Now We Have a Market

Finally getting some movement in the SPX.  This is the first day since the start of the selloff on September 7 where I'm seeing a little fear.  Add to that fear, the post options expirations forces of unhedged investors scrambling to add protection after their September puts expired.  That is a formula for a panicky down day (see September 20, 2020, July 19, 2021) that could mark a bottom.  If not the end of this selloff, but at least a 2 day bounce into an FOMC meeting where Powell will be dovish as usual after seeing the price action in stocks for the previous few days.  

The imminent Evergrande bankruptcy in China has been known for weeks, as its bonds have gotten crushed.  But I didn't start hearing about it from the 5-minute macro experts till this weekend.  Suddenly they are a bit worried.  That tells me its now basically priced into the Chinese market, probably overselling of Chinese stocks on this news. 

The market moves ahead of these headlines, and is often the reason they happen.  Just look at a couple of these charts, and those that are suddenly getting scared are late.  

China H Shares Index (underperforming SPX by 38% YTD)

BHP, One of the Biggest Iron Ore Miners

Let's not forget the budget deadline of September 30, and the debt ceiling that happens around the middle of October.  Not much talk about that, but its lingering and another fear catalyst for the coming weeks.  I am sure it is on the back of the minds of fund managers.  

Easily broke the SPX 4400 support level in overnight markets, so its really flushing out the weak hands (had huge fund inflows last week, as investors have been buying the dip!).  I recall last week seeing traders laugh at the pullback like its nothing and just another buying opportunity, so the inflows prove that kind of complacent attitude in this market.  They are not wrong in the long term, I just think they were a bit too eager to buy this dip, and got in early.  FOMO at play.  The big picture is still very bullish and uptrend is still very strong.  Fed is still way behind the tightening curve, so lots of room for this market to go higher later this year.  

Treasuries have been weak with the SPX all of last week, as it seems like investors are reluctant to get long ahead of this week's FOMC meeting, and the potential taper talk and revised dot plot.  I still hear a lot of people talk about yields going higher, even though its been in a tight range for the past 2 months, mostly trading between 1.22% and 1.38%.  A counterintuitive move to lower yields while the SPX makes a bottom and grinds higher again would not surprise me in the coming days and weeks.