
The future is unknown. But the ongoing instability is known. Hence, we remain in the bleachers with no urgency to try rescuing those who were either greedy or too eager now to buy prematurely. We won’t tell the market where to bottom, but eagerly will try to recognize it. That point is not here simply-put.
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Thursday was primarily an awakening by those who failed to recognize the distribution we warned of all year on rallies; but particularly the selling from early-mid July forward.
During this time. a majority of FAANGs and other momentum stocks faltered repeatedly and began to see rotating erosion.
I consistently pointed-out a deterioration of breadth (poor Advance/Decline ratios) and low volumes on the rallies, which was not bullish at all. And I critiqued the concentration of funds (and shifting of more volatile stocks into ETFs to increase their beta basically making them Alpha funds with volatility I warned would backfire).
My point is that the so-called bargains being pointed-out now are not that at all.
This makes me suspicious as to the motivations of those urging an investing public to buy. Do they think they’ll absorb the selling from money managers who are stunned that their simplistic approaches of buying ETF or similar baskets, without analyzing the cash-flow values of components (a key to valuing stocks in the long run) was somehow protective?
Really, it even put more pressure on companies that are relatively safe havens that now find themselves in the company of overpriced merchandise.
As an example, when I look at the Communication Services Select Sector SPDR ETF (XLC) (the composition of which I warned about since mid-Summer) I know they (State Street probably, since they concocted the structure) intended to juice the moribund telecom stocks. They’d do it by sticking Google (GOOG) and Facebook (FB) into that fund.
Believing Verizon (VZ) and AT&T (T) were by no means the same Beta as GOOG and FB. I decried the move and in fact made the point of how that would help on the upside but magnify the downside when the market turned.
Hence, I disliked that ETF especially but also noticed promotions by otherwise logical analysts pushing Alpha ETF creations as if investors should go for the real momentum action. (That’s fine in the wake of a crash, and not yet. But certainly not while one is setting-up.)
Reuters: New communication sector's shine could soon wear off.
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Now of course we either crash fully or they grab hold of this.
My suspicion, by mentioning the lack of hysteria, is that might be yet to come. Most once hot FAANG stocks are now cold as ice. And you have a crowded trade that wants out--not into--those stocks. I am sure the promoters urging buying are aware of that.
All they have done is surrendered a few months of gains. In fact some are still up for the year. Not enough damage has been done. but enough technical clobbering occurred to get everyone's attention.
