Already Breaking Down

The first day of any quarter is usually a day when a torrent of automated money flows go into the stock market, helping lift the indices.  Today is not following the script.  And when a market doesn't follow a bullish script, it usually means there is a motivated seller out there.

I don't know why they would decide to dump stocks today instead of on Friday, at the end of the quarter, but the market tone is getting more risk averse, but with stubborn bullishness out there, it takes time for the market to finally make a firm bottom.  Last Monday was likely not a firm bottom, that can be relied on as a signal for a lengthy rally.  Today goes quite a ways to prove that point.  It is going to be messy this month, at least till you get enough weak hands to sell stocks and transfer them to strong hands.  That usually takes lower prices, and some fear.

What would be the fear event?  The obvious one to me would be the French elections, with Le Pen still having roughly a 20% probability of winning, according to the bookmakers.  But I am hearing that Le Pen supporters are quite passionate on social media, and they seem to be more motivated voters than the Macron/Fillon supporters.  I am sure the worries and risk aversion will increase as we get closer to the elections, probably peaking about 1 or 2 weeks ahead of the vote.  So perhaps sometime next week.

Oddly enough, I am hearing very few mentions of the French elections as a reason to de-risk, which means that there is still plenty more downside ahead near term.  I am still eyeing SPX 2300 as a much better support area for a dip buy.  This market still trades heavy, despite the intraday morning rallies.  We are barely above last Monday's close, despite seemingly rallying every morning on a gap down.  The unusual thing about the gap downs last week was that Europe was relatively strong, which would usually mean a gap up for the SPX, but that didn't happen.

Bonds are trading very strong today, stronger than what would be guessed by a 15 point drop in the SPX.  The short unwind is continuing in earnest, and by the time you get to mid April, it should mostly be complete.  That is where I will look to exit bonds.

Missed the short in S&P, thought we could get a rally to short today, but the market isn't complying.  Will not force the issue and short in the hole, but do think we will be lower than current levels by the end of the week.  I may entertain buying a dip if we can get to around 2300 next week.  If we get there this week, I may enter just 1/2, and wait to buy more next week.